<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 22, 1998
REGISTRATION NOS. 333-
333-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------
YORKSHIRE POWER GROUP LIMITED YORKSHIRE POWER FINANCE LIMITED
(EXACT NAME OF REGISTRANT AS (EXACT NAME OF REGISTRANT AS
SPECIFIED IN ITS CHARTER) SPECIFIED IN ITS CHARTER)
ENGLAND AND WALES CAYMAN ISLANDS
(STATE OR OTHER JURISDICTION OF (STATE OR OTHER JURISDICTION OF
INCORPORATION OR ORGANIZATION) INCORPORATION OR ORGANIZATION)
4911 4911
(PRIMARY STANDARD INDUSTRIAL (PRIMARY STANDARD INDUSTRIAL
CLASSIFICATION CODE NUMBER) CLASSIFICATION CODE NUMBER)
84-1393785 98-0179152
(I.R.S. EMPLOYER IDENTIFICATION (I.R.S. EMPLOYER IDENTIFICATION
NUMBER) NUMBER)
WETHERBY ROAD, SCARCROFT WETHERBY ROAD, SCARCROFT
LEEDS LS14 3HS, ENGLAND LEEDS LS14 3HS ENGLAND
011-44-113-289-2123 011-44-113-289-2123
(Address, including zip code, and (Address, including zip code, and
telephone number, including area telephone number, including area
code, of registrant's principal code, of registrant's principal
executive offices) executive offices)
--------------
ARMANDO A. PENA RICHARD C. KELLY
SENIOR VICE PRESIDENT, TREASURER AND EXECUTIVE VICE PRESIDENT, FINANCE
CHIEF FINANCIAL OFFICER AND SUPPORT SERVICES
AMERICAN ELECTRIC POWER SERVICE AND CHIEF FINANCIAL OFFICER
CORPORATION NEW CENTURY ENERGIES, INC.
1 RIVERSIDE PLAZA 1225 SEVENTEENTH STREET
COLUMBUS, OHIO 43215 DENVER, COLORADO 80502
614-223-2850 303-294-8989
(NAMES, ADDRESSES, INCLUDING ZIP CODES, AND TELEPHONE NUMBERS, INCLUDING AREA
CODES, OF AGENTS FOR SERVICE)
It is respectfully requested that the Commission send copies of all notices,
orders and communications to:
E. N. ELLIS, IV, ESQ. MARK WELLING, ESQ. ROGER DICKINSON, L.L.B.
DEWEY BALLANTINE LLP ALLEN & OVERY YORKSHIRE ELECTRICITY
1301 AVENUE OF THE ONE NEW CHANGE GROUP PLC
AMERICAS LONDON EC4M 9QQ, ENGLAND WETHERBY ROAD, SCARCROFT
NEW YORK, NEW YORK 10019 011-44-171-330-3000 LEEDS LS14 3HS, ENGLAND
212-259-8000 011-44-113-289-5055
--------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of the Registration Statement.
--------------
If any of the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
<TABLE>
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<CAPTION>
PROPOSED
MAXIMUM PROPOSED
OFFERING MAXIMUM
PRICE AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE PER UNIT OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED (1) PRICE (1) FEE
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Exchange Senior Notes of
Yorkshire Power Finance
Limited....................... $650,000,000 100% $650,000,000 $191,750
- --------------------------------------------------------------------------------
Exchange Notes Guarantee of
Yorkshire Power Group Limited
with respect to Exchange
Senior Notes(2)(3)............
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Total......................... $650,000,000 100% $650,000,000 $191,750
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- --------------------------------------------------------------------------------
</TABLE>
(1) Estimated for the sole purpose of computing the registration fee. Pursuant
to Rule 457(n) under the Securities Act, no separate fee is payable with
respect to the Yorkshire Power Group Limited Exchange Notes Guarantee (the
"Exchange Notes Guarantee").
(2) No separate consideration will be received for the Exchange Notes
Guarantee.
(3) This Registration Statement is deemed to cover the rights of holders of
Exchange Senior Notes under the Indenture and the rights of the holders of
such Exchange Senior Notes under the Exchange Notes Guarantee.
--------------
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF ANY OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED JULY 22, 1998
PROSPECTUS
$650,000,000
YORKSHIRE POWER FINANCE LIMITED
OFFER TO EXCHANGE ITS 6.154% SERIES B SENIOR NOTES DUE 2003 WHICH HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 FOR ANY AND ALL OF ITS OUTSTANDING
6.154% SERIES A SENIOR NOTES DUE 2003
AND
6.496% SERIES B SENIOR NOTES DUE 2008 WHICH HAVE BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 FOR ANY AND ALL OF ITS OUTSTANDING
6.496% SERIES A SENIOR NOTES DUE 2008
GUARANTEED BY
YORKSHIRE POWER GROUP LIMITED
----------
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK
CITY TIME, ON SEPTEMBER , 1998, UNLESS EXTENDED.
Yorkshire Power Finance Limited, a private company with limited liability
incorporated under the laws of the Cayman Islands ("Yorkshire Finance"), hereby
offers, upon the terms and subject to the conditions set forth in this
prospectus (as the same may be amended or supplemented from time to time, the
"Prospectus") and in the accompanying Letter of Transmittal (which together
constitute, in respect of each series of Original Securities (as defined
below), the "Exchange Offer"), to exchange (i) up to $350,000,000 aggregate
principal amount of its 6.154% Series B Senior Notes due 2003 (the "2003
Exchange Senior Notes") which have been registered under the Securities Act of
1933, as amended (the "Securities Act") pursuant to the Registration Statement
(as defined below) of which this Prospectus constitutes a part, for a like
aggregate principal amount of its 6.154% Series A Senior Notes due 2003 (the
"2003 Original Senior Notes") of which $350,000,000 aggregate principal amount
are issued and outstanding and (ii) up to $300,000,000 aggregate principal
amount of its 6.496% Series B Senior Notes due 2008 (the "2008 Exchange Senior
Notes" and, together with the 2003 Exchange Senior Notes, the "Exchange Senior
Notes") which have been registered under the Securities Act pursuant to the
Registration Statement of which this Prospectus constitutes a part, for a like
aggregate principal amount of its 6.496% Series A Senior Notes due 2008 (the
"2008 Original Senior Notes" and, together with the 2003 Original Senior Notes,
the "Original Senior Notes") of which $300,000,000 aggregate principal amount
are issued and outstanding. Yorkshire Power Group Limited, a private company
with limited liability incorporated under the laws of England and Wales
("Yorkshire Group"), has irrevocably and unconditionally guaranteed the due and
punctual payment of the Original Senior Notes (the "Original Notes Guarantee")
and will likewise guarantee payment of the Exchange Senior Notes (the "Exchange
Notes Guarantee"). The Exchange Notes Guarantee has also been registered under
the Securities Act.
Interest on the Exchange Senior Notes will be payable semi-annually in
arrears on April 15 and October 15 of each year, commencing October 15, 1998.
The 2003 Exchange Senior Notes will mature on February 25, 2003 and the 2008
Exchange Senior Notes will mature on February 25, 2008, all at their principal
amount unless previously redeemed.
Although each Exchange Offer is being conducted simultaneously, and is
scheduled to expire at the same time, the closing of one Exchange Offer is not
conditioned on the closing of the other. The Exchange Senior Notes and the
Exchange Notes Guarantee are collectively referred to herein as the "Exchange
Securities" and the Original Senior Notes and the Original Notes Guarantee are
collectively referred to herein as the "Original Securities."
(Continued on next page)
This Prospectus and the Letter of Transmittal are first being mailed to all
holders of Original Senior Notes on , 1998.
SEE "RISK FACTORS" COMMENCING ON PAGE FOR CERTAIN INFORMATION THAT SHOULD
BE CONSIDERED BY HOLDERS IN DECIDING WHETHER TO TENDER ORIGINAL SENIOR NOTES IN
THE EXCHANGE OFFER.
----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
----------
THE DATE OF THIS PROSPECTUS IS , 1998.
<PAGE>
The Exchange Senior Notes of each series and the Original Senior Notes of
each series (collectively, the "Senior Notes") will be direct, unsecured and
unsubordinated obligations of Yorkshire Finance ranking pari passu with all
other unsecured and unsubordinated obligations of Yorkshire Finance (other
than those obligations preferred by operation of law). Yorkshire Group will
irrevocably and unconditionally guarantee the due and punctual payment of the
principal of and premium, if any, and interest on each series of the Exchange
Senior Notes when and as the same shall become due and payable, whether at
maturity, upon redemption or otherwise. The Exchange Notes Guarantee will be a
direct, unsecured and unsubordinated obligation of Yorkshire Group ranking
pari passu with all other unsecured and unsubordinated obligations of
Yorkshire Group (other than those obligations preferred by operation of law).
At March 31, 1998, Yorkshire Group had (Pounds)1,514 million ($2,538 million)
of unsecured and unsubordinated debt outstanding. At March 31, 1998, the
direct and indirect subsidiaries of Yorkshire Group had total indebtedness
(excluding indebtedness owed to Yorkshire Group) of approximately
(Pounds)1,050 million ($1,760 million). See "Capitalization." The Indenture
(as defined herein) contains no restrictions on the amount of additional
indebtedness that may be incurred by Yorkshire Group and its subsidiaries,
including Yorkshire Finance; however, the Indenture contains restrictions on
the ability of Yorkshire Finance, Yorkshire Group and any Significant
Subsidiaries (as defined herein) to incur secured indebtedness.
The Exchange Senior Notes of each series will be redeemable, in whole but
not in part, at a price equal to the principal amount thereof, plus any
accrued and unpaid interest thereon, in the event of certain tax law changes
and other events requiring the payment of Additional Amounts (as defined
herein). The Exchange Senior Notes of each series may also be redeemed in
whole or in part at the option of the Yorkshire Finance at any time, on not
less than 30 days' notice by mail prior to the redemption date, at a price
equal to the greater of (i) 100% of the principal amount of the Exchange
Senior Notes of such series being redeemed and (ii) the sum of the present
values of the remaining scheduled payments of principal of and interest on the
Exchange Senior Notes of such series being redeemed (excluding the portion of
any such interest accrued to the date of redemption) discounted (for purposes
of determining present value) to the date of redemption on a semi-annual basis
(assuming a 360 day year consisting of twelve 30 day months) at a discount
rate equal to the Treasury Yield (as defined herein) plus 10 basis points, in
the case of the 2003 Exchange Senior Notes, and 20 basis points, in the case
of the 2008 Exchange Senior Notes, plus, in either case, accrued interest
thereon to the date of redemption. The Exchange Senior Notes will not be
subject to any sinking fund.
The terms of the Exchange Securities are identical in all material respects
to the respective terms of the Original Securities, except that (i) the
Exchange Securities have been registered under the Securities Act and,
therefore, will not be subject to certain restrictions on transfer applicable
to the Original Securities and (ii) the Exchange Senior Notes will not provide
for any increase in the interest rate thereon. See "Description of the
Exchange Senior Notes" and "Description of the Original Securities." The
Exchange Senior Notes are being offered for exchange in order to satisfy
certain obligations of Yorkshire Power and Yorkshire Finance under the
Registration Rights Agreement dated February 25, 1998 (the "Registration
Rights Agreement") among Yorkshire Power, Yorkshire Group and the Initial
Purchasers (as defined below). In the event that the Exchange Offer is
consummated, any Original Senior Notes which remain outstanding after
consummation of the Exchange Offer and the Exchange Senior Notes issued in the
Exchange Offer will vote as a single class for purposes of determining whether
holders of the requisite percentage in outstanding principal amount thereof
have taken certain actions or exercised certain rights under the Indenture (as
defined below).
Yorkshire Finance is making the Exchange Offer of the Exchange Senior Notes
in reliance on the position of the staff of the Division of Corporation
Finance of the Securities and Exchange Commission (the "Commission") as set
forth in certain interpretive letters addressed to third parties in other
transactions. However, neither Yorkshire Finance nor Yorkshire Group has
sought its own interpretive letter and there can be no assurance that the
staff of the Division of Corporation Finance of the Commission would make a
similar determination with respect to the Exchange Offer as it has in such
interpretive letters to third parties. Based on these interpretations by the
staff of the Division of Corporation Finance of the Commission, and subject to
the two immediately following sentences, Yorkshire Finance and Yorkshire Group
believe that Exchange Senior
2
<PAGE>
Notes issued pursuant to this Exchange Offer in exchange for Original Senior
Notes may be offered for resale, resold or otherwise transferred by a holder
thereof (other than a holder who is a broker-dealer) without further
compliance with the registration and prospectus delivery requirements of the
Securities Act, provided that such Exchange Senior Notes are acquired in the
ordinary course of such holder's business and that such holder is not
participating, and has no arrangement or understanding with any person to
participate, in a distribution (within the meaning of the Securities Act) of
such Exchange Senior Notes. However, any holder of Original Senior Notes who
is an "affiliate" of Yorkshire Finance or Yorkshire Group or who intends to
participate in the Exchange Offer for the purpose of distributing Exchange
Senior Notes, or any broker-dealer who purchased Original Senior Notes from
Yorkshire Finance to resell pursuant to Rule 144A under the Securities Act
("Rule 144A") or any other available exemption under the Securities Act, (a)
will not be able to rely on the interpretations of the staff of the Division
of Corporation Finance of the Commission set forth in the above-mentioned
interpretive letters, (b) will not be permitted or entitled to tender such
Original Senior Notes in the Exchange Offer and (c) must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any sale or other transfer of such Original Senior Notes
unless such sale is made pursuant to an exemption from such requirements. In
addition, as described below, if any broker-dealer holds Original Senior Notes
acquired for its own account as a result of market-making or other trading
activities and exchanges such Original Senior Notes for Exchange Senior Notes,
then such broker-dealer must deliver a prospectus meeting the requirements of
the Securities Act in connection with any resales of such Exchange Senior
Notes.
Each holder of Original Senior Notes who wishes to exchange Original Senior
Notes for Exchange Senior Notes in the Exchange Offer will be required to
represent that (i) it is not an "affiliate" of Yorkshire Group or Yorkshire
Finance, (ii) any Exchange Senior Notes to be received by it are being
acquired in the ordinary course of its business, (iii) it has no arrangement
or understanding with any person to participate in a distribution (within the
meaning of the Securities Act) of such Exchange Senior Notes and (iv) if such
holder is not a broker-dealer, such holder is not engaged in, and does not
intend to engage in, a distribution (within the meaning of the Securities Act)
of such Exchange Senior Notes. In addition, Yorkshire Finance and Yorkshire
Group may require such holder, as a condition to such holder's eligibility to
participate in the Exchange Offer, to furnish to Yorkshire Group and Yorkshire
Finance (or an agent thereof) in writing information as to the number of
"beneficial owners" (within the meaning of Rule 13d-3 under the Securities
Exchange Act of 1934, as amended (the "Exchange Act")) on behalf of whom such
holder holds the Original Senior Notes to be exchanged in the Exchange Offer.
Each broker-dealer that receives Exchange Senior Notes for its own account
pursuant to the Exchange Offer must acknowledge that it acquired the Original
Senior Notes for its own account as the result of market-making activities or
other trading activities and must agree that it will deliver a prospectus
meeting the requirements of the Securities Act in connection with any resale of
such Exchange Senior Notes. The Letter of Transmittal states that by so
acknowledging and by delivering a prospectus, a broker-dealer will not be deemed
to admit that it is an "underwriter" within the meaning of the Securities Act.
Based on the position taken by the staff of the Division of Corporation Finance
of the Commission in the interpretive letters referred to above, Yorkshire Group
and Yorkshire Finance believe that broker-dealers who acquired Original Senior
Notes for their own accounts, as a result of market-making activities or other
trading activities ("Participating Broker-Dealers"), may fulfill their
prospectus delivery requirements with respect to the Exchange Senior Notes which
represent an unsold allotment from the initial sale of the Original Senior Notes
with a prospectus meeting the requirements of the Securities Act, which may be
the prospectus prepared for an exchange offer so long as it contains a
description of the plan of distribution with respect to the resale of such
Exchange Senior Notes. Accordingly, this Prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer during the period
referred to below in connection with resales of Exchange Senior Notes received
in exchange for Original Senior Notes acquired by such broker-dealer as a result
of market-making activities or other trading activities. Yorkshire Group and
Yorkshire Finance have agreed that, for a period not exceeding 180 days after
the Expiration Date (as defined herein), they will make this Prospectus
available to any broker-dealer for use in connection with any such resale. See
"Plan of Distribution." However, a Participating Broker-Dealer who intends to
use this Prospectus in connection with the resale of Exchange Senior Notes
received in exchange for Original Senior Notes pursuant to the Exchange Offer
must notify Yorkshire Group or Yorkshire Finance or cause Yorkshire Group or
Yorkshire Finance to be notified, on or prior to the Expiration Date, that it
3
<PAGE>
is a Participating Broker-Dealer. Such notice may be given in the space
provided for that purpose in the Letter of Transmittal or may be delivered to
the Exchange Agent at the address set forth herein under "The Exchange Offer--
Exchange Agent." Any Participating Broker-Dealer who is an "affiliate" of
Yorkshire Group or Yorkshire Finance may not rely on such interpretive letters
and must comply with the registration and prospectus delivery requirements of
the Securities Act in connection with any resale transaction. See "The
Exchange Offer--Resales of Exchange Senior Notes."
In that regard, each Participating Broker-Dealer who surrenders Original
Senior Notes pursuant to the Exchange Offer will be deemed to have agreed, by
execution of the Letter of Transmittal or delivery of an Agent's Message (as
defined herein), that upon receipt of notice from Yorkshire Group or Yorkshire
Finance of the occurrence of any event or the discovery of any fact which
makes any statement contained in this Prospectus untrue in any material
respect or which causes this Prospectus to omit to state a material fact
necessary in order to make the statements contained herein, in light of the
circumstances under which they were made, not misleading or of the occurrence
of certain other events specified in the Registration Rights Agreement, such
Participating Broker-Dealer will suspend the sale of Exchange Senior Notes
pursuant to this Prospectus until Yorkshire Finance or Yorkshire Group has
amended or supplemented this Prospectus to correct such misstatement or
omission and has furnished copies of the amended or supplemented Prospectus to
such Participating Broker-Dealer, or Yorkshire Finance or Yorkshire Group has
given notice that the sale of the Exchange Senior Notes may be resumed, as the
case may be. If Yorkshire Group or Yorkshire Finance gives such notice to
suspend the sale of the Exchange Senior Notes, it shall extend the 180-day
period referred to above during which Participating Broker-Dealers are
entitled to use this Prospectus in connection with the resale of Exchange
Senior Notes by the number of days during the period from and including the
date of the giving of such notice to and including the date when Participating
Broker-Dealers shall have received copies of the amended or supplemented
Prospectus necessary to permit resales of the Exchange Senior Notes or to and
including the date on which Yorkshire Finance or Yorkshire Group has given
notice that the sale of Exchange Senior Notes may be resumed, as the case may
be.
Prior to the Exchange Offer, there has been only a limited secondary and no
public market for the Original Senior Notes. The Exchange Senior Notes will be
a new issue of securities for which there currently is no market. Although
Merrill Lynch, Pierce, Fenner & Smith Incorporated, Salomon Brothers Inc, J.P.
Morgan Securities Inc., Morgan Stanley & Co. Incorporated and UBS Securities
LLC, the initial purchasers of the Original Senior Notes (the "Initial
Purchasers"), have informed Yorkshire Finance and Yorkshire Group that they
each currently intend to make a market in the Exchange Senior Notes, they are
not obligated to do so, and any such market making may be discontinued at any
time without notice. Accordingly, there can be no assurance as to the
development or liquidity of any market for the Exchange Senior Notes. The
Original Senior Notes are listed on the Luxembourg Stock Exchange. Application
will be made to list the Exchange Senior Notes on the Luxembourg Stock
Exchange.
Any Original Senior Notes not tendered and accepted in the Exchange Offer
will remain outstanding and will be entitled to all the same rights and will
be subject to the same limitations applicable thereto (except for those rights
which terminate upon consummation of the Exchange Offer). Following
consummation of the Exchange Offer, the holders of Original Senior Notes will
continue to be subject to all of the existing restrictions upon transfer
thereof and neither Yorkshire Finance nor Yorkshire Group will have any
further obligation to such holders (other than under certain limited
circumstances) to provide for registration under the Securities Act of the
Original Senior Notes held by them. To the extent that Original Senior Notes
are tendered and accepted in the Exchange Offer, a holder's ability to sell
untendered Original Senior Notes could be adversely affected. See "Risk
Factors--Consequences of a Failure to Exchange Original Senior Notes."
THIS PROSPECTUS AND THE RELATED LETTER OF TRANSMITTAL CONTAIN IMPORTANT
INFORMATION. HOLDERS OF ORIGINAL SENIOR NOTES ARE URGED TO READ THIS
PROSPECTUS AND THE RELATED LETTER OF TRANSMITTAL CAREFULLY BEFORE DECIDING
WHETHER TO TENDER THEIR ORIGINAL SENIOR NOTES PURSUANT TO THE EXCHANGE OFFER.
4
<PAGE>
Original Senior Notes may be tendered for exchange on or prior to 5:00 p.m.,
New York City time, on September , 1998 (such time on such date being
hereinafter called the "Expiration Date"), unless the Exchange Offer is
extended by Yorkshire Group or Yorkshire Finance (in which case the term
"Expiration Date" shall mean the latest date and time to which the Exchange
Offer is extended). Tenders of Original Senior Notes may be withdrawn at any
time on or prior to the Expiration Date. The Exchange Offer is not conditioned
upon any minimum principal of Original Senior Notes being tendered for
exchange. However, the Exchange Offer is subject to certain events and
conditions which may be waived by Yorkshire Group or Yorkshire Finance and to
the terms and provisions of the Registration Rights Agreement. Original Senior
Notes may be tendered in whole or in part and in any integral multiple of
$1,000. Yorkshire Group and Yorkshire Finance have agreed to pay all expenses
of the Exchange Offer. See "The Exchange Offer--Fees and Expenses."
Holders of the Original Senior Notes whose Original Senior Notes are
accepted for exchange will not receive interest on such Original Senior Notes
and will be deemed to have waived the right to receive any interest on such
Original Senior Notes accumulated from and including February 25, 1998.
Holders of Exchange Senior Notes as of the record date for the payment of
interest on October 15, 1998 will be entitled to receive interest accruing
from and including February 25, 1998. See "The Exchange Offer--Interest on
Exchange Senior Notes."
Neither Yorkshire Finance nor Yorkshire Group will receive any cash proceeds
from the issuance of the Exchange Senior Notes offered hereby. No dealer-
manager is being used in connection with this Exchange Offer. See "Use of
Proceeds" and "Plan of Distribution."
As used herein, as the context may require, (i) the term "Senior Notes"
includes the Original Senior Notes and the Exchange Senior Notes and (ii) the
term "Guarantee" includes the Original Notes Guarantee and the Exchange Notes
Guarantee.
5
<PAGE>
AVAILABLE INFORMATION
Yorkshire Group is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith will file reports and other information with the
Securities and Exchange Commission (the "Commission"). Such reports and other
information may be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549 and at the Commission's regional offices at 7 World Trade Center,
13th Floor, Suite 1300, New York, New York 10048 and Suite 1400, Citicorp
Center, 500 West Madison Street, Chicago, Illinois 60661. Copies of such
material may also be obtained by mail from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed
rates. The Commission maintains a Web site that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission (http://www.sec.gov).
Yorkshire Group and Yorkshire Finance have filed with the Commission a
registration statement on Form S-4 (herein, together with all amendments and
exhibits thereto, referred to as the "Registration Statement") under the
Securities Act of 1933, as amended (the "Securities Act"). This Prospectus
does not contain all of the information set forth in the Registration
Statement, certain parts of which are omitted in accordance with the rules and
regulations of the Commission. For further information, reference is hereby
made to the Registration Statement.
No separate financial statements of Yorkshire Finance have been included
herein. Yorkshire Group does not consider that such financial statements would
be material to holders of the Senior Notes because Yorkshire Finance has no
operating history or independent operations and is not engaged in and does not
propose to engage in any activity other than acting as a financing subsidiary
of Yorkshire Group and its affiliates. See "Summary" and "Description of the
Exchange Senior Notes". In addition, Yorkshire Group does not expect that
Yorkshire Finance will file reports, proxy statements and other information
under the Exchange Act with the Commission.
ENFORCEABILITY OF CIVIL LIABILITIES
Yorkshire Group is a private company with limited liability incorporated
under the laws of England and Wales. Yorkshire Finance is a limited liability
company incorporated under the laws of the Cayman Islands. Substantially all
the assets of Yorkshire Group and Yorkshire Finance are located outside the
United States of America (the "US"). As a result, it may not be possible for
investors to effect service of process within the US upon Yorkshire Group and
Yorkshire Finance or to enforce against it judgments of US courts predicated
upon civil liabilities under US Federal securities laws. There is doubt as to
the enforceability in England and the Cayman Islands, in original actions or
in actions for enforcement of judgments of US courts, of civil liabilities
predicated upon US Federal securities laws.
The Senior Notes, the Guarantee and the Indenture will be governed by, and
will be construed in accordance with, the laws of the State of New York.
Yorkshire Group and Yorkshire Finance have submitted to the non-exclusive
jurisdiction of the Supreme Court of New York, New York County and the United
States District Court for the Southern District of New York and any appellate
court from either thereof for any legal suit, action or proceeding against
Yorkshire Group and Yorkshire Finance or their properties, assets or revenues
with respect to their obligations, liabilities or any other matter arising out
of or in connection with the Exchange Senior Notes, the Guarantee and the
Indenture (as defined under "Description of the Exchange Senior Notes"). See
"Description of the Exchange Senior Notes--Governing Law; Submission to
Jurisdiction" and "--Exchange Notes Guarantee".
6
<PAGE>
PRESENTATION OF CERTAIN INFORMATION AND EXCHANGE RATES
Yorkshire Group will publish its consolidated financial statements in pounds
sterling. In this Prospectus, references to "pounds sterling," "pence" or
"(Pounds)" are to currency of the United Kingdom ("UK") and references to "US
dollars", "US$" or "$" are to US currency. As used herein, "US GAAP" means US
generally accepted accounting principles. References to "Lv" are to low volts,
"MW" are to megawatts, "kW" are to kilowatts, "kWh" are to kilowatt hours,
"kV" are to kilovolts, "GWh" are to gigawatt hours and "km" are to kilometers.
All references herein to "Fiscal Year" mean a year ended March 31.
For the convenience of the reader, this Prospectus contains translations of
certain pounds sterling amounts into US dollars at specified rates, or, if not
so specified, the noon buying rate in New York City for cable transfers in
pounds sterling as certified for customs purposes by the Federal Reserve Bank
of New York (the "Noon Buying Rate") on March 31, 1998 of $1.6765 = (Pounds)1.
No representation is made that the pounds sterling amounts have been, could
have been or could be converted into US dollars at the rates indicated or at
any other rates.
The following table sets out, for the periods indicated, certain information
concerning the exchange rates between UK Pounds sterling and US dollars based
on the Noon Buying Rates:
<TABLE>
<CAPTION>
FISCAL YEAR PERIOD END AVERAGE(1) HIGH LOW
----------- -------------------- ---------- ---- ----
($ PER (Pounds)1.00)
<S> <C> <C> <C> <C>
1993............................... 1.50 1.68 2.00 1.42
1994............................... 1.49 1.50 1.59 1.46
1995............................... 1.62 1.56 1.65 1.49
1996............................... 1.53 1.56 1.62 1.50
1997............................... 1.65 1.60 1.71 1.50
1998............................... 1.68 1.65 1.70 1.58
==== ==== ==== ====
</TABLE>
- --------
(1) The average of the Noon Buying Rates in effect on the last business day of
each month during the relevant period.
On , 1998, the Noon Buying Rate was $ = (Pounds)1.
UK SELLING RESTRICTIONS
The Exchange Senior Notes may not be offered or sold and, prior to the date
six months after the date of issue of the Exchange Senior Notes, will not be
offered or sold to persons in the UK, except to persons whose ordinary
activities involve them in acquiring, holding, managing or disposing of
investments (as principal or agent) for the purposes of their businesses or
otherwise in circumstances which have not resulted and will not result in an
offer to the public within the meaning of The Public Offers of Securities
Regulations 1995. All applicable provisions of the Financial Services Act 1986
with respect to anything done in relation to the Exchange Senior Notes in,
from or otherwise involving the UK must be complied with. This Prospectus may
only be issued or passed on to any person in the UK if that person is of a
kind described in Article 11(3) of the Financial Services Act 1986 (Investment
Advertisements) (Exemptions) Order 1996 (as amended) or is a person to whom
the document may otherwise lawfully be issued or passed on.
CAYMAN ISLANDS SELLING RESTRICTIONS
No invitation to purchase any Exchange Senior Notes, whether directly or
indirectly, may be made to the public in the Cayman Islands.
7
<PAGE>
FORWARD LOOKING STATEMENTS
Certain statements in this Prospectus under the captions "Summary", "Risk
Factors", "Management's Discussion and Analysis of Financial Condition and
Results of Operations", "Business", "The Electric Utility Industry in Great
Britain" and elsewhere constitute forward looking statements. Such forward
looking statements involve known and unknown risks, uncertainties and other
important factors that could cause the actual results, performance or
achievements of the Yorkshire Group or any of its subsidiaries or industry
results, to differ materially from any future results, performance or
achievements expressed or implied by such forward looking statements. Such
risks, uncertainties and other important factors include, among others:
general economic and business conditions in the UK, the Franchise Area (as
defined under "Summary--Yorkshire Electricity Group plc") and elsewhere;
currency fluctuations; governmental, statutory, regulatory or administrative
initiatives affecting Yorkshire Group, Yorkshire or the UK electric and gas
utilities industries; general industry trends; competition; the cost and
availability of electricity, gas and other alternative energy sources; hedging
costs; changes in business strategy, development plans or vendor
relationships; availability, terms and deployment of capital; availability of
qualified personnel; increased rates of taxes or other changes in tax law;
changes in, or the failure or inability to comply with, governmental
regulation, including, without limitation, environmental regulations; and
other factors referenced in this Prospectus. These forward looking statements
speak only as of the date of this Prospectus.
8
<PAGE>
SUMMARY
The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed financial and other information contained
elsewhere in this Prospectus.
YORKSHIRE POWER GROUP LIMITED
Yorkshire Group was incorporated as a private company with limited liability
under the laws of England and Wales in July 1996 and is indirectly owned by
American Electric Power Company, Inc. ("AEP") and New Century Energies, Inc.
("NCE" and, together with AEP, the "US Parents"). Each of the US Parents
indirectly owns 50% of the outstanding shares of Yorkshire Group. In 1997,
Yorkshire Group was utilized in connection with the joint acquisition of
Yorkshire by the US Parents for approximately (Pounds)1.5 billion (the
"Acquisition"). Yorkshire Group holds all the outstanding shares of Yorkshire
Holdings plc ("Yorkshire Holdings"), which is its primary asset. Yorkshire
Holdings, in turn, beneficially owns all the outstanding shares of Yorkshire.
See "Yorkshire Group and the US Parents".
YORKSHIRE POWER FINANCE LIMITED
Yorkshire Finance, a subsidiary of Yorkshire Group, was incorporated as a
company with limited liability under the laws of the Cayman Islands in August
1997. Yorkshire Finance exists solely for the purpose of operating as a
financing vehicle for Yorkshire Group and its affiliates. See "Yorkshire Group
and the US Parents".
YORKSHIRE ELECTRICITY GROUP PLC
Yorkshire is one of twelve regional electricity companies ("RECs") in England
and Wales licensed to distribute, supply and, to a limited extent, generate
electricity. Yorkshire's two principal businesses are the "distribution
business" and the "supply business". Yorkshire's distribution business consists
of the distribution of electricity to approximately two million residential,
commercial and industrial customers in its Franchise Area. Substantially all of
the distribution business is a regulated monopoly. Yorkshire's supply business
consists of the purchase and supply of electricity primarily to customers
within the Franchise Area. As discussed below under "Business--Business
Restructuring", beginning in late 1998, Yorkshire will operate the distribution
and supply businesses as self-sufficient businesses.
Yorkshire is authorized under its Public Electricity Supply License (the "PES
License") to distribute and supply electricity in an area covering
approximately 10,000 square km (3,860 square miles), which encompasses the
counties of West Yorkshire, East Yorkshire and almost all of South Yorkshire,
together with parts of North Yorkshire, Derbyshire, Nottinghamshire,
Lincolnshire and Lancashire (the "Franchise Area"). The resident population of
the Franchise Area served by Yorkshire is approximately 4.4 million. The
regional economy is diverse, including traditional heavy industries such as
iron, steel and coal mining, as well as growing service sector activities such
as finance, retailing and leisure. Centrally located in the UK, the region is
also well served by roads, railways, airports and ports which provide access to
other European markets.
Pursuant to its PES License, Yorkshire owns, manages and operates the
electricity distribution network within the Franchise Area. The primary
activity of the distribution business is the receipt of electricity from the
national grid transmission system and its distribution to end users connected
to Yorkshire's distribution network. Since the distribution business is
substantially a regulated monopoly, virtually all electricity supplied (whether
by Yorkshire's supply business or by any other suppliers) to consumers within
the Franchise Area is transported through Yorkshire's distribution network.
Yorkshire Group believes that economic, environmental and regulatory
9
<PAGE>
factors are likely to prevent competitors from entering the distribution
business in the Franchise Area. See "Business--Distribution Business" and "--
Business Restructuring".
Yorkshire's supply business consists of selling electricity to end users and
purchasing such electricity and arranging for its distribution to those end
users. Within the Franchise Area, Yorkshire has an exclusive right to supply
electricity to consumers who, within the most recent twelve-month period, have
had an average peak demand ("Peak Demand") of not more than 100 kW in the three
months of highest maximum demand during such period ("Franchise Supply
Customers"). This exclusive right will continue until September 1998 when the
supply market for these customers is currently scheduled to become competitive
over a six-month phase-in period. The supply of electricity to Non-Franchise
Supply Customers (as defined below) is currently open to competition and
Yorkshire is able to competitively bid or negotiate to supply electricity to
such customers. By purchasing electricity at competitive rates from most of the
major power generators in the UK and providing high quality customer service,
Yorkshire has been able to sustain its position as one of the largest national
suppliers of electricity. "Non-Franchise Supply Customers" are consumers, both
inside and outside of Yorkshire's Franchise Area, who, within the most recent
twelve month period, have had an average Peak Demand of more than 100 kW in the
three months of highest maximum demand during such period. See "Business--
Supply Business" and "--Business Restructuring".
The operations of Yorkshire are regulated under its PES License, pursuant to
which income generated by Yorkshire's distribution business and income derived
from Franchise Supply Customers are subject to a price cap regulatory framework
providing economic incentives to operate in a cost-effective manner, and, to a
limited extent, to increase the volume of electricity distributed. See "The
Electric Utility Industry in Great Britain".
Yorkshire also conducts ancillary business activities apart from the
distribution and supply businesses that are not subject to price regulation,
such as owning an interest in an off-shore gas field, supplying gas in the
competitive market and holding interests in power generation. See "Business--
Affiliate Businesses and Other Investments" and "--Business Restructuring".
10
<PAGE>
THE EXCHANGE SECURITIES
Securities Offered.............. Yorkshire Finance will offer up to
$350,000,000 aggregate principal amount
of the 2003 Exchange Senior Notes which
have been registered under the Securities
Act and up to $300,000,000 aggregate
principal amount of the 2008 Exchange
Senior Notes which have been registered
under the Securities Act. The Exchange
Senior Notes will be issued and the
Original Senior Notes were issued under
the Indenture. The Exchange Senior Notes
and any Original Senior Notes which
remain outstanding after consummation of
the Exchange Offer will vote together as
a single class for purposes of
determining whether holders of the
requisite percentage in outstanding
principal amount thereof have taken
certain actions or exercised certain
rights under the Indenture. The terms of
the Exchange Senior Notes are identical
in all material respects to the terms of
the Original Senior Notes, except that
the Exchange Senior Notes have been
registered under the Securities Act and
will not be subject to certain
restrictions on transfer applicable to
the Original Senior Notes and will not
provide for any increase in the interest
rate thereon. See "The Exchange Offer--
Purpose of the Exchange Offer",
"Description of the Exchange Senior
Notes" and "Description of the Original
Securities."
Interest Payment Dates.......... The interest payment dates for each
series of the Exchange Senior Notes will
be April 15 and October 15, commencing
October 15, 1998.
Exchange Notes Guarantee........ Yorkshire Group will issue a guarantee
which will fully and unconditionally
guarantee the due and punctual payment of
principal of and premium, if any, and
interest on the Exchange Senior Notes.
See "Description of the Exchange Senior
Notes--Exchange Notes Guarantee".
Ratings......................... The Exchange Senior Notes of each series
are expected to be assigned ratings of
BBB+ by Standard & Poor's Ratings
Services ("S&P"), BBB+ by Duff & Phelps
Credit Rating Company ("DCR") and Baa2 by
Moody's Investors Service, Inc.
("Moody's"). These ratings will have been
obtained with the understanding that S&P,
DCR and Moody's will continue to monitor
the credit rating of Yorkshire Finance
and Yorkshire Group, and will make future
adjustments to the extent warranted. A
rating reflects only the views of S&P,
DCR or Moody's, as the case may be, and
is not a recommendation to buy, sell or
hold the Exchange
11
<PAGE>
Senior Notes. There is no assurance that
any such rating will be retained for any
given period of time or that it will not
be revised downward or withdrawn entirely
by S&P, DCR or Moody's, as the case may
be, if, in their respective judgments,
circumstances so warrant.
Ranking......................... The Exchange Notes Guarantee. The
Exchange Notes Guarantee will be a
direct, unsecured and unsubordinated
obligation of Yorkshire Group ranking
pari passu with all other unsecured and
unsubordinated obligations of Yorkshire
Group (other than those obligations
preferred by operation of law). At March
31, 1998, Yorkshire Group had unsecured
and unsubordinated debt outstanding in
the amount of (Pounds)1,514 million
($2,538 million). Because Yorkshire Group
is a holding company, Yorkshire Group's
obligations under the Exchange Notes
Guarantee will effectively be
subordinated to all existing and future
indebtedness and liabilities of the
subsidiaries of Yorkshire Group (other
than Yorkshire Finance or similar
financing vehicles for Yorkshire Group),
including Yorkshire. At March 31, 1998,
the direct and indirect subsidiaries of
Yorkshire Group had total indebtedness
(excluding indebtedness owed to Yorkshire
Group) of approximately (Pounds)1,050
million ($1,760 million). See "Risk
Factors--Holding Company Structure;
Ranking".
The Exchange Senior Notes. The Exchange
Senior Notes will be direct, unsecured
and unsubordinated obligations of
Yorkshire Finance ranking pari passu with
all other unsecured and unsubordinated
obligations of Yorkshire Finance (other
than those obligations preferred by
operation of law). See "Description of
the Exchange Senior Notes".
The Indenture contains no restrictions on
the amount of additional indebtedness
that may be incurred by Yorkshire Group
and its subsidiaries, including Yorkshire
Finance; however, the Indenture contains
restrictions on the ability of Yorkshire
Finance, Yorkshire Group and any
Significant Subsidiaries to incur secured
indebtedness. See "Description of the
Exchange Senior Notes--Covenants--
Limitation on Liens".
Optional Redemption............. The Exchange Senior Notes of each series
will be redeemable in whole or in part at
the option of Yorkshire Finance at any
time, on not less than 30 days' notice
prior to the redemption date, at a price
equal to the greater of (i) 100% of the
principal amount of the Exchange Senior
Notes of such series being redeemed
12
<PAGE>
and (ii) the sum of the present values of
the remaining scheduled payments of the
principal of and interest on such series
being redeemed (excluding the portion of
any such interest accrued to the date of
redemption) discounted (for purposes of
determining present value) to the date of
redemption on a semi-annual basis
(assuming a 360-day year consisting of
twelve 30-day months) at a discount rate
equal to the Treasury Yield (as defined
herein) plus 10 basis points, in the case
of the 2003 Exchange Senior Notes, and 20
basis points, in the case of the 2008
Exchange Senior Notes, plus, in either
case, accrued interest thereon to the
date of redemption. The Exchange Senior
Notes will not be subject to any sinking
fund. See "Description of the Exchange
Senior Notes--Optional Redemption".
Additional Amounts.............. Subject to certain exceptions, all
payments of principal, premium, if any,
interest and other amounts due in respect
of the Exchange Senior Notes and the
Exchange Notes Guarantee will be made
free and clear of, and without
withholding or deduction for or on
account of, any Gross-Up Taxes (as
defined herein), unless such withholding
or deduction is required by law. In the
event of any such withholding or
deduction, Yorkshire Finance or Yorkshire
Group, as the case may be, will, subject
to certain limitations, pay Additional
Amounts in respect of such withholding or
deduction so that the holder receives the
amount that would have been due in the
absence of such withholding or deduction.
See "Description of the Exchange Senior
Notes--Additional Amounts". Any reference
in this Prospectus to the payment of
principal, premium, if any, or interest
with respect to the Exchange Senior Notes
or any payments pursuant to the Exchange
Notes Guarantee shall be deemed to
include any such Additional Amounts
payable in connection therewith.
Optional Tax Redemption......... In the event of changes in the laws or
regulations of (i) any supranational
federation to which the UK belongs or
(ii) the jurisdiction (or any political
subdivision or taxing authority thereof
or therein) in which Yorkshire Group or
Yorkshire Finance is incorporated or in
which Yorkshire Group or Yorkshire
Finance is managed and controlled or has
a place of business (each, a "Taxing
Jurisdiction") after the date hereof and
upon certain other events that would
obligate Yorkshire Finance or Yorkshire
Group to pay Additional Amounts, the
Exchange Senior Notes may be redeemed at
the option of Yorkshire Finance, in whole
but not in part, at a price equal to the
principal amount thereof, plus accrued
13
<PAGE>
interest thereon to the date of
redemption. See "Description of the
Exchange Senior Notes--Optional Tax
Redemption".
Listing......................... The Original Senior Notes are listed on
the Luxembourg Stock Exchange.
Application will be made to list the
Exchange Senior Notes on the Luxembourg
Stock Exchange.
Governing Law................... The Indenture, the Deposit Agreement (as
defined herein), the Exchange Senior
Notes and the Exchange Notes Guarantee
will be governed by, and construed in
accordance with, the laws of the State of
New York.
Form and Denomination........... Except as otherwise described herein, the
Exchange Senior Notes will be issued only
as one or more global Exchange Senior
Notes (the "Global Senior Notes") in
bearer form and will be payable only in
US dollars. Upon issuance, the Global
Senior Notes of each series will be
deposited with The Bank of New York (the
"Book-Entry Depositary"), which will hold
the Global Senior Notes for the benefit
of DTC and its participants. The Book-
Entry Depositary will issue to DTC, in
respect of each Global Senior Note, one
or more certificateless depositary
interests (the "Book-Entry Interests"),
which together will represent a 100%
beneficial interest in such Global Senior
Note. DTC will operate a system of
dealing in the Book-Entry Interests by
maintaining book-entries on its records.
Ownership of interests in the Book-Entry
Interests will be limited to persons who
have accounts with DTC ("Participants")
or persons who have accounts with
Participants ("Indirect Participants").
Interests in the Book-Entry Interests
will be shown on, and transfers thereof
will be effected only through, records
maintained by DTC and its Participants,
including depositaries for The Euroclear
System ("Euroclear") and Cedel Bank,
societe anonyme ("Cedel Bank").
The Exchange Senior Notes will not be
issuable in definitive bearer form.
Except in certain limited circumstances
described herein, Participants, Indirect
Participants and beneficial owners of the
Exchange Senior Notes will not be
entitled to receive physical delivery of
Senior Notes in definitive form issued
and registered in their names
("Definitive Registered Senior Notes")
and will not be considered the owners or
Holders of the Exchange Senior Notes
under the Indenture pursuant to which the
Exchange Senior Notes will be issued. See
"Description of the Exchange Senior
Notes--Form, Denomination, Book-Entry
Procedures and Transfer".
14
<PAGE>
Interests in the Book-Entry Interests and
the Definitive Registered Senior Notes,
if any, will be issued in minimum
denominations of $1,000 and integral
multiples thereof.
Trustee and Transfer Agent...... The Bank of New York.
Paying Agents................... The Bank of New York and Banque Generale
du Luxembourg S.A.
Book-Entry Depositary under
Deposit Agreement..............
The Bank of New York.
THE EXCHANGE OFFER
The Exchange Offer.............. Yorkshire Finance is offering to exchange
pursuant to the Exchange Offer (i) up to
$350,000,000 aggregate principal amount
of its 2003 Exchange Senior Notes for a
like aggregate principal amount of 2003
Original Senior Notes and (ii) up to
$300,000,000 aggregate principal amount
of its 2008 Exchange Senior Notes for a
like aggregate principal amount of 2008
Original Senior Notes. Original Senior
Notes may be tendered for exchange in
whole or in part and in any integral
multiple of $1,000. Yorkshire Group and
Yorkshire Finance are making the Exchange
Offer in order to satisfy their
obligations under the Registration Rights
Agreement relating to the Original Senior
Notes. For a description of the
procedures for tendering Original Senior
Notes, see "The Exchange Offer--
Procedures for Tendering Original Senior
Notes."
Expiration Date................. The Exchange Offer will expire at 5:00
p.m., New York City time, on September
, 1998, unless extended by Yorkshire
Group or Yorkshire Finance (in which case
the Expiration Date will be the latest
date and time to which the Exchange Offer
is extended). See "The Exchange Offer--
Terms of the Exchange Offer."
Conditions to the Exchange The Exchange Offer is subject to certain
Offer........................... conditions, which may be waived by
Yorkshire Group and Yorkshire Finance in
their sole discretion. The Exchange Offer
is not conditioned upon any minimum
principal amount of Original Senior Notes
being tendered. See "The Exchange Offer--
Conditions to the Exchange Offer."
Yorkshire Group and Yorkshire Finance
reserve the right in their sole and
absolute discretion, subject to
applicable law, at any time and from time
to time, (i) to delay the acceptance of
the Original Senior Notes for exchange,
(ii) to terminate the
15
<PAGE>
Exchange Offer if certain specified
conditions have not been satisfied, (iii)
to extend the Expiration Date of the
Exchange Offer and retain all Original
Senior Notes tendered pursuant to the
Exchange Offer, subject, however, to the
right of holders of Original Senior Notes
to withdraw their tendered Original
Senior Notes or (iv) to waive any
condition or otherwise amend the terms of
the Exchange Offer in any respect. See
"The Exchange Offer-- Terms of the
Exchange Offer."
Withdrawal Rights............... Tenders of Original Senior Notes may be
withdrawn at any time on or prior to the
Expiration Date by delivering a written
notice of such withdrawal to the Exchange
Agent in conformity with certain
procedures set forth below under "The
Exchange Offer--Withdrawal Rights."
Procedures for Tendering
Original Senior Notes...........
Tendering holders of Original Senior
Notes must complete and sign a Letter of
Transmittal in accordance with the
instructions contained therein and
forward the same by mail, facsimile or
hand delivery, together with any other
required documents, to the Exchange
Agent, either with evidence of ownership
of the Original Senior Notes to be
tendered or in compliance with the
specified procedures for guaranteed
delivery of Original Senior Notes.
Certain brokers, dealers, commercial
banks, trust companies and other nominees
may affect tenders by book-entry
transfer. Holders of Original Senior
Notes registered in the name of a broker,
dealer, commercial bank, trust company or
other nominee are urged to contact such
person promptly if they wish to tender
Original Senior Notes pursuant to the
Exchange Offer. See "The Exchange Offer--
Procedures for Tendering Original Senior
Notes."
Letters of Transmittal and supporting
documentation should not be sent to
Yorkshire Group or Yorkshire Finance.
Such documents should only be sent to the
Exchange Agent.
Resales of Exchange Senior Yorkshire Group and Yorkshire Finance are
Notes........................... making the Exchange Offer in reliance on
the position of the staff of the Division
of Corporation Finance of the Commission
as set forth in certain interpretive
letters addressed to third parties in
other transactions. However, neither
Yorkshire Group nor Yorkshire Finance has
sought its own interpretive letter and
there can be no assurance that the staff
of the Division of Corporation Finance of
the Commission would make a similar
determination with respect to the
Exchange Offer
16
<PAGE>
as it has in such interpretive letters to
third parties. Based on these
interpretations by the staff of the
Division of Corporation Finance of the
Commission, and subject to the two
immediately following sentences,
Yorkshire Group and Yorkshire Finance
believe that Exchange Senior Notes issued
pursuant to this Exchange Offer in
exchange for Original Senior Notes may be
offered for resale, resold and otherwise
transferred by a holder thereof (other
than a holder who is a broker-dealer)
without further compliance with the
registration and prospectus delivery
requirements of the Securities Act,
provided that such Exchange Senior Notes
are acquired in the ordinary course of
such holder's business and that such
holder is not participating, and has no
arrangement or understanding with any
person to participate, in a distribution
(within the meaning of the Securities
Act) of such Exchange Senior Notes.
However, any holder of Original Senior
Notes who is an "affiliate" of Yorkshire
Group or Yorkshire Finance or who intends
to participate in the Exchange Offer for
the purpose of distributing the Exchange
Senior Notes, or any broker-dealer who
purchased the Original Senior Notes from
Yorkshire Finance to resell pursuant to
Rule 144A or any other available
exemption under the Securities Act, (a)
will not be able to rely on the
interpretations of the staff of the
Division of Corporation Finance of the
Commission set forth in the above-
mentioned interpretive letters, (b) will
not be permitted or entitled to tender
such Original Senior Notes in the
Exchange Offer and (c) must comply with
the registration and prospectus delivery
requirements of the Securities Act in
connection with any sale or other
transfer of such Original Senior Notes
unless such sale is made pursuant to an
exemption from such requirements. In
addition, as described below, if any
broker-dealer holds Original Senior Notes
acquired for its own account as a result
of market-making or other trading
activities and exchanges such Original
Senior Notes for Exchange Senior Notes,
then such broker-dealer must deliver a
prospectus meeting the requirements of
the Securities Act in connection with any
resales of such Exchange Senior Notes.
Each holder of Original Senior Notes who
wishes to exchange Original Senior Notes
for Exchange Senior Notes in the Exchange
Offer will be required to represent that
(i) it is not an "affiliate" of Yorkshire
Group or Yorkshire Finance, (ii) any
Exchange Senior Notes to be received by
it are being acquired in the ordinary
course of its business, (iii) at the time
of the
17
<PAGE>
commencement of the Exchange Offer, it
has no arrangement or understanding with
any person to participate in a
distribution (within the meaning of the
Securities Act) of such Exchange Senior
Notes and (iv) if such holder is not a
broker-dealer, such holder is not engaged
in, and does not intend to engage in, a
distribution (within the meaning of the
Securities Act) of such Exchange Senior
Notes. Each broker-dealer that receives
Exchange Senior Notes for its own account
in exchange for Original Senior Notes
must acknowledge that such Original
Senior Notes were acquired by such
broker-dealer as a result of market-
making activities or other trading
activities and must agree that it will
deliver a prospectus in connection with
any resale of such Exchange Senior Notes.
See "Plan of Distribution." The Letter of
Transmittal states that, by so
acknowledging and by delivering a
prospectus, a broker-dealer will not be
deemed to admit that it is an
"underwriter" within the meaning of the
Securities Act. Based on the position
taken by the staff of the Division of
Corporation Finance of the Commission in
the interpretive letters referred to
above, Yorkshire Group and Yorkshire
Finance believe that Participating
Broker-Dealers who acquired Original
Senior Notes for their own accounts as a
result of market-making activities or
other trading activities may fulfill
their prospectus delivery requirements
with respect to the Exchange Senior Notes
received upon exchange of such Original
Senior Notes (other than Original Senior
Notes which represent an unsold allotment
from the initial sale of the Original
Senior Notes) with a prospectus meeting
the requirements of the Securities Act,
which may be the prospectus prepared for
an exchange offer so long as it contains
a description of the plan of distribution
with respect to the resale of such
Exchange Senior Notes. Accordingly, this
Prospectus, as it may be amended or
supplemented from time to time, may be
used by a Participating Broker-Dealer in
connection with resales of Exchange
Senior Notes received in exchange for
Original Senior Notes where such Original
Senior Notes were acquired by such
Participating Broker-Dealer for its own
account as a result of market-making or
other trading activities. Subject to
certain provisions set forth in the
Registration Rights Agreement and to the
limitations described below under "The
Exchange Offer--Resales of Exchange
Senior Notes," Yorkshire Group and
Yorkshire Finance have agreed that this
Prospectus, as it may be amended or
supplemented from time to time, may be
used by a Participating Broker-Dealer in
connection with resales of such Exchange
Senior Notes
18
<PAGE>
for a period not exceeding 180 days after
the Expiration Date (subject to extension
under certain limited circumstances). See
"Plan of Distribution." Any Participating
Broker-Dealer who is an "affiliate" of
Yorkshire Group or Yorkshire Finance may
not rely on such interpretive letters and
must comply with the registration and
prospectus delivery requirements of the
Securities Act in connection with any
resale transaction. See "The Exchange
Offer--Resales of Exchange Senior Notes."
Exchange Agent.................. The exchange agent with respect to the
Exchange Offer is The Bank of New York
(the "Exchange Agent"). The address, and
telephone and facsimile numbers, of the
Exchange Agent are set forth in "The
Exchange Offer--Exchange Agent" and in
the Letter of Transmittal.
Use of Proceeds................. Neither Yorkshire Group nor Yorkshire
Finance will receive any cash proceeds
from the issuance of the Exchange Senior
Notes offered hereby. See "Use of
Proceeds."
Certain United States Federal
Income Tax Consequences; ERISA
Considerations..................
Holders of Original Senior Notes should
review the information set forth under
"Certain Federal Income Tax
Considerations" and "Certain ERISA
Considerations" prior to tendering
Original Senior Notes in the Exchange
Offer.
19
<PAGE>
SUMMARY FINANCIAL INFORMATION
The following table sets forth summary consolidated financial data for
Yorkshire Power Group Limited after March 31, 1997 ("Yorkshire Group" or the
"Successor Company") and Yorkshire Electricity Group plc ("Yorkshire" or the
"Predecessor Company") for each of the five Fiscal Years ended March 31, 1997
prepared in accordance with US GAAP. For a description of the financial
statements and records from which the following financial data have been
derived, see "Selected Consolidated Financial Data". This information should be
read in conjunction with "Capitalization", "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the consolidated
financial statements and notes thereto of the Successor Company and the
Predecessor Company included elsewhere in this Prospectus.
20
<PAGE>
PREDECESSOR COMPANY
<TABLE>
<CAPTION>
FISCAL YEAR ENDED MARCH 31,
--------------------------------------------
1993 1994 1995 1996 1997
-------- -------- -------- -------- --------
(Pounds) (Pounds) (Pounds) (Pounds) (Pounds)
-------- -------- -------- -------- --------
(AMOUNTS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED INCOME STATEMENT DA-
TA:
Operating revenues.............. 1,325 1,308 1,464 1,431 1,331
Operating income (1)............ 146 156 215 214 52
Other income (loss), net (2).... 15 (8) 16 313 20
Interest expense, net........... (7) (5) (12) (20) (33)
Provision for income taxes (3).. (54) (50) (78) (114) (13)
----- ----- ----- ----- -----
Net income...................... 100 93 141 393 26
===== ===== ===== ===== =====
<CAPTION>
MARCH 31,
--------------------------------------------
1993 1994 1995 1996 1997
-------- -------- -------- -------- --------
(Pounds) (Pounds) (Pounds) (Pounds) (Pounds)
-------- -------- -------- -------- --------
(AMOUNTS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Fixed assets.................... 613 701 747 769 796
Total assets.................... 1,214 1,241 1,367 1,408 1,375
Total shareholders' equity...... 561 612 517 399 359
Long-term debt.................. 104 126 305 424 419
Short-term debt and current por-
tion of long-term debt......... 217 99 91 90 87
<CAPTION>
FISCAL YEAR ENDED MARCH 31,
--------------------------------------------
1993 1994 1995 1996 1997
-------- -------- -------- -------- --------
(Pounds) (Pounds) (Pounds) (Pounds) (Pounds)
-------- -------- -------- -------- --------
(AMOUNTS IN MILLIONS, EXCEPT RATIOS)
<S> <C> <C> <C> <C> <C>
OTHER CONSOLIDATED DATA:
EBIT (4)........................ 161 148 231 527 72
EBITDA (4)...................... 193 182 272 569 122
Cash flow from operations....... 187 237 201 222 96
Cash used in investing activi-
ties........................... (137) (201) (101) (8) (51)
Cash provided by (used in) fi-
nancing activities............. 129 (139) (67) (114) (76)
Ratio of earnings to fixed
charges (5).................... 6.6 6.8 10.5 12.0 1.8
</TABLE>
21
<PAGE>
SUCCESSOR COMPANY
<TABLE>
<CAPTION>
SUCCESSOR
FISCAL YEAR
1998
------------------------
(Pounds) $(6)
------------ ----------
(AMOUNTS IN MILLIONS)
<S> <C> <C>
CONSOLIDATED INCOME STATEMENT DATA:
Operating revenues.................................. 1,285 2,154
Operating income (1)................................ 161 270
Other loss, net (2)................................. (39) (66)
Interest expense, net............................... (106) (178)
Provision for income taxes.......................... 1 2
---------- ----------
Income before extraordinary item.................... 17 28
Extraordinary item (7).............................. (134) (225)
---------- ----------
Net loss............................................ (117) (197)
========== ==========
</TABLE>
<TABLE>
<CAPTION>
SUCCESSOR SUCCESSOR
APRIL 1, MARCH 31,
1997 1998
--------- --------------
(Pounds) (Pounds) $(6)
--------- -------- -----
(AMOUNTS IN MILLIONS)
<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Fixed assets........................................ 939 1,060 1,777
Total assets........................................ 2,591 2,462 4,126
Total shareholders' equity.......................... -- 323 541
Long-term debt...................................... 433 1,026 1,720
Accrued liability to purchase Yorkshire............. 1,496 -- --
Short-term debt and current portion of long-term
debt............................................... 87 324 542
Short-term debt refinanced in June 1998............. -- 164 275
</TABLE>
<TABLE>
<CAPTION>
SUCCESSOR
FISCAL YEAR
1998
-----------------------
(Pounds) $(6)
------------ ----------
(AMOUNTS IN MILLIONS,
EXCEPT RATIOS)
<S> <C> <C>
OTHER CONSOLIDATED DATA:
EBIT before extraordinary item (4)(7)................ 122 204
EBITDA before extraordinary item (4)(7).............. 200 335
Cash flow from operations............................ 62 103
Cash used in investing activities.................... (1,639) (2,747)
Cash provided by financing activities................ 1,391 2,332
Ratio of earnings to fixed charges (5)............... 1.1
</TABLE>
22
<PAGE>
PREDECESSOR COMPANY
BUSINESS SEGMENTS
<TABLE>
<CAPTION>
FISCAL YEAR ENDED MARCH 31,
--------------------------------------------
1993 1994 1995 1996 1997
(Pounds) (Pounds) (Pounds) (Pounds) (Pounds)
-------- -------- -------- -------- --------
(AMOUNTS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
OPERATING REVENUES:
Distribution.................... 332 348 362 334 308
Supply.......................... 1,206 1,220 1,343 1,309 1,178
Other........................... 182 162 162 163 172
Intrabusiness eliminations (8).. (395) (422) (403) (375) (327)
----- ----- ----- ----- -----
1,325 1,308 1,464 1,431 1,331
===== ===== ===== ===== =====
OPERATING INCOME (LOSS):
Distribution.................... 135 133 176 164 127
Supply (1)...................... 10 14 23 30 (132)
Other........................... 1 9 16 20 10
Intrabusiness eliminations
(1)(8)......................... -- -- -- -- 47
----- ----- ----- ----- -----
146 156 215 214 52
===== ===== ===== ===== =====
<CAPTION>
MARCH 31,
--------------------------------------------
1993 1994 1995 1996 1997
(Pounds) (Pounds) (Pounds) (Pounds) (Pounds)
-------- -------- -------- -------- --------
(AMOUNTS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
TOTAL ASSETS:
Distribution.................... 476 513 556 589 643
Supply.......................... 177 161 198 212 178
Other and unallocated........... 561 567 613 607 554
----- ----- ----- ----- -----
1,214 1,241 1,367 1,408 1,375
===== ===== ===== ===== =====
</TABLE>
23
<PAGE>
SUCCESSOR COMPANY
BUSINESS SEGMENTS
<TABLE>
<CAPTION>
SUCCESSOR
FISCAL YEAR
1998
------------------------
(Pounds) $(6)
------------ ----------
(AMOUNTS IN MILLIONS)
<S> <C> <C>
OPERATING REVENUES:
Distribution........................................ 305 511
Supply.............................................. 1,118 1,874
Other............................................... 203 340
Intrabusiness eliminations (8)...................... (341) (571)
---------- ----------
1,285 2,154
========== ==========
OPERATING INCOME (LOSS):
Distribution........................................ 115 193
Supply (1).......................................... 25 42
Other............................................... 24 40
Intrabusiness eliminations (8)...................... (3) (5)
---------- ----------
161 270
========== ==========
</TABLE>
<TABLE>
<CAPTION>
SUCCESSOR
APRIL 1, SUCCESSOR
1997 MARCH 31, 1998
--------- --------------
(Pounds) (Pounds) $(6)
--------- -------- -----
(AMOUNTS IN MILLIONS)
<S> <C> <C> <C>
TOTAL ASSETS:
Distribution......................................... 1,802 1,903 3,190
Supply............................................... 187 157 263
Other and unallocated................................ 602 402 673
----- ----- -----
2,591 2,462 4,126
===== ===== =====
</TABLE>
24
<PAGE>
(1) Notable operating expenses include:
Fiscal Year 1998--provision of (Pounds)5 million for committed costs
arising from delays in opening up the competitive market and (Pounds)10
million restructuring charges.
Fiscal Year 1997--(i) a provision of (Pounds)78 million for uneconomic gas
and electricity contracts (the effect of which is removed from the
Successor Company's unaudited pro forma consolidated statement of income
for Fiscal Year 1997), which resulted in a charge of (Pounds)125 million to
the supply business offset by an intrabusiness elimination of (Pounds)47
million and (ii) a charge of (Pounds)50 million for information system
development costs to prepare for the opening of the competitive electricity
market in 1998 for Franchise Supply Customers, of which (Pounds)37 million
was charged to the supply business and (Pounds)13 million was charged to
the distribution business.
Fiscal Years 1993, 1994 and 1995--reorganization costs of (Pounds)18
million, (Pounds)44 million and (Pounds)8 million, respectively.
(2) Other income (loss) principally represents income from Yorkshire's
investment in National Grid Group plc ("NGG") and, in Fiscal Year 1996, a
gain resulting from the NGG Transaction (as defined herein) and earnings
and losses from Yorkshire's investments in joint ventures and minority
holdings. Notable items include:
Fiscal Year 1998--an unrealized loss of (Pounds)41 million before taxes was
charged following the reduction in fair value of Yorkshire Group's
investment in Ionica Group plc.
Fiscal Year 1997--gain on sale of Yorkshire's investment in Torch Telecom
of (Pounds)15 million.
Fiscal Year 1996--income from investment in NGG and gain in respect of the
NGG Transaction as described under "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Introduction--NGG
Transaction".
Fiscal Year 1995--one-time termination payment received from Stockholm
Stadhus AB of (Pounds)17 million.
Fiscal Year 1994--loss on sale of Yorkshire's investment in Homepower
Retail Limited of (Pounds)18 million.
(3) Fiscal Year 1996 includes a tax charge of (Pounds)38 million relating to
the NGG Transaction.
(4) EBIT represents income before the sum of interest expense and income taxes.
EBITDA represents income before the sum of interest expense, income taxes,
depreciation and amortization. EBIT and EBITDA are provided for
informational purposes only and such measures should not be construed as
alternatives to operating income (as determined in accordance with US GAAP)
as indicators of operating performance, or as alternatives to cash flows
from operating activities (as determined in accordance with US GAAP) as
measures of liquidity. EBIT and EBITDA are widely accepted financial
indicators of a company's ability to incur and service debt. However, the
measures of EBIT and EBITDA presented herein may not be comparable to
similar measures presented by other companies.
(5) The ratio of earnings to fixed charges is computed as the sum of pre-tax
income (before extraordinary item), plus fixed charges divided by fixed
charges. Fixed charges consist of interest expense and amortization of debt
expense.
(6) Solely for the convenience of the reader, pounds sterling amounts have been
translated into US dollar amounts at the Noon Buying Rate on March 31, 1998
of $1.6765 = (Pounds)1. See "Presentation of Certain Information and
Exchange Rates".
(7) Represents the windfall tax imposed by the UK government, which was not
deductible for UK corporation tax purposes.
(8) Intrabusiness eliminations consist primarily of intracompany transactions
between the distribution business and the supply business and interbusiness
transactions between ancillary businesses. Pursuant to the UK regulatory
framework, charges by the distribution business for electricity in respect
of supply customers in the Franchise Area are billed to the supply
business, which in turn incorporates the distribution charge into the bill
sent to the final end user.
25
<PAGE>
RISK FACTORS
Prospective investors should carefully review the information contained
elsewhere in this Prospectus and should consider particularly the following
matters in connection with the Exchange Offer and the Exchange Senior Notes
offered hereby.
HOLDING COMPANY STRUCTURE; RANKING
Yorkshire Group is a non-operating holding company, conducting substantially
all of its business through Yorkshire and its subsidiaries. Except to the
extent that Yorkshire Group receives funds from the US Parents in the future,
Yorkshire Group will rely on dividends, indirectly, from Yorkshire to meet its
obligations for payment of its outstanding obligations, including any payments
necessary pursuant to the Exchange Notes Guarantee, and corporate expenses.
Under English law, Yorkshire can make distributions only to the extent that it
has Distributable Reserves (as defined below). Furthermore, Yorkshire Group's
obligations under the Exchange Notes Guarantee will effectively be
subordinated to all existing and future indebtedness and liabilities of the
subsidiaries of Yorkshire Group, including Yorkshire. As a result, the rights
of holders of the Exchange Senior Notes in respect of claims on the assets of
each of Yorkshire Group's subsidiaries (other than Yorkshire Finance or
similar financing vehicles for Yorkshire Group) upon any liquidation or
administration are structurally subordinated to, and therefore will be subject
to the prior claims of, the creditors of such subsidiaries (including trade
creditors), except to the extent that Yorkshire Group may itself be a creditor
with recognized claims against such subsidiaries. At March 31, 1998, the
direct and indirect subsidiaries of Yorkshire Group had total indebtedness
(excluding indebtedness owed to Yorkshire Group) of approximately
(Pounds)1,050 million ($1,760 million) and such subsidiaries may incur
additional indebtedness in the future.
Yorkshire Finance is a special purpose entity formed solely as a financing
vehicle for Yorkshire Group and its affiliates. Therefore, Yorkshire Finance's
ability to make interest and other payments on the Exchange Senior Notes is
solely dependent upon Yorkshire Group making payments on its obligations to
Yorkshire Finance as and when required. If Yorkshire Group were not to make
such payments for any reason, Yorkshire Finance will not have sufficient funds
to make payments on the Exchange Senior Notes. In such event, a holder of
Exchange Senior Notes would rely on the enforcement of its rights against
Yorkshire Group pursuant to the terms of the Exchange Notes Guarantee. See
"Description of the Exchange Senior Notes--Exchange Notes Guarantee".
The Exchange Notes Guarantee will be a direct, unsecured and unsubordinated
obligation of Yorkshire Group and will rank pari passu with all other
unsecured and unsubordinated obligations of Yorkshire Group (other than those
obligations preferred by law). At March 31, 1998, Yorkshire Group had
(Pounds)1,514 million ($2,538 million) of unsecured and unsubordinated debt
outstanding. The Indenture contains no restrictions on the amount of
additional indebtedness that may be incurred by Yorkshire Group and its
subsidiaries, including Yorkshire Finance; however, the Indenture contains
restrictions on the ability of Yorkshire Finance, Yorkshire Group and any
Significant Subsidiaries to incur secured indebtedness. See "Description of
the Exchange Senior Notes--Covenants--Limitation on Liens".
"Distributable Reserves" means accumulated, realized profits so far as not
previously utilized by distribution or capitalization, less accumulated,
realized losses and, in the case of public limited companies, unrealized
losses, which may be legally distributed by way of dividends.
SUBSTANTIAL LEVERAGE
Upon completion of this Exchange Offer, Yorkshire Group will continue to
have substantial indebtedness. At March 31, 1998 (after the effect of the
windfall tax on shareholder's equity), on a pro forma basis after giving
effect to the issuance of the Trust Securities (as defined under
"Capitalization"), the ratio of Yorkshire Group's consolidated debt to total
capitalization was approximately 82%. See "Capitalization". The degree to
which Yorkshire Group is leveraged could affect its ability to service its
indebtedness, to make capital investments, to take advantage of certain
business opportunities, to respond to competitive pressures or to obtain
additional
26
<PAGE>
financing. Yorkshire Group believes that, following this Exchange Offer, it
will be able to make payments on its obligations with those funds subsequently
being made available to make payments of principal of and interest on the
Exchange Senior Notes from funds derived from the operations of Yorkshire and
its subsidiaries. The ability of Yorkshire Finance to pay amounts due on the
Exchange Senior Notes is solely dependent upon Yorkshire Group making payments
to Yorkshire Finance as and when required.
Unexpected declines in Yorkshire's future business, especially in light of
the increasingly competitive environment in the UK electric and gas utility
industries, increases in operating or capital costs, or the inability to
borrow additional funds, could impair Yorkshire Group's ability to meet its
debt service obligations, and, therefore, could adversely affect Yorkshire
Finance's ability to make payments of principal of and interest on the
Exchange Senior Notes. No assurance can be given that additional financing
will be available when needed, or, if available, will be obtainable on terms
that are favorable to Yorkshire Group or Yorkshire Finance.
PRICE REGULATION OF THE DISTRIBUTION BUSINESS
The distribution business of Yorkshire is regulated under its PES License
pursuant to which charges by the distribution business to its customers are
controlled by the Distribution Price Control Formula (as defined under "The
Electric Utility Industry in Great Britain--Distribution of Electricity"). The
Distribution Price Control Formula determines the maximum allowable average
price per unit of electricity (expressed in kWh, a "unit") that a PES License
holder may charge in any year. The elements used in the Distribution Price
Control Formula (which includes the UK Retail Price Index) are established for
a five year period and are subject to review by the Director General of
Electricity Supply for the UK (the "Regulator") at the end of each five year
period and at other times at the discretion of the Regulator. At each review,
the Regulator can adjust the value of certain elements in the Distribution
Price Control Formula.
Following a review by the Regulator in July 1994, a 14% below inflation
price reduction was set for Yorkshire's allowed distribution revenues
effective April 1, 1995. Such adjustment was the principal reason for the
reduction of Yorkshire's distribution operating revenues to (Pounds)334
million ($560 million) for Fiscal Year 1996 from (Pounds)362 million ($607
million) for Fiscal Year 1995. In July 1995, a further review of distribution
prices was concluded by the Regulator for Fiscal Years 1997 to 2000. As a
result of this further review of Yorkshire's distribution prices, a further
13% below inflation reduction became effective April l, 1996 with a further 3%
below inflation reduction effective in each of the three following years. This
review was the principal reason for the reduction in distribution operating
revenues for Fiscal Year 1997 to (Pounds)308 million ($516 million). There can
be no assurance that any future review by the Regulator, the next of which is
scheduled for 2000, will not adversely affect Yorkshire. See "The Electric
Utility Industry in Great Britain--Distribution of Electricity--Price
Control".
COMPETITION IN AND PRICE REGULATION OF THE SUPPLY BUSINESS
Each PES License holder currently has an exclusive right, subject to price
cap regulation, to supply Franchise Supply Customers in its franchise area.
However, the supply market is being progressively opened to full competition.
The market for customers with a Peak Demand above 1 MW has been open to
competition for suppliers of electricity since privatization in 1990 while,
for Non-Franchise Supply Customers, the market became competitive in April
1994. The final stage of this process is currently scheduled to occur over a
period of six months commencing September 1998, when competition in the supply
of Franchise Supply Customers will be fully phased in and the exclusive right
to supply Franchise Supply Customers is scheduled to end. Yorkshire's strategy
to meet expanded competition in its supply business will focus on active
marketing and customer service to protect and sustain its position in the
electricity market in its Franchise Area. Furthermore, Yorkshire will seek to
expand market share outside its Franchise Area to the extent that such
business is profitable. There can be no assurance that this strategy will be
successful in avoiding loss of existing customers, or achieving gains of new
customers of Yorkshire's supply business. See "Business--Supply Business" and
"--Business Restructuring".
In October 1997, the Regulator published proposals for new transitional
supply price restraints to apply from April 1, 1998 to residential and small
business customers for an initial period of two years and until an adequate
27
<PAGE>
level of competition is established. Yorkshire subsequently indicated its
acceptance of such proposals. The proposals (when taken together with the
reduction in the Fossil Fuel Levy (as defined under "The Electric Utility
Industry in Great Britain--Fossil Fuel Levy"), which became effective on April
1, 1998) resulted in the implementation of small reductions, also effective
April 1, 1998, in the tariffs for Yorkshire's residential and small business
customers in its Franchise Area compared to the corresponding tariffs in
effect in August 1997. The proposals also require an additional 3% below
inflation reduction effective April 1, 1999. See "The Electric Utility
Industry in Great Britain--Supply of Electricity--Price Regulation".
The license modifications that have been implemented to effect the new
controls also discontinued the automatic pass-through of all costs previously
passed through to residential and small business customers, consisting
primarily of purchased power costs. This change will increase the importance
to Yorkshire of effective power purchasing and hedging activities. See "--Pool
Purchase Price Volatility; Hedging Activities", "The Electric Utility Industry
in Great Britain--Supply of Electricity--Price Regulation" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations".
The transition to competition in supply with respect to Franchise Supply
Customers requires each REC to provide additional data management services to
all suppliers. Assuming that such competition starts as currently scheduled in
September 1998 for Franchise Supply Customers, Yorkshire Group presently
estimates that costs totalling (Pounds)72 million will have been incurred for
re-engineering and information technology work. Of such amount, approximately
(Pounds)19 million was expensed in Fiscal Year 1997 and (Pounds)2 million in
Fiscal 1998. The Regulator has made proposals (which have been accepted by
Yorkshire) to allow Yorkshire recovery of (Pounds)23 million over a five year
period ending March 31, 2003. A further (Pounds)7 million is expected to be
recovered through Pool cost recovery and other national mechanisms and
(Pounds)8 million is expected to be capitalized as such amount is expected to
provide future benefits to the supply business. As a result of the above, the
residual amount of approximately (Pounds)13 million, which will not be
recovered or capitalized, will be expensed in Fiscal Year 1999 as incurred.
The Regulator has also made proposals (which have been accepted by
Yorkshire) to provide an annual allowance of (Pounds)3 million for the period
1998 through 2000 to cover operating costs. This allowance will be reviewed at
the time of the Distribution Price Control Formula review in 2000.
The October 1997 proposals therefore will allow Yorkshire to recover up to
52% of its forecasted set-up and operating costs over a five year period. The
shortfall could be higher if: (i) operating costs are higher than anticipated
(e.g., there is a higher level of customer activity); (ii) recovery of
operating costs is disallowed or reduced when the Distribution Price Control
Formula is reviewed for the period beginning April 1, 2000; or (iii) the
integrated national systems do not work as contemplated or require substantial
redevelopment.
The Regulator's proposals also provide that a REC should be penalized (i)
where it starts to open its market more than three months after the market
opening by the first REC; (ii) where it opens successive tranches of its
market more than three months after the opening of the corresponding tranche
by the first REC; and (iii) where the market opening of the first REC has been
delayed beyond April 1, 1998. The penalties will be calculated at 1% of the
operating revenues of the supply business per month of delay, weighted by the
proportion of customers affected and applied as a reduction in allowed
distribution business income. If Yorkshire did not open its market for
Franchise Supply Customers to competition until after April 1, 1999, it would
incur a penalty of approximately (Pounds)6 million. It is now apparent that
some penalty will be incurred due to the delay in the opening of the
competitive market for Franchise Supply Customers until September 1998 and a
provision of (Pounds)3 million has been included in the results for Fiscal
Year 1998. Yorkshire Group expects that Yorkshire will be prepared to open its
Franchise Area to competition in September 1998.
REGULATORY POLICIES AFFECTING YORKSHIRE GROUP
Certain modifications to Yorkshire's PES License following Yorkshire Group's
acquisition of Yorkshire imposed certain conditions designed to assure the
continued financial soundness of Yorkshire, including
28
<PAGE>
undertakings which Yorkshire was required to obtain from AEP and NCE that they
will refrain, and cause their subsidiaries to refrain, from taking any action
that would likely result in Yorkshire breaching its obligations under its PES
License and the Electricity Act 1989 (the "Electricity Act") and an
undertaking by Yorkshire to use reasonable endeavors to maintain an investment
grade rating of its debt securities. Such conditions could have an effect on
Yorkshire's dividend payments which will constitute the principal source of
funds for payment of principal of and interest on the Exchange Senior Notes.
On February 24, 1998, following publication of the Monopolies and Mergers
Commission's (the "MMC") report in connection with the proposed PacifiCorp/The
Energy Group merger, the Regulator issued a consultation paper proposing
modifications to licenses of public electricity suppliers ("PESs") which had
been subject to takeovers.
The main proposals are:
1. to allow for a PES generation business to be carried on in an
affiliate which is not a subsidiary and in such cases for the generation
business to be conducted outside the scope of the modifications to the PES
license which have been brought into effect to ensure that the Regulator
can regulate a company effectively after it has been taken over and to help
ensure the financial stability of the PES (the "Ring-Fencing Conditions");
2. to restrict further the provisions of existing PES licenses allowing
PESs to carry out certain otherwise restricted activities provided they do
not exceed 5 percent of the revenues of the supply, second-tier supply and
distribution businesses, by introducing an additional test based on
cumulative investment;
3. to extend to all PESs that have been acquired the condition contained
in the licenses of London Electricity plc, Northern Electric plc and
Yorkshire to use reasonable endeavours to maintain an investment grade
rating of corporate debt;
4. to prohibit PESs from accepting "cross-default" provisions in
borrowing agreements; and
5. to make the payment of dividends and other distributions by a PES
expressly conditional on compliance with the Ring-Fencing Conditions in the
license.
Comments were due with respect to the proposals in the consultation paper by
March 27, 1998. Yorkshire provided comments on the consultation paper on March
25, 1998. In its response, Yorkshire indicated that it did not consider the
proposed modifications described in paragraphs (1), (4) and (5) immediately
above to be necessary. Further proposals are expected to be made by the
Regulator in light of this consultation paper that may result in further
modifications to PES licenses. There can be no assurance that any such
modifications to Yorkshire's PES License that result from such proposals will
not have a material adverse effect on Yorkshire. See "The Electric Utility
Industry in Great Britain--Regulation under the Electricity Act--Modifications
to Licenses".
The ability of AEP or NCE to contribute additional equity capital to
Yorkshire Group is currently subject to regulation of the Commission under the
Public Utility Holding Company Act of 1935, as amended (the "1935 Act"). The
Commission limits the aggregate amount that either AEP or NCE may invest in
foreign utility companies and exempt wholesale generators to specified
percentages of average consolidated retained earnings at the time an
investment is made. This regulation could delay or limit the making of loans
or the contributions of equity by AEP or NCE to Yorkshire Group to enable
Yorkshire Group to meet its obligations or to contribute additional equity
capital to Yorkshire.
GOVERNMENTAL REVIEW OF UTILITY REGULATION
On June 30, 1997, the new Labour government announced a comprehensive review
of the regulation of the electric, gas, water and telecommunications
industries to be directed by the Department of Trade and Industry. Generally,
the review has focused on whether the current system of regulation in the
utility industries is designed to ensure open and predictable regulation,
fairness to consumers and shareholders and the promotion of a
29
<PAGE>
competitive environment. Particularly, the review has examined whether the
current system of price regulation delivers, over time, the greatest benefits
to consumers while maintaining proper incentives for innovation and investment
and an adequate return to shareholders.
The review culminated, in March 1998, with the publication by the UK
Government of a Green Paper entitled "A Fair Deal for Consumers: Modernising
the Framework for Utility Regulation" (the "March Green Paper"). The March
Green Paper sets forth a number of proposals of the UK Government designed to
reexamine utility regulation in the UK. Among the main proposals contained
within the March Green Paper are the retention of "RPI-X" as the fundamental
basis for price regulation; increased transparency and consistency of
regulation; the merger of the Office of Electricity Regulation ("OFFER") and
the Office of Gas Regulation ("OFGAS"); the separate licensing of the
distribution and supply businesses of the PESs; amendment of the statutory
duties of utility regulators to provide a new primary duty to exercise their
functions in the manner best calculated to protect the interests of consumers
in the short and long term, wherever possible through promoting competition;
and adopting price regulation to distinguish between income earned through
companies' own efforts and income which results from other factors. Some of
these proposals would require primary legislation. Responses to the March
Green Paper by interested parties were due by May 31, 1998. Yorkshire
submitted comments on the March Green Paper on May 29, 1998. In summary,
Yorkshire welcomed the review of the regulation and supported the objectives
of fairness and efficiency as the key to promoting customer interests and
allowing the industry to develop, but suggested that the existing regulatory
system had delivered significant benefits to customers and that any changes
should not undermine such benefits. Yorkshire also supported the creation of a
single energy regulator and procedural changes to foster greater consistency
in decision making. Furthermore, while agreeing with the need to consider the
separation of the distribution and supply businesses, Yorkshire suggested that
the licenses could be separated without forcing divestiture of such businesses
and that the costs and overhead in putting in place any new arrangements
should be minimized.
On May 13, 1998, the Regulator issued a consultation paper on the separation
of distribution and supply businesses for PESs and the future treatment of
metering and meter reading. The material proposals and recommendations set out
in the consultation paper are as follows:
1. Full separation of the ownership of the supply and distribution
business was recommended and appropriate interim arrangements should be
contemplated for separate companies to comprise the distribution and supply
activities, each acting independently of the other.
2. Measures should be introduced to ensure that each PES supply
subsidiary operates at arm's length from the distribution subsidiary. These
measures would include separate contracts between the supply and
distribution businesses, avoiding the sharing of facilities between the
businesses, including requiring separate management teams for the two
businesses and minimizing corporate headquarters activities.
3. The distribution company should be responsible for the maintenance and
operation of the network and have a statutory duty to develop and maintain
an efficient, coordinated and economical system of electricity distribution
and to facilitate competition in generation and supply. It should connect
any person to the network on reasonable terms and act as a "last resort"
meter reading service, bought in from meter reading companies, for those
suppliers not wishing to provide the service themselves.
4. All suppliers should be placed on the same legislative footing and
tariff supply should be replaced by supply under contract. License
conditions would be introduced to protect customers and competitors against
dominant suppliers.
5. Metering services should be open to competition and arrangements for
transmission in Scotland should be brought into line with those in England
and Wales.
Responses to this consultation paper were requested by June 15, 1998. In its
June 1998 response to this consultation paper, Yorkshire supported separate
licenses allowing separate regulation of supply and distribution activities,
but opposed the measures proposed by OFFER on ownership and stringent
operating separation. In opposing such measures, Yorkshire, among other
things, questioned whether the potentially high costs of
30
<PAGE>
implementing such measures were justified. Yorkshire concluded that its
position is consistent with the UK Government's proposals in the March Green
Paper and the position of other PESs.
The Regulator intends to have a further consultation on separation of
businesses in the latter part of 1998 and to outline proposals on separation
of businesses in September 1998. The Regulator intends any revised definitions
of distribution, supply and metering responsibilities to be taken into account
in setting price controls and revising charging arrangements scheduled for
2000.
In October 1997, the UK government invited the Regulator to consider
parameters for a review of electricity trading arrangements. Such a review
would focus on the wholesale trading market for electricity within England and
Wales (the "Pool"), trading arrangements outside the Pool and price setting
mechanisms. The review was launched in January 1998 with an announcement that
the Regulator and an independent panel had been asked to report to the Energy
Minister by July 1998.
In December 1997, the UK government announced a review of energy sources for
power generation, including fuel diversity, sustainable development and the
role of coal. Representations of interested parties were submitted in mid-
February 1998. While the review is underway, the Secretary of State has
deferred decisions on most outstanding or new applications for the
construction of generating stations. An Energy Select Committee Report on the
Coal Industry issued in April 1998 recommended that such deferral, as it
relates to gas-fired generation, be lifted as soon as possible. The Trade and
Industry Select Committee is undertaking an inquiry into a number of aspects
of UK energy policy.
On June 25, 1998, the UK Government issued a consultation paper on its
review of energy sources for power generation. The preliminary general
conclusions of the review were:
1. There are basic flaws in the existing electricity market arrangements
which need to be corrected to ensure that the UK Government can achieve its
policy of diverse, secure and sustainable energy supplies at competitive
prices for consumers, while protecting the environment; and
2. The prices for electricity consumers have been excessive and, in the
absence of restrictions, a decrease of at least 10% in wholesale
electricity prices should be possible in the medium term.
Problems identified during the review included:
1. Despite the fact of substantial new gas entry into the market,
competition has not significantly increased nor has the price of
electricity decreased as expected;
2. Although the Pool ensures that electricity is available to all when
needed, it has led to distortions which have affected the choice of energy
sources for power stations; such distortions have favored gas plants which
are operated inflexibly over flexible coal plants and have led to an
increase in construction of gas-fired stations to the detriment of coal-
fired stations;
3. Given that electricity cannot be stored, gas-fired stations must be
modified to provide for the ability to produce electricity on demand,
similar to coal-fired capacity;
4. Independent consultants have focused on several technical issues that
must be reviewed if there is to be further growth in gas-fired combined-
cycle gas turbine generation; and
5. As a result of the distorted market, dependence on gas could increase,
which raises concerns over diversity and security of supply of energy power
generation.
The UK Government's statement notes that the Regulator has identified
significant problems in the Pool and market structure. He recommended (i)
reforming the electricity trading arrangements to ensure that all plants play
a full role in competition and (ii) addressing the market power of the major
generators.
The UK Government agrees with the necessity of reforming the market
structure but noted that the time needed for such reform could be lengthy.
Accordingly, the UK Government proposes to apply a stricter policy on power
station consents while the reform agenda is addressed.
31
<PAGE>
Yorkshire submitted its response to the consultation document on July 20,
1998. In general, Yorkshire supported the UK Government's overall objective to
develop secure, diverse and sustainable supplies of energy at competitive
prices and agreed that energy policy should be consistent with a competitive
industrial sector and the long term energy needs of the UK. Yorkshire agreed
with the UK Government's proposal to reform the electricity trading
arrangements and to reduce the market power of the two major generators, but
expressed its concern at the prospect of a more strict consent policy for gas-
fired generation projects. Yorkshire urged that the review be completed as
swiftly as possible and that the final measures taken not interfere with the
commercial development of competitive generation projects.
Yorkshire Group cannot predict the results of any of these reviews, whether
the proposals recommended in the consultation paper will be implemented or the
ultimate effects on Yorkshire or Yorkshire Group. See "The Electric Utility
Industry in Great Britain--Regulation under the Electricity Act--The
Regulator".
POOL PURCHASE PRICE VOLATILITY; HEDGING ACTIVITIES
Yorkshire's supply business to Non-Franchise Supply Customers generally
involves entering into fixed price contracts to supply electricity to its
customers. Yorkshire obtains the electricity to satisfy its obligations under
such contracts primarily by purchases from the Pool. See "The Electric Utility
Industry in Great Britain". Because the price of electricity purchased from
the Pool can be volatile (due to the fact the price is set every half hour),
to the extent that Yorkshire purchases electricity from the Pool, Yorkshire is
exposed to risk arising from differences between the fixed price at which it
sells and the fluctuating prices at which it purchases electricity unless it
can effectively hedge such exposure. Although Yorkshire is currently party to
a series of contracts for differences ("CFDs") (most with terms of twelve
months) that limit such exposure, Yorkshire's ability to manage such risk at
acceptable levels will depend, in part, on the specific terms of the supply
contracts that Yorkshire enters into, Yorkshire's ability to implement and
manage an appropriate hedging strategy and the continued availability of
appropriate hedging instruments. No assurance can be given that this risk will
be effectively mitigated. In addition, under the supply price restraint
proposal published by the Regulator in October 1997 (and accepted by
Yorkshire), costs of power purchases from the Pool and related hedging
activities which are currently passed through to residential and small
business customers will no longer be automatically passed through to such
customers. See "Business--Supply Business".
CURRENCY RISKS; HEDGING TRANSACTIONS
Yorkshire Group's revenues generated by Yorkshire will be primarily in
pounds sterling while the interest and principal payment obligations with
respect to Senior Notes will be payable in US dollars. As a result, any change
in the currency exchange rate that reduces the amount in pounds sterling
obtained upon conversion of the US dollar-based net proceeds of Senior Notes
or that increases the effective principal and interest payment obligations
represented by the Senior Notes upon conversion of pounds sterling-based
revenues into US dollars may, if not appropriately hedged, have a material
adverse effect on Yorkshire Group and Yorkshire Finance or on their ability to
make payments on the Senior Notes. See "Presentation of Certain Information
and Exchange Rates" for certain information concerning the Noon Buying Rate
for pounds sterling expressed in US dollars. Although Yorkshire Group has
entered into certain transactions to hedge risks associated with exchange rate
fluctuations, there can be no assurance that any such transactions will be
successful in reducing such risks.
WORKING CAPITAL DEFICIENCY
Yorkshire Group had a working capital deficiency at March 31, 1998 of
(Pounds)376 million ($630 million), primarily as a result of the initial
financing structure of the Acquisition. This deficiency was largely
attributable to the 1997 Credit Facility (as defined under "Use of Proceeds")
which matures on July 30, 1998. For a discussion of the 1997 Credit Facility,
see Note 13, "Short-term Debt", to Yorkshire Group's consolidated financial
statements for Fiscal Year 1998 included elsewhere in this Prospectus.
Yorkshire Group expects to replace the 1997 Credit Facility with a (Pounds)550
million credit facility by the end of July 1998 which will be used in part to
repay the 1997 Credit Facility. Yorkshire Group expects that the proceeds of
the currently contemplated transfer of Yorkshire Group's generation assets to
an entity or entities other than Yorkshire Group or its subsidiaries will be
used to reduce the new credit facility at the time of such transfer.
32
<PAGE>
LACK OF ESTABLISHED MARKET
The Exchange Senior Notes will constitute a new issue of securities of
Yorkshire Finance with no established trading market, and there can be no
assurance that an active market for the Exchange Senior Notes will develop or
be sustained. Although the Initial Purchasers have informed Yorkshire Group
and Yorkshire Finance that they currently intend to make a market in the
Original Senior Notes and, if issued, the Exchange Senior Notes, they are not
obligated to do so, and any such market making may be discontinued at any time
without notice. There can be no assurance as to the development or liquidity
of any market for the Exchange Senior Notes. If an active public market does
not develop, the market price and liquidity of the Exchange Senior Notes may
be adversely affected.
CONSEQUENCES OF A FAILURE TO EXCHANGE ORIGINAL SENIOR NOTES
The Original Senior Notes have not been registered under the Securities Act
or any state securities laws and therefore may not be offered, sold or
otherwise transferred except in compliance with the registration requirements
of the Securities Act and any other applicable securities laws, or pursuant to
an exemption therefrom or in a transaction not subject thereto, and in each
case in compliance with certain other conditions and restrictions. Original
Senior Notes which remain outstanding after consummation of the Exchange Offer
will continue to bear a legend reflecting such restrictions on transfer. In
addition, upon consummation of the Exchange Offer, holders of Original Senior
Notes which remain outstanding will not be entitled to any rights to have such
Original Senior Notes registered under the Securities Act or to any similar
rights under the Registration Rights Agreement (subject to certain limited
exceptions). Yorkshire Group and Yorkshire Finance do not intend to register
under the Securities Act any Original Senior Notes which remain outstanding
after consummation of the Exchange Offer (subject to such limited exceptions,
if applicable). To the extent that Original Senior Notes are tendered and
accepted in the Exchange Offer, a holder's ability to sell untendered Original
Senior Notes could be adversely affected.
The Exchange Senior Notes and any Original Senior Notes which remain
outstanding after consummation of the Exchange Offer will vote together as a
single class for purposes of determining whether holders of the requisite
percentage in outstanding principal amount thereof have taken certain actions
of exercised certain rights under the Indenture. See "Description of the
Exchange Senior Notes--Modification of the Indenture."
The Original Senior Notes provide, among other things, that, if a
registration statement relating to the Exchange Offer has not been filed and
declared effective within certain specified periods, the interest rate borne
by the Original Senior Notes will increase by 0.25% per annum until such
registration statement has been filed or declared effective, as the case may
be. Upon consummation of the Exchange Offer, holders of Original Senior Notes
will not be entitled to any increase in the interest rate thereon or any
further registration rights under the Registration Rights Agreement, except
under limited circumstances. See "Description of the Original Securities."
33
<PAGE>
YORKSHIRE GROUP AND THE US PARENTS
YORKSHIRE GROUP
Yorkshire Group was incorporated as a limited company under the laws of
England and Wales in July 1996. In 1997, Yorkshire Group was utilized in
connection with the Acquisition by the US Parents of Yorkshire, one of the
twelve RECs in England and Wales. Yorkshire Group gained effective control of
Yorkshire on April 1, 1997. Yorkshire Group's primary asset is the outstanding
shares of Yorkshire Holdings, a public limited company incorporated under the
laws of England and Wales, which in turn beneficially owns all of the
outstanding shares of Yorkshire. Yorkshire Holdings was organized as a wholly-
owned subsidiary of Yorkshire Group solely for holding the share capital of
Yorkshire and has no other significant operations.
Each of the US Parents holds an indirect 50% interest in Yorkshire Group.
AEP holds such interest through its wholly-owned subsidiary, AEP Resources,
Inc., an Ohio corporation ("AEP Resources"). NCE holds its 50% indirect
interest in Yorkshire Group through NC Enterprises, Inc., a Delaware
corporation, which in turn wholly-owns New Century International, Inc., a
Delaware corporation ("New Century International").
YORKSHIRE FINANCE
Yorkshire Finance was incorporated under the laws of the Cayman Islands in
August 1997. Yorkshire Finance exists solely for the purpose of operating as a
financing vehicle for Yorkshire Group and its affiliates. Yorkshire Finance
does not, and does not expect to, prepare or publish any financial statements.
The registered office of Yorkshire Finance is P.O. Box 309, George Town, Grand
Cayman Island, British West Indies and its principal executive office is at
Wetherby Road, Scarcroft, Leeds, LS14 3HS, England.
The following table sets forth, at March 31, 1998, (i) the actual
capitalization of Yorkshire Finance and (ii) the capitalization of Yorkshire
Finance adjusted to reflect the June 1998 issuance of $275,000,000 aggregate
principal amount of its 8.08% Junior Subordinated Deferrable Interest
Debentures, Series A due June 30, 2038:
<TABLE>
<CAPTION>
MARCH 31, 1998
------------------------------------- ---------------
ACTUAL(1) AS ADJUSTED
------------------ ------------------
(Pounds) $(2) (Pounds) $(2)
----------- ------ ----------- ------
(AMOUNTS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Long-term debt:
Senior Notes .......... (Pounds)388 $ 650 (Pounds)388 $ 650
Guaranteed Eurobonds... 200 336 200 336
Junior Subordinated
Deferrable Interest
Debentures ........... -- -- 164 275
Shareholder's equity:
Called up share
capital, par value
$1.00 for each share
(50,000 ordinary
shares authorized, of
which 2,000 shares
have been issued and
are fully paid up as
of March 31, 1998 and
as adjusted).......... * * * *
Share premium account.. 20 33 20 33
----------- ------ ----------- ------
Total capitalization. (Pounds)608 $1,019 (Pounds)772 $1,294
=========== ====== =========== ======
</TABLE>
- --------
(1) Except as noted above, since March 31, 1998, there has been no material
change in the capitalization of Yorkshire Finance.
(2) Solely for convenience of the reader, UK pounds sterling amounts have been
translated into US dollars at the Noon Buying Rate on March 31, 1998 of
$1.6765 = (Pounds)1. See "Presentation of Certain Information and Exchange
Rates".
*Called up share capital as of March 31, 1998 was (Pounds)1,193 ($2,000).
YORKSHIRE
Yorkshire's principal businesses are the distribution of electricity to
approximately two million customers in its Franchise Area and the supply of
electricity primarily within its Franchise Area. As discussed below under
"Business--Business Restructuring", beginning in late 1998, Yorkshire will
operate the distribution and supply businesses as self-sufficient businesses.
34
<PAGE>
The registered office and principal executive offices of the Yorkshire Group
and Yorkshire are located at Wetherby Road, Scarcroft, Leeds LS14 3HS,
England, telephone number 011-44-113-289-2123.
The following organization chart illustrates the current ownership of
Yorkshire Group, Yorkshire Finance and Yorkshire.
CHART
American Electric New Century
Power Company, Inc. Energies, Inc.
("AEP") ("NCE")
NC
Enterprises, Inc.
AEP Resources, Inc. New Century
International, Inc.
50% 50%
Yorkshire Power Group Limited
("Yorkshire Group")
Yorkshire Holdings plc
("Yorkshire Holdings")
Yorkshire Power
Finance Limited
("Yorkshire Finance")
Yorkshire Electricity
Group plc
("Yorkshire")
35
<PAGE>
THE US PARENTS
AEP
AEP is an electric utility holding company registered under the 1935 Act.
AEP owns all of the outstanding common stock of AEP Generating Company,
Appalachian Power Company, Columbus Southern Power Company, Indiana Michigan
Power Company, Kentucky Power Company, Kingsport Power Company, Ohio Power
Company and Wheeling Power Company. These eight utility subsidiaries are
engaged in the generation, purchase, transmission, distribution and sale of
electricity to over 2.9 million retail customers in portions of the states of
Indiana, Kentucky, Michigan, Ohio, Tennessee, Virginia and West Virginia. AEP
also owns all the outstanding common stock of AEP Resources and AEP Resources
International, Limited whose primary businesses are the development of, and
investment in, exempt wholesale generators, foreign utility companies,
qualifying cogeneration facilities and other power projects. In the year ended
December 31, 1997, AEP generated consolidated operating revenues of $6.2
billion and had consolidated assets of approximately $16.6 billion.
On December 22, 1997, AEP announced the signing of a merger agreement with
Central and South West Corporation, a Dallas, Texas based electric utility
holding company that is registered under the 1935 Act ("CSW"). CSW owns four
electric operating subsidiaries serving 1.7 million customers in Texas,
Oklahoma, Louisiana and Arkansas. CSW also owns SEEBOARD plc, a REC which
serves the southeast coast of England. Under the merger agreement, each share
of CSW common stock will be converted into 0.6 share of AEP common stock.
Based on the price of AEP's common stock on December 19, 1997, the transaction
would be valued at $6.6 billion. The combined company will be named American
Electric Power Company, Inc. and will be based in Columbus, Ohio. The merger
is conditioned upon, among other things, the approvals of the shareholders of
AEP and CSW and various state and federal regulatory agencies. Assuming the
receipt of all required approvals, the merger is currently expected to be
consummated within twelve to eighteen months of its announcement.
NCE
NCE is also an electric utility holding company registered under the 1935
Act. NCE owns all the outstanding common stock of Public Service Company of
Colorado, Cheyenne Light, Fuel and Power Company and Southwestern Public
Service Company, which serve approximately 1.6 million retail electric
customers in portions of the states of Colorado, Texas, New Mexico, Oklahoma,
Kansas and Wyoming and approximately 1 million retail gas customers in
portions of the states of Colorado and Wyoming. These three electric and gas
utility subsidiaries are principally engaged in the generation, purchase,
transmission, distribution and sale of electricity and in the purchase,
transmission, distribution, sale and transportation of natural gas. In the
year ended December 31, 1997, NCE generated consolidated operating revenues of
$3.3 billion and had consolidated assets of approximately $7.3 billion.
USE OF PROCEEDS
Neither Yorkshire Group nor Yorkshire Finance will receive any cash proceeds
from the issuance of the Exchange Senior Notes offered hereby. In
consideration for issuing the Exchange Senior Notes in exchange for Original
Senior Notes as described in this Prospectus, Yorkshire Finance will receive
Original Senior Notes in like principal amount. The Original Senior Notes
surrendered in exchange for Exchange Senior Notes will be retired and
canceled.
The net proceeds from the offering of the Original Senior Notes
(approximately $645 million after deducting estimated offering expenses
payable by Yorkshire Finance and the Initial Purchasers' discount) were loaned
by Yorkshire Finance to Yorkshire Group in exchange for promissory notes of
Yorkshire Group.
Yorkshire Group used the net proceeds from such loan to repay a portion of
its indebtedness under the Credit Facility, dated July 31, 1997, between
Yorkshire Group and Union Bank of Switzerland (the "1997 Credit Facility"),
which at June 30, 1998 had an outstanding balance of (Pounds)279,320,000
($468,279,980) and bore interest at a rate of 8.0864%. See "Capitalization"
and "Management's Discussion and Analysis of Financial Condition and Results
of Operations".
36
<PAGE>
CAPITALIZATION
The following table sets forth, at March 31, 1998, (i) the actual
consolidated capitalization of Yorkshire Group and (ii) the consolidated
capitalization of Yorkshire Group adjusted to reflect the June 1998 issuance
by Yorkshire Capital Trust I, a Delaware statutory business trust, of
(Pounds)164 million ($275 million) of trust securities, fully and
unconditionally guaranteed by Yorkshire Group (the "Trust Securities"), and
the application of the net proceeds thereof to reduce amounts outstanding
under the 1997 Credit Facility. This table should be read in conjunction with
"Selected Consolidated Financial Data", "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and the consolidated
financial statements and notes thereto of the Yorkshire Group included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1998
-----------------------------------------------------
ACTUAL(1) AS ADJUSTED
--------------------------- ------------------------
(Pounds) $(2) % (Pounds) $(2) %
------------- ------ --- ------------- ------ ---
(AMOUNTS IN MILLIONS, EXCEPT %)
<S> <C> <C> <C> <C> <C> <C>
Capitalization:
1997 Credit Facility.... (Pounds) 464(3) $ 778 25% (Pounds) 300 $ 503 16%
Other short-term debt... 24 40 1 24 40 1
Long-term debt:
European Investment
Bank................. 69 116 3 69 116 3
Eurobonds............. 360 603 20 360 603 20
Senior Notes.......... 400 671 22 400 671 22
Guaranteed Eurobonds.. 197 331 11 197 331 11
Company-obligated
Mandatorily Redeemable
Trust Securities of
Subsidiary Holding
Solely Junior
Subordinated Deferrable
Interest Debentures.... 164 275 9
Shareholders' equity:
Share capital, par
value (Pounds)1.00
each share
(440,000,100 ordinary
shares authorized,
440,000,002 of which
are issued and fully
paid as of March 31,
1998 and as
adjusted), net of
retained earnings.... 323 541 18 323 541 18
------------- ------ --- ------------- ------ ---
Total
capitalization..... (Pounds)1,837 $3,080 100% (Pounds)1,837 $3,080 100%
============= ====== === ============= ====== ===
</TABLE>
- --------
(1) Except as disclosed above, since March 31, 1998, there has been no
material change in the capitalization of Yorkshire Group.
(2) Solely for convenience of the reader, UK pounds sterling amounts have been
translated into US dollars at the Noon Buying Rate on March 31, 1998 of
$1.6765 = (Pounds)1. See "Presentation of Certain Information and Exchange
Rates".
(3) Includes the June 1998 issuance of the Trust Securities.
37
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The consolidated income statement data, other consolidated data and certain
business segment data of the Predecessor Company for each of the five Fiscal
Years ended March 31, 1997 and the consolidated balance sheet data and certain
business segment data of the Predecessor Company at the end of each such
Fiscal Year presented below that were derived from the audited consolidated
financial statements of the Predecessor Company have been prepared in
accordance with US GAAP and audited by Deloitte & Touche. The consolidated
balance sheet data and certain business segment data of the Successor Company
as of April 1, 1997 presented below that were derived from the audited
consolidated balance sheet of the Successor Company have been prepared in
accordance with US GAAP and audited by Deloitte and Touche. The selected
consolidated income statement data and other consolidated data of the
Successor Company for Fiscal Year 1998 and the consolidated balance sheet data
of the Successor Company at the end of such Fiscal Year presented below that
were derived from the audited consolidated financial statements of the
Successor Company have been prepared in accordance with US GAAP and audited by
Deloitte & Touche LLP. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the consolidated financial statements
and notes thereto of the Predecessor Company and the Successor Company
included elsewhere in this Prospectus.
38
<PAGE>
PREDECESSOR COMPANY
<TABLE>
<CAPTION>
FISCAL YEAR ENDED MARCH 31,
--------------------------------------------
1993 1994 1995 1996 1997
-------- -------- -------- -------- --------
(Pounds) (Pounds) (Pounds) (Pounds) (Pounds)
-------- -------- -------- -------- --------
(AMOUNTS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED INCOME STATEMENT DA-
TA:
Operating revenues.............. 1,325 1,308 1,464 1,431 1,331
Operating income (1)............ 146 156 215 214 52
Other income (loss), net (2).... 15 (8) 16 313 20
Interest expense, net........... (7) (5) (12) (20) (33)
Provision for income taxes (3).. (54) (50) (78) (114) (13)
----- ----- ----- ----- -----
Net income...................... 100 93 141 393 26
===== ===== ===== ===== =====
<CAPTION>
MARCH 31,
--------------------------------------------
1993 1994 1995 1996 1997
-------- -------- -------- -------- --------
(Pounds) (Pounds) (Pounds) (Pounds) (Pounds)
-------- -------- -------- -------- --------
(AMOUNTS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Fixed assets.................... 613 701 747 769 796
Total assets.................... 1,214 1,241 1,367 1,408 1,375
Total shareholders' equity...... 561 612 517 399 359
Long-term debt.................. 104 126 305 424 419
Short-term debt and current por-
tion of long-term debt......... 217 99 91 90 87
<CAPTION>
FISCAL YEAR ENDED MARCH 31,
--------------------------------------------
1993 1994 1995 1996 1997
-------- -------- -------- -------- --------
(Pounds) (Pounds) (Pounds) (Pounds) (Pounds)
-------- -------- -------- -------- --------
(AMOUNTS IN MILLIONS, EXCEPT RATIOS)
<S> <C> <C> <C> <C> <C>
OTHER CONSOLIDATED DATA:
EBIT (4)........................ 161 148 231 527 72
EBITDA (4)...................... 193 182 272 569 122
Cash flow from operations....... 187 237 201 222 96
Cash used in investing activi-
ties........................... (137) (201) (101) (8) (51)
Cash provided by (used in) fi-
nancing activities............. 129 (139) (67) (114) (76)
Ratio of earnings to fixed
charges (5).................... 6.6 6.8 10.5 12.0 1.8
</TABLE>
39
<PAGE>
SUCCESSOR COMPANY
<TABLE>
<CAPTION>
SUCCESSOR
FISCAL YEAR
1998
--------------
(Pounds) $(6)
-------- -----
(AMOUNTS IN MILLIONS)
<S> <C> <C> <C> <C>
CONSOLIDATED INCOME STATEMENT DATA:
Operating revenues.............................. 1,285 2,154
Operating income (1)............................ 161 270
Other loss, net (2)............................. (39) (66)
Interest expense, net........................... (106) (178)
Provision for income taxes...................... 1 2
----- -----
Income before extraordinary item................ 17 28
Extraordinary item (7).......................... (134) (225)
----- -----
Net loss........................................ (117) (197)
===== =====
</TABLE>
<TABLE>
<CAPTION>
SUCCESSOR SUCCESSOR
APRIL 1, MARCH 31,
1997 1998
--------- --------------
(Pounds) (Pounds) $(6)
--------- -------- -----
(AMOUNTS IN MILLIONS)
<S> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Fixed assets.................................... 939 1,060 1,777
Total assets.................................... 2,591 2,462 4,126
Total shareholders' equity...................... -- 323 541
Long-term debt.................................. 433 1,026 1,720
Accrued liability to purchase Yorkshire......... 1,496 -- --
Short-term debt and current portion of long-term
debt........................................... 87 324 542
Short-term debt refinanced in June 1998......... -- 164 275
</TABLE>
<TABLE>
<CAPTION>
SUCCESSOR
FISCAL YEAR
1998
---------------
(Pounds) $(6)
-------- ------
(AMOUNTS IN MILLIONS,
EXCEPT RATIOS)
<S> <C> <C> <C> <C>
OTHER CONSOLIDATED DATA:
EBIT before extraordinary item (4)(7)........... 122 204
EBITDA before extraordinary item (4)(7)......... 200 335
Cash flow from operations....................... 62 103
Cash used in investing activities............... (1,639) (2,747)
Cash provided by (used in) financing
activities..................................... 1,391 2,332
Ratio of earnings to fixed charges (5).......... 1.1
</TABLE>
40
<PAGE>
PREDECESSOR COMPANY
BUSINESS SEGMENTS
<TABLE>
<CAPTION>
FISCAL YEAR ENDED MARCH 31,
--------------------------------------------
1993 1994 1995 1996 1997
(Pounds) (Pounds) (Pounds) (Pounds) (Pounds)
-------- -------- -------- -------- --------
(AMOUNTS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
OPERATING REVENUES:
Distribution.................... 332 348 362 334 308
Supply.......................... 1,206 1,220 1,343 1,309 1,178
Other........................... 182 162 162 163 172
Intrabusiness eliminations (8).. (395) (422) (403) (375) (327)
----- ----- ----- ----- -----
1,325 1,308 1,464 1,431 1,331
===== ===== ===== ===== =====
OPERATING INCOME (LOSS):
Distribution.................... 135 133 176 164 127
Supply (1)...................... 10 14 23 30 (132)
Other........................... 1 9 16 20 10
Intrabusiness eliminations
(1)(8)......................... -- -- -- -- 47
----- ----- ----- ----- -----
146 156 215 214 52
===== ===== ===== ===== =====
<CAPTION>
MARCH 31,
--------------------------------------------
1993 1994 1995 1996 1997
(Pounds) (Pounds) (Pounds) (Pounds) (Pounds)
-------- -------- -------- -------- --------
(AMOUNTS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
TOTAL ASSETS:
Distribution.................... 476 513 556 589 643
Supply.......................... 177 161 198 212 178
Other and unallocated........... 561 567 613 607 554
----- ----- ----- ----- -----
1,214 1,241 1,367 1,408 1,375
===== ===== ===== ===== =====
</TABLE>
41
<PAGE>
SUCCESSOR COMPANY
BUSINESS SEGMENTS
<TABLE>
<CAPTION>
SUCCESSOR
FISCAL YEAR
1998
--------------------------
(Pounds) $(6)
------------- ------------
(AMOUNTS IN MILLIONS)
<S> <C> <C> <C> <C>
OPERATING REVENUES:
Distribution........................ 305 511
Supply.............................. 1,118 1,874
Other............................... 203 340
Intrabusiness eliminations (8)...... (341) (571)
----- ----------
1,285 2,154
===== ==========
OPERATING INCOME:
Distribution........................ 115 193
Supply (1).......................... 25 42
Other............................... 24 40
Intrabusiness eliminations (8)...... (3) (5)
----- ----------
161 270
===== ==========
<CAPTION>
SUCCESSOR SUCCESSOR
APRIL 1, 1997 MARCH 31,1998
------------- ------------------------
(Pounds) (Pounds) $(6)
------------- ------------ ----------
(AMOUNTS IN MILLIONS)
<S> <C> <C> <C> <C>
TOTAL ASSETS:
Distribution........................ 1,802 1,903 3,190
Supply.............................. 187 157 263
Other and unallocated............... 602 402 673
----- ---------- ----------
2,591 2,462 4,126
===== ========== ==========
</TABLE>
42
<PAGE>
(1) Notable operating expenses include:
Fiscal Year 1998--provison of (Pounds)5 million for committed costs arising
from delays in opening up the competitive market and (Pounds)10 million
restructuring charges.
Fiscal Year 1997--(i) a provision of (Pounds)78 million for uneconomic gas
and electricity contracts (the effect of which is removed from the
Successor Company's unaudited pro forma consolidated statement of income
for Fiscal Year 1997), which resulted in a charge of (Pounds)125 million to
the supply business offset by an intrabusiness elimination of (Pounds)47
million and (ii) a charge of (Pounds)50 million for information system
development costs to prepare for the opening of the competitive electricity
market in 1998 for Franchise Supply Customers, of which (Pounds)37 million
was charged to the supply business and (Pounds)13 million was charged to
the distribution business.
Fiscal Years 1993, 1994 and 1995--reorganization costs of (Pounds)18
million, (Pounds)44 million and (Pounds)8 million, respectively.
(2) Other income (loss) principally represents income from Yorkshire's
investment in National Grid Group plc ("NGG") and, in Fiscal Year 1996, a
gain resulting from the NGG Transaction (as defined herein) and earnings
and losses from Yorkshire's investments in joint ventures and minority
holdings. Notable items include:
Fiscal Year 1998--an unrealized loss of (Pounds)41 million before taxes was
charged following the reduction on fair value of Yorkshire Group's
investment in Ionica Group plc.
Fiscal Year 1997--gain on sale of Yorkshire's investment in Torch Telecom
of (Pounds)15 million.
Fiscal Year 1996--income from investment in NGG and gain in respect of the
NGG Transaction as described under "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Introduction--NGG
Transaction".
Fiscal Year 1995--one-time termination payment received from Stockholm
Stadhus AB of (Pounds)17 million.
Fiscal Year 1994--loss on sale of Yorkshire's investment in Homepower
Retail Limited of (Pounds)18 million.
(3) Fiscal Year 1996 includes a tax charge of (Pounds)38 million relating to
the NGG Transaction.
(4) EBIT represents income before the sum of interest expense and income
taxes. EBITDA represents income before the sum of interest expense, income
taxes, depreciation and amortization. EBIT and EBITDA are provided for
informational purposes only and such measures should not be construed as
alternatives to operating income (as determined in accordance with US
GAAP) as indicators of operating performance, or as alternatives to cash
flows from operating activities (as determined in accordance with US GAAP)
as measures of liquidity. EBIT and EBITDA are widely accepted financial
indicators of a company's ability to incur and service debt. However, the
measures of EBIT and EBITDA presented herein may not be comparable to
similar measures presented by other companies.
(5) The ratio of earnings to fixed charges is computed as the sum of pre-tax
income (before extraordinary item), plus fixed charges divided by fixed
charges. Fixed charges consist of interest expense and amortization of
debt expense.
(6) Solely for the convenience of the reader, pounds sterling amounts have
been translated into US dollar amounts at the Noon Buying Rate on March
31, 1998 of $1.6765 = (Pounds)1. See "Presentation of Certain Information
and Exchange Rates".
(7) Represents the windfall tax imposed by the UK government, which was not
deductible for UK corporation tax purposes.
(8) Intrabusiness eliminations consist primarily of intracompany transactions
between the distribution business and the supply business and
interbusiness transactions between ancillary businesses. Pursuant to the
UK regulatory framework, charges by the distribution business for
electricity in respect of supply customers in the Franchise Area are
billed to the supply business, which in turn incorporates the distribution
charge into the bill sent to the final end user.
43
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the consolidated
financial statements and the notes thereto of the Successor Company and with
the consolidated statements and the notes thereto of the Predecessor Company
and "Selected Consolidated Financial Data" included elsewhere in this
Prospectus. The consolidated statements of the Successor Company and the
Predecessor Company discussed herein are presented in accordance with US GAAP.
INTRODUCTION
Background
Yorkshire Group is indirectly equally owned by AEP and NCE. Yorkshire Group
was incorporated as a limited company under the laws of England and Wales in
July 1996. Effective April 1, 1997, Yorkshire Group, through its wholly owned
subsidiary Yorkshire Holdings, gained effective control of Yorkshire.
Yorkshire Group's primary asset is the stock of Yorkshire Holdings. Yorkshire
Holdings, which owns all the outstanding stock of Yorkshire, has no
significant operations outside of its investment in Yorkshire.
Financing the Acquisition
Yorkshire Group indirectly acquired ownership of Yorkshire by means of a
cash offer commenced on February 24, 1997 and declared wholly unconditional on
April 1, 1997. The Acquisition was completed through the payment of cash
consideration of (Pounds)1,457 million and the issuance of loan notes in the
amount of (Pounds)22 million. The total consideration, including acquisition
costs, was (Pounds)1,496 million. The Acquisition was financed by cash
contributions of (Pounds)220 million from each of AEP and NCE and from
borrowings under a (Pounds)1,140 million five year term loan and revolving
facility agreement dated February 24, 1997. On July 31, 1997, this term loan
and revolving facility agreement was replaced by the 1997 Credit Facility.
Accounting for the Acquisition
The recorded assets and liabilities of Yorkshire at March 31, 1997 were
(Pounds)1,375 million and (Pounds)1,016 million, respectively. In accordance
with the purchase method of accounting, the assets and liabilities acquired
have been recorded based on an allocation of the purchase price. Effective
April 1, 1997, Yorkshire's assets were increased by (Pounds)222 million to
their fair value of (Pounds)1,597 million, reflecting principally: (a) an
increase of (Pounds)138 million in the value of Yorkshire's distribution
network in excess of its depreciated cost basis; (b) an increase in the
pension asset for the defined benefit pension plan of (Pounds)55 million; and
(c) an increase in the value of an equity investment in Ionica Group plc
("Ionica") of (Pounds)23 million. Yorkshire's liabilities were increased by
(Pounds)79 million to their fair value of (Pounds)1,095 million, reflecting
principally: (a) an increase in the deferred tax liability of (Pounds)67
million; and (b) an increase of (Pounds)14 million in the market value of
long-term borrowings. The excess of the purchase price plus Acquisition costs,
totalling (Pounds)1,496 million, over the fair value of assets acquired net of
liabilities assumed, totalling (Pounds)502 million, resulted in goodwill of
(Pounds)994 million which is being amortized over a 40 year period. The
consolidated financial statements of the Predecessor Company discussed below
do not reflect the foregoing adjustments.
NGG Transaction
During Fiscal Year 1996, Yorkshire, together with the other 11 RECs in the
UK, distributed the majority of its shares in NGG to its shareholders. This
transaction, together with certain related transactions (collectively, the
"NGG Transaction"), had a material impact on Yorkshire's financial results for
that year. The related transactions included: (a) Yorkshire's receipt of
special and ordinary dividends; (b) the receipt by each Yorkshire residential
customer of a one-time discount pursuant to an agreement among the
shareholders of NGG; and (c) Yorkshire's receipt of an in-kind dividend of
approximately 9.2% of the shares of PSB Holdings Limited ("PSB"), the holding
company of First Hydro Limited, which shares were subsequently converted to
cash upon PSB's liquidation.
44
<PAGE>
SIGNIFICANT FACTORS AND KNOWN TRENDS
Competition and Industry Challenges
On April 1, 1995 and 1996, certain reductions in allowed distribution
revenues were made by the Regulator. Yorkshire's allowed distribution revenues
were impacted by a 14% below inflation reduction and a 13% below inflation
reduction on April 1, 1995 and 1996, respectively, following reviews by the
Regulator. On April 1, 1997 and April 1, 1998, Yorkshire's allowed
distribution revenues were decreased by an additional 3% below inflation
reduction, and there will be a further 3% below inflation reduction on April
1, 1999.
The potential exists for additional distribution price reductions based upon
further review by the Regulator. The next scheduled Distribution Price Control
Formula review will be in 2000. Future cost efficiency initiatives may not
result in sufficient savings to offset price reductions. Price reductions are
mitigated by the inclusion of the UK Retail Price Index in the determination
of the Distribution Price Control Formula. Because the maximum average price
in any year is based in part on the maximum average price in the preceding
year, a price reduction in any given year has an ongoing effect on the maximum
average price for all subsequent years. See "The Electric Utility Industry in
Great Britain--Distribution of Electricity--Price Control".
Yorkshire currently has an exclusive right to supply electricity to its
Franchise Supply Customers. Competition in supply to such customers was
scheduled to be phased in over a six month period commencing on April 1, 1998.
In October 1997, the Regulator published proposals for new transitional supply
price restraints to apply from April 1, 1998 to residential and small business
customers for an initial period of two years and until an adequate level of
competition is established. Yorkshire subsequently indicated its acceptance of
such proposals. The proposals (when taken together with the reduction in the
Fossil Fuel Levy, which became effective on April 1, 1998) resulted in the
implementation of small reductions, effective April 1, 1998, in the tariffs
for Yorkshire's residential and small business customers in its Franchise Area
compared to the corresponding tariffs in effect in August 1997. The proposals
also require an additional 3% below inflation reduction effective April 1,
1999. See "The Electric Utility Industry in Great Britain--Supply of
Electricity--Price Regulation".
Following an announcement in January 1998 by the Regulator, competition in
supply to Franchise Supply Customers has been delayed until September 1998.
Assuming that such competition starts as currently scheduled in September 1998
for Franchise Supply Customers, Yorkshire Group presently estimates that costs
totalling (Pounds)72 million will have been incurred for re-engineering and
information technology work. Of such amount, approximately (Pounds)19 million
was expensed in Fiscal Year 1997 and (Pounds)2 million in Fiscal Year 1998.
The Regulator has made proposals (which have been accepted by Yorkshire) to
allow Yorkshire recovery of (Pounds)23 million over a five year period ending
March 31, 2003. A further (Pounds)7 million is expected to be recovered
through Pool cost recovery and other national mechanisms and (Pounds)8 million
is expected to be capitalized as such amount is expected to provide future
benefits to the supply business. As a result of the above, the residual amount
of approximately (Pounds)13 million, which will not be recovered or
capitalized, will be expensed in Fiscal Year 1999 as incurred.
The Regulator has also made proposals (which have been accepted by
Yorkshire) to provide an annual cost recovery of (Pounds)3 million for the
period 1998 through 2000 to cover operating costs. The allowance will be
reviewed at the time of the Distribution Price Formula Control review in 2000.
The October 1997 proposals therefore will allow Yorkshire to recover up to
52% of its forecasted set-up and operating costs over a five year period. The
shortfall could be higher if: (i) operating costs are higher than anticipated
(e.g., there is a higher level of customer activity); (ii) recovery of
operating costs is disallowed or reduced when the Distribution Price Control
Formula is reviewed for the period beginning April 1, 2000; or (iii) the
integrated national systems do not work as contemplated or require substantial
redevelopment.
45
<PAGE>
The Regulator's proposals also provided that a REC should be penalized: (i)
where it starts to open its market more than three months after the market
opening by the first REC; (ii) where it opens successive tranches of its
market more than three months after the opening of the corresponding tranche
by the first REC; and (iii) where the market opening of the first REC has been
delayed beyond April 1, 1998. The penalties will be calculated at 1% of the
operating revenues of the supply business for Franchise Supply Customers per
month of delay, weighted by the proportion of customers affected and applied
as a reduction in allowed distribution business income. If Yorkshire does not
open its market for Franchise Supply Customers to competition until after
April 1, 1999, it would incur a penalty of approximately (Pounds)6 million. It
is now apparent that some penalty will be incurred due to the delay in the
opening of the competitive market for Franchise Supply Customers until
September 1998 and a provision of (Pounds)3 million has been included in the
results for Fiscal Year 1998. Yorkshire Group expects that Yorkshire will be
prepared to open its Franchise Area to such competition in September 1998.
Factors Affecting Revenues
Two principal factors determine the amount of revenues produced by the
distribution business: the unit price of electricity distributed (which is
controlled by the Distribution Price Control Formula) and the number of
electricity units distributed (which depends upon customer demands as
influenced in part by economic activity and weather conditions).
Two principal factors determine the amount of revenues produced by the
supply business: the unit price of the electricity supplied (which, in the
case of the Franchise Supply Customers, is controlled by the Supply Price
Control Formula) and the number of electricity units supplied. Yorkshire is
currently expected to have the exclusive right to supply all Franchise Supply
Customers in its Franchise Area until September 1998.
UK Tax Law Changes
On July 2, 1997, the UK government enacted certain changes in tax law,
including a one-time windfall tax on privatized industries and a reduction in
rates of corporation tax on income from 33% to 31%. The windfall tax on
Yorkshire is (Pounds)134 million and will not be deductible for UK corporation
tax purposes. The windfall tax has been recorded as an extraordinary charge in
Fiscal Year 1998. The tax is payable in two equal installments on December 1,
1997 and 1998. During Fiscal Year 1998, Yorkshire Group estimated the impact
of the reduction in corporation tax rates, which resulted in a one-time
reduction in deferred income tax liabilities and a corresponding reduction in
income tax expense of approximately (Pounds)12 million.
Business Restructuring
In December 1997, Yorkshire announced a planned business restructuring
intended to enable it to meet increased competition and react to potential
regulatory developments in the energy markets in the UK. The restructuring
will result in the distribution and supply businesses becoming self-sufficient
businesses. As part of the restructuring, an alternative ownership structure
will be pursued for the generation business. Yorkshire currently contemplates
transferring such assets to an entity or entities other than Yorkshire Group
or its subsidiaries. It is expected that proceeds from the transfer of these
assets will be used to reduce debt of Yorkshire Group. See "Certain
Relationships and Related Transactions".
Total assets less current liabilities employed by the generation business at
March 31, 1998 were (Pounds)136 million. Operating income attributable to the
generation business in Fiscal Year 1998 was (Pounds)16 million.
As a result of this restructuring, approximately 160 positions will be
eliminated. A provision of approximately (Pounds)10 million was recorded in
Fiscal Year 1998 to reflect the cost of these workforce reductions.
46
<PAGE>
Investment in Ionica
Yorkshire Group's investment in Ionica was initially included in its
consolidated balance sheet at its fair value at acquisition on April 1, 1997
of (Pounds)54 million plus a subsequent additional investment of (Pounds)1
million. Management has written down the book value of the investment to their
estimate of fair value by charging an unrealized loss of (Pounds)41 million
before taxes in Fiscal Year 1998. The reduction in fair value of the
investment was recognized by management as "other than temporary" following an
announcement by Ionica on May 22, 1998 that Ionica had been unsuccessful in
negotiating release of credit lines from existing providers of bank finance
and had been advised to obtain further equity investment prior to seeking
further bank funding. Management expects to take an additional charge of
(Pounds)6 million before taxes in the first quarter of Fiscal Year 1999.
Derivative Financial Instruments and Interest Rates
Derivative financial instruments are used by Yorkshire on a limited basis
and are utilized only to mitigate business risks and not for speculative
purposes.
Yorkshire Group maintains its cash balances in pounds sterling. However,
Yorkshire Group's obligations related to the issuance of the Senior Notes will
be payable in US dollars. Upon issuance of the Original Senior Notes, cross
currency swap agreements were taken out to hedge a portion of the currency
risk exposure.
Changes in interest rates have not had a significant impact on Yorkshire in
the last three years. However, Yorkshire has entered into debt facilities
which bear interest at variable rates. As part of its risk management policy
and to mitigate the effects of interest rate changes, Yorkshire Group enters
into interest rate swap agreements under which counterparties have agreed to
pay amounts to Yorkshire Group equal to variable interest obligations in
consideration of amounts payable by Yorkshire Group equivalent to fixed rates
of interest. If the counterparty to the interest rate swap was to default on
contractual payments, Yorkshire Group could be exposed to increased costs
related to replacing the original agreement. See Note 7, "Financial
Instruments", to Yorkshire's consolidated financial statements for the three
years ended March 31, 1997 and Note 9, "Financial Instruments", to Yorkshire
Group's consolidated financial statements for Fiscal Year 1998 included
elsewhere in this Prospectus for additional information on such agreements.
Environmental Factors
Yorkshire's businesses are subject to numerous regulatory requirements with
respect to the protection of the environment. The principal laws which have
environmental implications for Yorkshire are the Electricity Act, the
Environmental Protection Act 1990 and the Environment Act 1995. Yorkshire
believes that it has taken, and intends to continue taking, measures to comply
with the applicable law and government regulations for the protection of the
environment. There are no material legal or administrative proceedings pending
against Yorkshire with respect to any environmental matter.
Inflation
Inflation neither has had a significant impact on Yorkshire in the last
three years, nor is expected to do so in the foreseeable future. Yorkshire's
revenues from regulated activities are adjusted based on factors which include
an index for inflation in costs of operations.
Year 2000 Issues
Yorkshire Group is currently evaluating its business systems and processes
to determine the extent to which modifications are required to prevent
problems related to the year 2000, and the resources which will be required to
make such modifications. Yorkshire Group has established a dedicated team to
coordinate and control all date conformity work within a structured program
framework. Yorkshire Group estimates that the costs associated with year 2000
modifications will be approximately (Pounds)26 million, of which (Pounds)17
million will be expensed as incurred, and (Pounds)9 million will be
capitalized. The amount expensed in Fiscal Year 1998 was (Pounds)2 million.
47
<PAGE>
RESULTS OF OPERATIONS
Fiscal Year 1998 for the Successor Company Compared with Fiscal Year 1997
for the Predecessor Company
Earnings
Income from operations increased by (Pounds)109 million (210%) from
(Pounds)52 million for Fiscal Year 1997 to (Pounds)161 million for Fiscal Year
1998. The increase was largely due to the effect of the following items
included in income from operations for Fiscal year 1997: (i) a (Pounds)78
million provision for uneconomic gas and electricity contracts, which resulted
in a charge of (Pounds)125 million to the supply business offset by an
intrabusiness elimination of (Pounds)47 million; (ii) a (Pounds)50 million
charge for information system development costs to prepare for the opening of
the competitive electricity market in 1998 and to replace billing and
collection systems, of which (Pounds)37 million was charged to the supply
business and (Pounds)13 million was charged to the distribution business;
(iii) a (Pounds)8 million charge incurred for advisers' fees in respect of the
Acquisition; and (iv) a (Pounds)6 million write-down of the value of non-
operational property. The favorable effect on the comparative income from
operations was partly offset by the following items included in income from
operations for Fiscal Year 1998: (i) a provision of (Pounds)10 million for
restructuring costs; (ii) a provision of (Pounds)5 million for committed costs
arising from delays in opening up the competitive market, (iii) amortization
of goodwill of (Pounds)25 million; (iv) additional marketing costs of
(Pounds)8 million; and (v) additional depreciation of (Pounds)7 million
arising from the revaluation of distribution network assets in connection with
the Acquisition. These additional costs were mitigated by a decrease in net
periodic pension costs of (Pounds)13 million, due to an increase in the market
value of the pension fund and a change in respect of identifying the element
of costs to be capitalized within the distribution network reducing operating
expenses by (Pounds)15 million.
Income from operations by segments for Fiscal Year 1998 was (Pounds)115
million, (Pounds)25 million and (Pounds)24 million for the distribution,
supply and other segments, respectively. Income (loss) from those segments in
Fiscal Year 1997 was (Pounds)127 million, (Pounds)(132) million and (Pounds)10
million, respectively.
An unrealized loss of (Pounds)41 million before taxes was charged in Fiscal
Year 1998 following the reduction in fair value of Yorkshire Group's
investment in Ionica.
Net interest expense rose from (Pounds)33 million for Fiscal Year 1997 to
(Pounds)106 million for Fiscal Year 1998 principally as a result of the
financing costs associated with the increased amount of debt incurred in
connection with the Acquisition.
Net income decreased by (Pounds)143 million, from (Pounds)26 million in
Fiscal Year 1997 to a loss of (Pounds)117 million in Fiscal Year 1998. In
addition to the variances discussed above, the net loss for Fiscal Year 1998
includes an extraordinary charge of (Pounds)134 million for the windfall tax
enacted by the UK Government in July 1997. The windfall tax is not deductible
for UK corporation tax purposes. Net income before this extraordinary charge
for Fiscal Year 1998 was (Pounds)17 million.
Revenues
Operating revenues decreased by (Pounds)46 million (3%) from (Pounds)1,331
million in Fiscal Year 1997 to (Pounds)1,285 million during Fiscal Year 1998
as follows:
<TABLE>
<CAPTION>
OPERATING REVENUES
INCREASE (DECREASE)
FROM FISCAL YEAR 1997
TO FISCAL YEAR 1998
---------------------
(Pounds) MILLIONS
<S> <C>
Distribution......................................... (3)
Supply............................................... (60)
Other................................................ 17
---
Total operating revenues........................... (46)
===
</TABLE>
Revenues from the distribution business decreased by (Pounds)3 million from
(Pounds)308 million for Fiscal Year 1997 to (Pounds)305 million for Fiscal
Year 1998 due to a decrease in the maximum allowable average price of units
48
<PAGE>
distributed as a result of the application of the revised Distribution Price
Control Formula. Units distributed increased by 0.4% in Fiscal Year 1998
partially offsetting such decrease.
Franchise Supply Customers, who are generally residential and small
commercial customers, comprised 52% of total sales volume for Fiscal Year
1998. The volume of unit sales of electricity for Franchise Supply Customers
is influenced largely by the number of customers in the Franchise Area,
weather conditions and prevailing economic conditions. Unit sales to Non-
Franchise Supply Customers, who are typically large commercial and industrial
businesses, constituted 48% of total sales volume for Fiscal Year 1998. Sales
to Non-Franchise Supply Customers are determined primarily by the success of
the supply business in contracting to supply electricity to customers who are
located both inside and outside the Franchise Area.
During Fiscal Year 1998, the number of electricity units supplied decreased
by 4% and total revenues produced by the supply business decreased by
(Pounds)60 million (5%) to (Pounds)1,118 million from (Pounds)1,178 million
for Fiscal Year 1997. Revenues decreased partly due to a reduction of 8% in
sales volume to Non-Franchise Supply Customers as a result of increased
competition and partly due to reduced cost of sales, the benefits of which are
passed on to customers.
Other revenues increased by (Pounds)17 million mainly as a result of
increased gas revenues.
Cost of Sales
Cost of sales decreased by (Pounds)50 million (5%) from (Pounds)932 million
in Fiscal Year 1997 to (Pounds)882 million in Fiscal Year 1998. This decrease
was due principally to the reduction in units supplied and reductions in the
Fossil Fuel Levy.
Operating Expenses
Operating expenses decreased by (Pounds)105 million (30%) from (Pounds)347
million in Fiscal Year 1997 to (Pounds)242 million in Fiscal Year 1998. The
reduction in operating expenses was mostly as a result of the following
expenses included in Fiscal Year 1997: (i) a (Pounds)78 million provision for
uneconomic gas and electricity contracts made for the net present value of
expected future payments in excess of anticipated recoverable amounts,
reflecting expectations of market prices for electricity following the opening
of the competitive electricity market in 1998 and future gas prices; (ii) a
(Pounds)50 million charge for information system development costs, including
(Pounds)19 million relating to the opening of the competitive electricity
market in 1998 and a (Pounds)31 million charge relating to the replacement of
billing and collection systems; (iii) a (Pounds)8 million charge incurred for
advisers' fees in respect of the Acquisition; and (iv) a (Pounds)6 million
write-down of the value of non-operational property. The comparative decrease
in operating expenses was lessened by the following operating expenses
included in Fiscal Year 1998: (i) a provision of (Pounds)10 million for
restructuring costs; (ii) a provision of (Pounds)5 million for committed costs
arising from delays in opening up the competitive market; (iii) amortization
of goodwill of (Pounds)25 million; (iv) additional marketing costs of
(Pounds)8 million; and (v) additional depreciation of (Pounds)7 million
arising from the revaluation of distribution network assets in connection with
the Acquisition. The decrease in net periodic pension costs of (Pounds)13
million and the increase in capitalized distribution costs of (Pounds)15
million partly offset the above increases in operating expenses for Fiscal
Year 1998.
Other Income Expense--Loss on Investment in Ionica
An unrealized loss of (Pounds)41 million before taxes was charged in Fiscal
Year 1998 following the reduction in fair value of Yorkshire Group's
investment in Ionica. See "Significant Factors and Know Trends--Investment in
Ionica."
Net Interest Expense
Net interest expense increased by (Pounds)73 million from (Pounds)33 million
during Fiscal Year 1997 to (Pounds)106 million in Fiscal Year 1998,
principally as a result of the financing costs associated with the 1997 Credit
Facility entered
49
<PAGE>
into to finance the Acquisition. To partially refinance the Acquisition,
Yorkshire entered into short-term borrowing arrangements totalling
(Pounds)1,034 million, a portion of which was replaced by (Pounds)593 million
of long-term debt issued in January and February 1998.
Income Taxes
Yorkshire Group's effective income tax rate, excluding the windfall tax,
decreased from 33% for Fiscal Year 1997 to (6)% for Fiscal Year 1998. The
effective rate in Fiscal Year 1998 was affected by the (Pounds)12 million
favorable impact of the reduction in the UK corporation tax rate from 33% to
31% as discussed above, partially offset by the amortization of goodwill,
which is not deductible for UK income tax purposes.
Windfall Tax
Yorkshire Group recorded an extraordinary charge of (Pounds)134 million
during Fiscal Year 1998 for the windfall tax enacted by the UK government in
July 1997. This windfall tax is not deductible for UK corporation tax
purposes.
Fiscal Year 1997 Compared with Fiscal Year 1996
Earnings
Income from operations was (Pounds)52 million in Fiscal Year 1997, a
decrease of (Pounds)162 million from (Pounds)214 million in Fiscal Year 1996.
The following items reduced Fiscal Year 1997 income from operations: (i) a
(Pounds)78 million provision for uneconomic gas and electricity contracts,
which resulted in a charge of (Pounds)125 million to the supply business
offset by an intrabusiness elimination of (Pounds)47 million; (ii) a
(Pounds)50 million charge for information system development costs to prepare
for the opening of the competitive electricity market in 1998 for Franchise
Supply Customers and to replace billing and collection systems, of which
(Pounds)37 million was charged to the supply business and (Pounds)13 million
was charged to the distribution business; (iii) a (Pounds)26 million decrease
in distribution revenues as a consequence of price reductions imposed by the
Regulator; (iv) a (Pounds)8 million charge incurred for advisers' fees in
respect of the Acquisition; and (v) a (Pounds)6 million write-down of the
value of non-operational property.
Income (loss) from operations by segments for Fiscal Year 1997 were
(Pounds)127 million, (Pounds)(132) million and (Pounds)10 million for the
distribution, supply and other segments, respectively. Income from operations
from those segments in Fiscal Year 1996 were (Pounds)164 million, (Pounds)30
million and (Pounds)20 million, respectively.
Net income was (Pounds)26 million in Fiscal Year 1997, a decrease of
(Pounds)367 million from (Pounds)393 million in Fiscal Year 1996, principally
due to the NGG Transaction in Fiscal Year 1996 and the charges recorded in
Fiscal Year 1997 discussed above.
Revenues
Operating revenues decreased by (Pounds)100 million (7%) from (Pounds)1,431
million in Fiscal Year 1996 to (Pounds)1,331 million in Fiscal Year 1997 as
follows:
<TABLE>
<CAPTION>
OPERATING REVENUES
INCREASE (DECREASE)
FROM FISCAL YEAR 1996
TO FISCAL YEAR 1997
---------------------
(Pounds) MILLIONS
<S> <C>
Distribution......................................... (26)
Supply............................................... (131)
Other................................................ 57
----
Total operating revenues........................... (100)
====
</TABLE>
50
<PAGE>
Revenues from the distribution business decreased by (Pounds)26 million (8%)
from (Pounds)334 million for Fiscal Year 1996 to (Pounds)308 million for
Fiscal Year 1997, principally due to a decrease in the maximum allowable
average price of units distributed as a result of the application of the
revised Distribution Price Control Formula. Units distributed increased by
0.5% in Fiscal Year 1997 partially offsetting such decrease.
During Fiscal Year 1997, the number of electricity units supplied decreased
by 6% while total revenues produced by the supply business decreased by
(Pounds)131 million (10%) to (Pounds)1,178 million from (Pounds)1,309 million
for Fiscal Year 1996. The reduction was partly due to a decrease of 12% in
units supplied to Non-Franchise Supply Customers, which was largely offset by
a corresponding reduction in cost of sale, and partly due to reduced charges
from the distribution business, the benefits of which are passed on to
customers, resulting in lower average unit prices. Franchise Supply Customers
and Non-Franchise Supply Customers each comprised 50% of total sales volume in
Fiscal Year 1997.
Cost of Sales
Cost of sales decreased by (Pounds)81 million (8%) from (Pounds)1,013
million in Fiscal Year 1996 to (Pounds)932 million in Fiscal Year 1997. This
reduction was the result of a decrease in supply business sales volumes and
reduced charges from the distribution business.
Operating Expenses
Operating expenses increased by (Pounds)143 million (70%) from (Pounds)204
million in Fiscal Year 1996 to (Pounds)347 million in Fiscal Year 1997.
Operating costs in Fiscal Year 1997 included: (i) a (Pounds)78 million
provision for uneconomic gas and electricity contracts made for the net
present value of expected future payments in excess of anticipated recoverable
amounts, reflecting expectations of market prices for electricity following
the opening of the competitive electricity market in 1998 for Franchise Supply
Customers and future gas prices; (ii) a (Pounds)50 million charge for
information system development costs, including (Pounds)19 million relating to
the opening of the competitive electricity market in 1998 for Franchise Supply
Customers and a (Pounds)31 million charge relating to the replacement of
billing and debt collection systems; (iii) a (Pounds)8 million charge incurred
for advisers' fees in respect of the Acquisition; and (iv) a (Pounds)6 million
write-down of the value of non-operational property.
Other Income
Other income was (Pounds)20 million in Fiscal Year 1997, a decrease of
(Pounds)293 million from (Pounds)313 million in Fiscal Year 1996. Other income
in Fiscal Year 1996 included the NGG Transaction, totalling (Pounds)300
million as described under "--Fiscal Year 1996 Compared with Fiscal Year
1995--Other Income". Following the NGG Transaction, ordinary dividends
received from NGG decreased from (Pounds)21 million in Fiscal Year 1996 to
(Pounds)2 million in Fiscal Year 1997. Other income for Fiscal Year 1997 also
includes the effect of the (Pounds)15 million gain on disposal by Yorkshire of
its share of a joint venture investment.
Net Interest Expense
Net interest expense increased by (Pounds)13 million from (Pounds)20 million
in Fiscal Year 1996 to (Pounds)33 million in Fiscal Year 1997, including a
(Pounds)7 million charge in relation to the termination of interest rate swap
agreements. Increased financing costs arising from the payment of a special
dividend of (Pounds)185 million in January 1996 were partly mitigated by the
effects of asset sales.
Income Taxes
The effective income tax rate of 22% in Fiscal Year 1996 increased to 33%
for Fiscal Year 1997. The effective income tax rate in Fiscal Year 1996 was
reduced principally due to the lower tax rate on gains arising from the NGG
Transaction. See Note 6, "Income Taxes", to Yorkshire's consolidated financial
statements for the three years ended March 31, 1997 included elsewhere in this
Prospectus for additional information.
51
<PAGE>
Fiscal Year 1996 Compared with Fiscal Year 1995
Earnings
Income from operations was (Pounds)214 million in Fiscal Year 1996, a
decrease of (Pounds)1 million from Fiscal Year 1995. Distribution revenues
decreased by (Pounds)28 million, principally due to a reduction in the maximum
allowable average price of units distributed as a result of the application of
the revised Distribution Price Control Formula. This decrease was largely
offset by cost savings.
Income from operations by segments for Fiscal Year 1996 were (Pounds)164
million, (Pounds)30 million, and (Pounds)20 million for the distribution,
supply and other segments, respectively. Income from operations from those
segments in Fiscal Year 1995 were (Pounds)176 million, (Pounds)23 million, and
(Pounds)16 million, respectively.
Other income was (Pounds)313 million in Fiscal Year 1996, an increase of
(Pounds)297 million from (Pounds)16 million in Fiscal Year 1995 due to the NGG
Transaction totalling (Pounds)300 million which are described in detail below.
Income taxes increased by (Pounds)36 million, from (Pounds)78 million in
Fiscal Year 1995 to (Pounds)114 million in Fiscal Year 1996, including taxes
relating to the NGG Transaction.
Net income increased by (Pounds)252 million from (Pounds)141 million in
Fiscal Year 1995 to (Pounds)393 million in Fiscal Year 1996, principally due
to increased other income as a result of the NGG Transaction offset by the
income taxes discussed above.
Revenues
Operating revenues decreased by (Pounds)33 million (2%) from (Pounds)1,464
million in Fiscal Year 1995 to (Pounds)1,431 million in Fiscal Year 1996 as
follows:
<TABLE>
<CAPTION>
OPERATING REVENUES
INCREASE (DECREASE)
FROM FISCAL YEAR 1995
TO FISCAL YEAR 1996
---------------------
(Pounds) MILLIONS
<S> <C>
Distribution......................................... (28)
Supply............................................... (34)
Other................................................ 1
Intrabusiness........................................ 28
---
Total operating revenues........................... (33)
===
</TABLE>
Revenues from the distribution business decreased by (Pounds)28 million (8%)
from (Pounds)362 million for Fiscal Year 1995 to (Pounds)334 million for
Fiscal Year 1996, principally due to a decrease in the maximum allowable
average price of units distributed as a result of the application of the
revised Distribution Price Control Formula. A 3% increase in sales volume
partially offset the average price decrease.
Revenues from the supply business decreased by (Pounds)34 million (3%) from
(Pounds)1,343 million in Fiscal Year 1995 to (Pounds)1,309 million in Fiscal
Year 1996 as a result of lower average unit prices, principally due to reduced
charges from the distribution business, the benefits of which are passed on to
customers, and a decrease in units sold of 1%. Franchise Supply Customers
comprised 46% of total sales volume in Fiscal Year 1996 and Non-Franchise
Supply Customers comprised 54%.
Cost of Sales
Cost of sales decreased by (Pounds)12 million (1%) from (Pounds)1,025
million in Fiscal Year 1995 to (Pounds)1,013 million in Fiscal Year 1996 as a
result of the decrease in units sold.
52
<PAGE>
Operating Expenses
Operating expenses decreased by (Pounds)20 million (9%) from (Pounds)224
million in Fiscal Year 1995 to (Pounds)204 million in Fiscal Year 1996 as a
result of cost savings, principally due to a reduction in the number of
employees from 4,567 at the end of Fiscal Year 1995 to 3,907 at the end of
Fiscal Year 1996.
Other Income
Other income increased by (Pounds)297 million from (Pounds)16 million in
Fiscal Year 1995 to (Pounds)313 million in Fiscal Year 1996. During Fiscal
Year 1996, Yorkshire, together with the other 11 RECs in the UK, distributed
the majority of its shares in NGG to its shareholders in connection with the
NGG Transaction. The NGG Transaction had a material impact on Yorkshire's
financial results for that year. The NGG Transaction included the following:
(a) Yorkshire received special dividends totalling (Pounds)118 million.
(b) At April 1, 1995, Yorkshire held 9.2% of the issued share capital of
NGG, which was recorded on its balance sheet at (Pounds)72 million.
Additional share capital of NGG, totalling (Pounds)16 million, was
subscribed for by Yorkshire during Fiscal Year 1996. In December 1995, when
NGG became a company listed on the London Stock Exchange, Yorkshire
revalued its interest in NGG to its market value of (Pounds)321 million.
Also in December 1995, Yorkshire made a distribution in-kind to its
shareholders of approximately 90% of its interest in NGG. A further 2%,
approximately, was distributed to Yorkshire's optionholders. The aggregate
gain arising from these distributions totalled (Pounds)215 million.
(c) Each Yorkshire residential customer received a one-time discount as
part of an agreement among the shareholders of NGG, which stipulated that
each REC would provide such discount. The net cost of such discount was
(Pounds)85 million.
(d) Yorkshire received an in-kind dividend of approximately 9.2% of the
shares of PSB, which shares were subsequently converted to cash upon PSB's
liquidation, resulting in a gain of (Pounds)56 million.
(e) Legal and other expenses relating to these transactions totalled
(Pounds)4 million.
Other income in Fiscal Year 1995 also included a one-time termination
payment of (Pounds)17 million received from Stockholm Stadshus AB and a one-
time loss of (Pounds)18 million following the disposal of the business and
certain of the assets of Homepower Retail Limited, Yorkshire's retailing joint
venture.
Net Interest Expense
Net interest expense increased by (Pounds)8 million from (Pounds)12 million
in Fiscal Year 1995 to (Pounds)20 million in Fiscal Year 1996, principally as
a result of substantially more long-term debt outstanding during Fiscal Year
1996 than during Fiscal Year 1995 due to the payment of a special dividend of
(Pounds)188 million in January 1995.
Income Taxes
The effective income tax rate decreased from 36% to 22% from Fiscal Year
1995 to Fiscal Year 1996, principally due to a lower effective income tax rate
on the NGG Transaction. See Note 6, "Income Taxes", to Yorkshire's
consolidated financial statements for the three years ended March 31, 1997
included elsewhere in this Prospectus for additional information.
LIQUIDITY AND CAPITAL RESOURCES
Yorkshire Group's sole investment and only significant asset is the entire
share capital of Yorkshire Holdings, which, in turn, owns the entire share
capital of Yorkshire. Yorkshire Group is therefore dependent upon dividends
from Yorkshire for its cash flow.
At March 31, 1998, in addition to cash flow from Yorkshire's operations
available for distribution indirectly to Yorkshire Group, Yorkshire Group had
(Pounds)300 million available under existing bank facilities, including
(Pounds)50 million under the 1997 Credit Facility, as its primary source of
liquidity.
53
<PAGE>
Yorkshire Group will be required to refinance the 1997 Credit Facility,
which matures on July 30, 1998. For a discussion of the 1997 Credit Facility,
see Note 13, "Short-term Debt", to Yorkshire Group's consolidated financial
statements for Fiscal Year 1998 included elsewhere in this Prospectus. The
1997 Credit Facility has been refinanced through a series of transactions,
including the February 1998 issuance of (Pounds)200 million of the Guaranteed
Eurobonds, the February 1998 issuance of $650 million of the Senior Notes and
the June 1998 issuance of $275 million of the Trust Securities. Yorkshire
Group expects to replace the 1997 Credit Facility with a (Pounds)550 million
credit facility by the end of July 1998 which will be used in part to repay
the 1997 Credit Facility. Yorkshire Group expects that the proceeds of the
currently contemplated transfer of Yorkshire Group's generation assets to an
entity or entities other than Yorkshire Group or its subsidiaries will be used
to reduce the new credit facility at the time of such transfer.
Yorkshire Group also will be required to fund its ongoing capital
expenditures, fund its debt service (including with respect to the Exchange
Senior Notes) and the final windfall tax payment and cover its seasonal
working capital needs. Yorkshire Group expects to fund these ongoing cash
requirements through a combination of available cash flow from Yorkshire's
operations and amounts available under the committed bank facilities of
(Pounds)300 million.
The principal sources of funds of the Successor Company during Fiscal Year
1998 were (Pounds)62 million from operations, which reflects interest paid of
(Pounds)132 million and tax paid of (Pounds)77 million, including the first
installment of the windfall tax of (Pounds)67 million. Yorkshire Group raised
(Pounds)1,034 million from the 1997 Credit Facility and (Pounds)440 million in
equity. During this period, Yorkshire Group utilized (Pounds)1,474 million to
acquire Yorkshire, (Pounds)191 million for capital expenditures and raised
(Pounds)593 million from the issue of bonds. Proceeds from asset sales totaled
(Pounds)20 million.
The principal sources of funds of Yorkshire during Fiscal Year 1997 were
(Pounds)96 million from operations, which reflects interest paid of (Pounds)42
million and tax paid of (Pounds)30 million. During Fiscal Year 1997, Yorkshire
invested (Pounds)121 million in capital expenditures and long-term investments
and paid dividends of (Pounds)71 million. Proceeds from asset sales totalled
(Pounds)73 million.
The principal sources of funds of Yorkshire during Fiscal Year 1996 were
(Pounds)222 million from operations, which reflects interest paid of
(Pounds)46 million and tax paid of (Pounds)98 million. During Fiscal Year
1996, Yorkshire invested (Pounds)126 million in capital expenditures and long-
term investments and paid dividends of (Pounds)243 million, including a
special dividend of (Pounds)185 million. Proceeds from asset sales, including
PSB, totalled (Pounds)119 million. Yorkshire raised (Pounds)150 million from
the issuance of Eurobonds.
At March 31, 1998, the Successor Company had net current liabilities of
(Pounds)538 million, primarily as a result of the initial financing structure
of the Acquisition. To meet short-term cash needs, the Successor Company had
(Pounds)35 million of cash and cash equivalents at March 31, 1998.
Yorkshire's capital expenditures are primarily related to the distribution
business and include expenditures for load-related, non-load-related and non-
operational capital assets. Load-related capital expenditures are largely
required by new business growth. Customer contributions are normally received
where capital expenditures are made to extend or upgrade service to customers
(except to the extent that such capital expenditures are made to enhance
Yorkshire's distribution network generally). Non-load-related capital
expenditures include asset replacement which is expected to continue until at
least the next decade. Other non-load-related expenditures include system
upgrade work that provides for load growth and has the additional benefit of
improving network security and reliability. Non-operational capital
expenditures are for assets such as fixtures and equipment. For Fiscal Years
1997 and 1998 capital expenditures, net of customer contributions, were
(Pounds)126 million and (Pounds)191 million, respectively. Yorkshire is
required to file five year projections with the Regulator for gross capital
expenditures related to its regulated distribution network and updates of such
projections annually. The most recent projection was for the five year period
ended March 31, 2000 and was filed in July 1997. This filing indicated
Yorkshire's current projection of approximately (Pounds)575 million in capital
expenditures for the five year period. Approximately (Pounds)308 million has
already been spent in Fiscal Years 1996, 1997 and 1998 related to this five
year projection.
54
<PAGE>
Demand for electricity in the UK, including the Franchise Area, is seasonal,
with demand being higher in the winter months and lower in the summer months.
Yorkshire bills the majority of its Franchise Supply Customers on a staggered
quarterly basis while it is generally required to pay related expenses
(principally the cost of purchased electricity) on 28-day terms. However,
approximately 50% of the Franchise Supply Customers settle their accounts
using regular payment plans based on prepayment or spreading of the cost of
their annual bill evenly throughout the year. A majority of Yorkshire's supply
revenues are based on a fixed price per unit. The cost of supply to Yorkshire
from the Pool, if not covered by hedging mechanisms, varies throughout the
year, generally being higher in winter months and lower in summer months.
Yorkshire balances the effect of these influences on its working capital needs
with drawings under its available credit facilities.
Yorkshire's supply business to Non-Franchise Supply Customers generally
involves entering into fixed price contracts to supply electricity to its
customers. The electricity is obtained primarily by purchases from the Pool.
Because the price of electricity purchased from the Pool can be volatile due
to the fact that the price is set every half hour, Yorkshire is exposed to
risk arising from differences between the fixed price at which it sells
electricity and the fluctuating prices at which it purchases electricity
unless it can effectively hedge such exposure. To mitigate its exposure to
volatility, Yorkshire utilizes CFDs and power purchase contracts with major UK
power generators to stabilize the price of electricity. Yorkshire had entered
into CFDs and power purchase contracts for 20,010 GWh of electricity at March
31, 1998. Yorkshire's electricity sales volumes were 21,116 GWh and 20,236 GWh
for Fiscal Year 1997 and Fiscal Year 1998, respectively.
Management believes that cash flow from operations, together with its
existing sources of credit and the refinancing of the 1997 Credit Facility,
will provide sufficient financial resources to meet Yorkshire Group's
projected capital needs and other expenditure requirements for the foreseeable
future. Following the Acquisition, Yorkshire agreed to an amendment to its PES
License to the effect that it will use all reasonable endeavors to ensure that
it maintains an investment grade credit rating on its long-term debt.
55
<PAGE>
BUSINESS
INTRODUCTION
Yorkshire's principal businesses are the distribution of electricity and the
supply of electricity to approximately two million customers. For information
with respect to a recent proposal to separate the PESs' ownership of their
distribution and supply businesses, see "The Electric Utility Industry in
Great Britain -- Regulation under the Electricity Act". Yorkshire also
conducts ancillary business activities apart from the distribution and supply
businesses that are not subject to price regulation, such as owning an
interest in an off-shore gas field, supplying gas in the competitive market
and holding interests in power generation. See "--Business Restructuring".
DISTRIBUTION BUSINESS
Yorkshire's distribution business consists of the ownership, management and
operation of the electricity distribution network within Yorkshire's Franchise
Area. The primary activity of the distribution business is the receipt of
electricity from the national grid transmission system (the "Grid") and the
distribution of electricity to end users connected to Yorkshire's power lines.
Because Yorkshire's distribution business is substantially a regulated
monopoly, virtually all electricity supplied (whether by Yorkshire's supply
business or by other suppliers) to consumers in the Franchise Area is
transported through its distribution network, thus providing Yorkshire with a
stable distribution volume unaffected by customer choice of supplier. As a
holder of a PES License, Yorkshire is subject to a price cap regulatory
framework providing economic incentives to operate in a cost effective manner
and, to a limited extent, to increase the volume of electricity distributed.
See "The Electric Utility Industry in Great Britain".
Distribution Business Customers, Units Distributed, Revenues and Operating
Profit
Yorkshire's Franchise Area covers approximately 10,000 square km (3,860
square miles) from the Pennine uplands in the west, and the cities of Leeds,
Bradford and Sheffield, to the City of Hull, the ports of the Humber estuary
and the eastern coastline. It encompasses the counties of West Yorkshire, East
Yorkshire and almost all of South Yorkshire, together with parts of North
Yorkshire, Derbyshire, Nottinghamshire, Lincolnshire and Lancashire. The
regional economy is diverse. The traditional heavy industries of iron and
steel, coal mining, textiles and engineering continue to contribute to the
regional economy, but their overall significance has declined, particularly in
the last decade. During this period, other industries, such as chemicals and
food and drink, have expanded, as have service sector activities such as
finance, retailing and leisure. The region is well served by road and rail
networks, has three regional airports, and the ports of the Humber estuary
provide access to European markets.
56
<PAGE>
The following table sets out details of Yorkshire's distribution customers
and the volume of electricity distributed, as well as distribution operating
revenues and operating income at the dates and for the periods presented:
<TABLE>
<CAPTION>
AT MARCH 31,
-----------------------------------
1996 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
NUMBER OF CUSTOMERS CONNECTED
Residential.............................. 1,896,470 1,910,752 1,930,719
Commercial............................... 125,827 126,003 126,812
Industrial............................... 21,924 21,889 21,455
----------- ----------- -----------
Total.................................. 2,044,221 2,058,644 2,078,986
=========== =========== ===========
<CAPTION>
FISCAL YEAR
-----------------------------------
1996 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
ELECTRICITY DISTRIBUTED (GWH)
Residential.............................. 7,110 7,196 7,149
Commercial............................... 5,383 5,580 5,800
Industrial............................... 10,729 10,566 10,484
----------- ----------- -----------
Total.................................. 23,222 23,342 23,433
=========== =========== ===========
<CAPTION>
(IN MILLIONS)
-----------------------------------
<S> <C> <C> <C>
Distribution operating revenues.......... (Pounds)334 (Pounds)308 (Pounds)305
Distribution operating income............ (Pounds)164 (Pounds)127 (Pounds)115
</TABLE>
Competition in the Distribution Business
Yorkshire has not experienced significant competition in its distribution
business. Yorkshire believes that the cost of providing a duplicate
distribution network connected to the Grid would be prohibitive. To the extent
a customer may invest in its own on-site electric generating plants, however,
such customer would no longer require distribution and related services from
Yorkshire except for standby connection to the Grid. The distribution business
is subject to marginal loss of income from related services, such as metering.
For a discussion of certain recently announced proposals impacting metering,
see "The Electric Utility Industry in Great Britain--Distribution of
Electricity--Price Control".
Strategy for the Distribution Business
Yorkshire's distribution strategy consists of maintaining a reliable and
safe distribution system which meets customer expectations while maximizing
its operating efficiencies and fulfilling its regulatory obligations.
To implement its strategy, Yorkshire is taking a number of steps. Yorkshire
intends to maintain a sufficient level of investment in the distribution
system to ensure its continued reliability and safety. In Fiscal Year 1998,
Yorkshire invested (Pounds)196 million in the distribution system, of which
(Pounds)133 million represented capital improvements in new substations,
cables and overhead lines and (Pounds)63 million represented expenditures
related to the operation, repair and maintenance of the distribution system.
Yorkshire is currently investing in a Distribution Asset Management System
("DAMS") that centralizes information currently stored in over sixty
computerized and paper-based systems into one integrated computerized system.
The centralization of such information is intended to improve both access to
and quality of information which is vital to the operation of an efficient
distribution system.
Yorkshire is also concentrating on maintaining and improving its responses
to system faults. In Fiscal Year 1998, Yorkshire restored services to 93.9% of
all customers affected by faults within three hours and on average a Yorkshire
customer was without power for only 59.1 minutes. Furthermore, Yorkshire has
introduced a toll-
57
<PAGE>
free phone number available for customers who have lost power. Such direct
access is intended to permit Yorkshire to respond more effectively and rapidly
to power loss situations. Finally, Yorkshire publishes a Quality of Supply
Report which details the manner in which Yorkshire intends to improve both the
availability and quality of electricity supply in its region in order to
inform both its customers and OFFER as to its plans for the period to April
2000.
Distribution Facilities
Electricity is transported across the Grid at 400 kV or 275 kV to 21 grid
supply points within Yorkshire's distribution network, where the National Grid
Company transforms the voltage to 132 kV, 66 kV and 33 kV for entry into
Yorkshire's distribution system.
At March 31, 1998, Yorkshire's distribution system consisted of:
<TABLE>
<CAPTION>
LV 11 KV ABOVE 11 KV
--------- --------- -----------
<S> <C> <C> <C>
Number of metered supplies................... 2,077,306 1,655 25
Total length of circuits..................... 29,854 km 20,175 km 4,914 km
Percentage underground....................... 91% 51% 29%
</TABLE>
The primary distribution system consists of 21 grid supply points from the
Grid, an additional 68 supply points and 357 primary substations. At March 31,
1998, the installed transformer capacity with a secondary voltage higher than
650 v at these substations was 22,480,000 kVA. Remote control facilities
enable the real time monitoring and operation of most of these larger
substations from one central control room.
Yorkshire's distribution substations amount to 12,928 indoor substations,
2,611 outdoor substations and 16,336 pole mounted substations. At March 31,
1998, the installed transformer capacity with a secondary voltage less than
650 v was 9,548,940 kVA.
SUPPLY BUSINESS
Yorkshire's supply business consists of selling electricity to end users,
purchasing such electricity and arranging for its distribution to those end
users. Under its PES License, Yorkshire has an exclusive right to supply
electricity to Franchise Supply Customers. This exclusive right is currently
scheduled to continue until September 1998. The supply business to Non-
Franchise Supply Customers, both inside and outside Yorkshire's Franchise
Area, is open to competition.
The following table sets forth the volume of electricity sold, by Non-
Franchise Supply Customer and Franchise Supply Customer, as well as supply
operating revenues and operating income (loss):
<TABLE>
<CAPTION>
FISCAL YEAR
------------------------------------------
1996 1997 1998
------------- ------------- -------------
<S> <C> <C> <C>
Volume (GWh):
Non-Franchise Supply
Customers..................... 12,046 10,627 9,747
Franchise Supply Customers..... 10,345 10,489 10,489
------------- ------------- -------------
Total........................ 22,391 21,116 20,236
============= ============= =============
<CAPTION>
(IN MILLIONS)
------------------------------------------
<S> <C> <C> <C>
Supply operating revenues........ (Pounds)1,309 (Pounds)1,178 (Pounds)1,118
Supply operating income (loss)... (Pounds) 30 (Pounds) (132) (Pounds) 25
</TABLE>
58
<PAGE>
Competition in the Supply Business
The supply business is currently divided between Franchise Supply Customers
within the Franchise Area, and Non-Franchise Supply Customers, inside and
outside the Franchise Area. The non-franchise threshold was lowered to 100 kW
in April 1994 allowing competition in supply for these customers while
Franchise Supply Customers remained subject to regulation. Competition in
supply to Franchise Supply Customers is currently scheduled to be phased in
over a six-month period commencing in September 1998, at which time the
exclusive right of Yorkshire to supply the Franchise Area will cease. The
Regulator, however, proposed transitional price regulation for smaller
consumption Franchise Supply Customers for an initial period of two years
until an adequate level of competition is established. Yorkshire subsequently
indicated its acceptance of such proposals. The proposals (when taken together
with the reduction in the Fossil Fuel Levy which became effective on April 1,
1998) resulted in the implementation of small reductions, effective April 1,
1998, in the tariffs for Yorkshire's residential and small business customers
in its Franchise Area compared to the corresponding tariffs in effect in
August 1997. The proposals also require an additional 3% below inflation
reduction effective April 1, 1999. See "The Electric Utility Industry in Great
Britain--Industry Structure" and "--Supply of Electricity".
Strategy for the Supply Business
Yorkshire's supply strategy consists of (i) protecting and sustaining
Yorkshire's electricity market position within the Franchise Area, (ii) cross-
selling gas to its existing customer base, (iii) securing market share for gas
and electricity supply outside the Franchise Area to the extent that such
contracts are profitable and (iv) seeking marketing and strategic alliances in
the supply business.
To implement its strategy, Yorkshire is taking a number of steps. Yorkshire
is endeavoring to retain its existing Non-Franchise Supply Customers in the
Franchise Area by purchasing electricity at competitive rates from power
generators in the UK and providing high quality customer service. In doing so,
in Fiscal Year 1998, Yorkshire maintained a significant portion of its
existing business. Yorkshire has also applied this strategy to Non-Franchise
Supply Customers outside of its Franchise Area and to gas customers. For
example, in Fiscal Year 1998, Yorkshire was awarded new contracts with such
entities as Booker plc, William Cook Cast Products, NHS, Asda and
Staffordshire County Council. Furthermore, in addition to marketing gas and
electricity under the Yorkshire brand name, Yorkshire intends to enter into
"channel partnerships" with various business and commercial entities (a
"channel partner") whereby Yorkshire markets energy to customers outside of
its Franchise Area under the name of the channel partner or in the joint name
of Yorkshire and the channel partner. Yorkshire is currently negotiating to
establish a "channel partnership" with a chain of retail appliance stores.
Yorkshire expects to maintain this strategy for all business customers and
potential business customers after competition commences for both gas and
electricity and to extend this approach to the residential market. There is no
assurance that Yorkshire will be able to enter into such "channel
partnerships" and, if it does, that they will be successful.
As discussed under "--Affiliate Businesses and Other Investments--Gas
Sourcing and Supply", Yorkshire has taken significant steps toward developing
its gas supply capabilities. Currently, gas may be sold to residential
customers in selected regional markets that have been opened to competition.
By retaining its existing customer base and, eventually, expanding into new
markets which will be open to competition, Yorkshire intends to be in a
position to offer those customers both electricity and gas. In offering such
flexibility, Yorkshire intends to solidify its relationship with these
customers and provide an established market base for its developing gas supply
business.
In a joint statement issued in January 1998, the Regulator and OFGAS asked
each of the RECs and BG Centrica plc (the former supply business of British
Gas plc) ("Centrica") to give undertakings to stop "dual fuel" offers to
supply gas and electricity. In addition, OFGAS asked the PESs to undertake not
to market gas to residential customers in areas where their respective markets
are not open to competition except where contracts have already been signed.
The regulators also made proposals concerning competition in meter reading.
Following discussions with the regulators, it was announced that the PESs had
agreed only to provide additional dual fuel benefits to customers once their
individual franchise area is opened to electricity competition and that OFGAS
had agreed that PESs' gas supply businesses should be permitted to continue to
compete in the gas
59
<PAGE>
market both within and outside their franchise areas on the basis that there
are no undue restrictions or distortions in the gas market in those areas. The
PESs also agreed to work with the Regulator and OFGAS to ensure measures to
limit distortion of the meter reading market.
AFFILIATE BUSINESSES AND OTHER INVESTMENTS
Yorkshire's ancillary business activities have primarily included, among
other things, gas sourcing and supply and holding interests in power
generation.
Gas Sourcing and Supply
Recognizing the long-term opportunities in the competitive gas supply
market, in April 1994, Yorkshire acquired a 6.97% equity stake in the Armada
off-shore gas field (the "Armada Field") for approximately (Pounds)27.8
million. As of March 31, 1998, the Armada Field, which has a production life
of approximately 15 years, had proven resources of approximately 1.2 trillion
cubic feet (84 billion cubic feet net to Yorkshire) of gas and 68 million
barrels of oil and oil equivalents (4.8 million barrels net to Yorkshire).
Delivery of such gas from the Armada Field to Yorkshire began, on schedule, in
October 1997. The development costs associated with the Armada Field have been
lower than originally anticipated. As of March 31, 1998, Yorkshire had
invested (Pounds)60 million in the Armada Field.
Yorkshire markets gas to industrial and commercial customers and, with the
gradual removal of the residential franchise of Centrica, has recently started
marketing gas to residential customers. By the end of March 1998, Yorkshire
had entered into contracts for the supply of gas to more than 200,000
residential customers. Gas is sourced from Yorkshire's interest in the Armada
Field and through swing contracts and purchases on the spot markets which are
designed to give Yorkshire a balanced purchase portfolio. Yorkshire utilizes
risk management methods, in relation to gas purchasing and supply, similar to
electricity purchasing and supply, which are designed to maximize its return
consistent with an acceptable level of risk.
The Regulator and OFGAS recently proposed to restrict the ability of the
PESs, including Yorkshire, to provide "dual fuel" offers to supply gas and
electricity to residential customers in areas which are not open to
competition. See "--Supply Business--Strategy for the Supply Business".
Power Generation
Through its wholly-owned subsidiary, Yorkshire Electric Power Limited
("YEPL"), Yorkshire has invested in various power generation projects.
Yorkshire's PES License currently enables it and its affiliates to make
investments of up to 800 MW of electricity generation. Currently, Yorkshire
and its subsidiaries own, or have committed to, investments in 519 MW of power
generation assets. See "--Business Restructuring" for a discussion of the
proposed transfer of Yorkshire's current ownership interests in generation
assets.
The centerpiece of Yorkshire's generation activities is a 272 MW combined
cycle gas turbine ("CCGT") generating station at Brigg in north Lincolnshire
developed and operated by Regional Power Generators Limited ("RPG"). YEPL owns
a 75% interest in RPG with IVO Energy Limited holding the remaining 25%.
Yorkshire holds a power purchase agreement for 100% of the output of the
station.
Yorkshire CoGen Limited ("YCL"), a YEPL subsidiary, constructed and
currently operates combined heat and power ("CHP") plants at St. James's
Hospital, Leeds (4.5 MW), A. H. Marks, a chemical company based in Bradford
(4.5 MW) and Queen's Medical Centre, Nottingham (4.9 MW). YCL is also
constructing a 56 MW CHP plant at the premises of Hays Chemicals, a Cheshire
based company, and is nearing completion of a 50 MW CCGT plant at Thornhill.
YCL also owns and operates 52.6 MW of diesel fired peaking plants. All of the
above plants provide an opportunity for Yorkshire's electricity supply
business to purchase the power offtake and a partial strategic hedge in the
event that electricity prices rise and reduce profit margins of Yorkshire's
supply business.
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In addition, YEPL owns a 50% interest in a company which owns two windfarms
at Ovenden Moor (9.2 MW) and at Royd Moor (6.5 MW). All of the output from
these windfarms is sold to The Non-Fossil Fuel Purchasing Agency under an
agreement which expires on December 31, 1998.
YCL's generation portfolio has concentrated on smaller scale projects which
export less than 50 MW, principally because in doing so YCL is not required to
obtain a generation license and such smaller scale projects are not required
to trade in the Pool. Trading outside the Pool means that the export power has
a higher value and provides YCL with increased operational flexibility.
CUSTOMER SERVICE
As part of Yorkshire's commitment to delivering high levels of customer
service, Yorkshire launched its Customer Service Initiative in 1995. Virtually
all of its employees have attended training sessions aimed at developing a
company culture consistent with Yorkshire's corporate mission to be a leader
in the market of electricity distribution and electricity and gas supply,
while consistently providing high levels of customer service. These employees
have been trained in the values and behavior which need to be adopted to
achieve this corporate mission.
Improvements to customer service which have been implemented as a result of
this initiative include the provision of a toll-free service for account
inquiries and fault reporting, as described under "--Distribution Business--
Strategy for Distribution Business", and an increase in the number of bill
payment outlets for the convenience of customers.
Yorkshire continues to seek to improve the service it provides to its
customers and, to do so, continues to train employees further. A customer
service tracking system has been put in place to ensure that directors and
managers of Yorkshire gain regular feedback from customers on the service they
receive.
RISK MANAGEMENT
Yorkshire's risk management efforts are primarily focused on the supply
business and intended to hedge the risks associated with the purchase and sale
of electricity resulting from Pool price volatility. Virtually all electricity
generated in England and Wales is sold by generators and bought by suppliers
through the Pool. The most common contracts for supply to Non-Franchise Supply
Customers are for twelve-month terms and contain fixed rates. Yorkshire is
exposed to purchase price risk (the risk associated with fluctuations in the
cost of purchased electricity relative to the price received from the supply
customer) to the extent that it has not hedged such risk. Yorkshire
substantially hedges purchasing price risk by employing a variety of risk
management tools, including management of its supply contract portfolio,
hedging contracts and other means which mitigate the risk of Pool price
volatility. Yorkshire employs risk management methods to maximize its return
consistent with an acceptable level of risk.
Until March 31, 1998, regulations governing the franchise supply market
permitted the pass-through to customers of prudent purchase costs which
included the cost of arrangements such as CFDs to hedge against Pool price
volatility. Under the supply price restraint proposals published by the
Regulator in October 1997, and accepted by Yorkshire, effective April 1, 1998,
such purchase costs are no longer automatically passed through to such
customers. CFDs are contracts predominantly between generators and suppliers
which fix the major elements of the price of electricity for a contracted
quantity of electricity over a specific time period. Differences between the
actual price set by the Pool and the agreed prices give rise to difference
payments between the parties to the particular CFD. At the present time,
Yorkshire expects its supply demand for the calendar year 1998 to be
substantially hedged through various types of agreements, including CFDs.
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Yorkshire's ability to manage its purchase price risk depends, in part, on
the continuing availability of properly priced risk management mechanisms such
as CFDs. No assurance can be given that an adequate, transparent market for
such products will in fact be available.
BUSINESS RESTRUCTURING
In December 1997, Yorkshire announced a planned business restructuring
intended to enable it to meet increased competition and react to potential
regulatory developments in the energy markets in the UK. The restructuring
will result in the distribution and supply businesses of Yorkshire becoming
self-sufficient businesses. As part of the restructuring, Yorkshire currently
contemplates transferring its generation assets to an entity or entities other
than Yorkshire Group or its subsidiaries. It is expected that proceeds from
the transfer of these assets will be used to reduce debt of Yorkshire Group.
See "Certain Relationships and Related Transactions".
Total assets less current liabilities employed by the generation business at
March 31, 1998 were (Pounds)136 million. Operating income attributable to the
generation business in Fiscal Year 1998 was (Pounds)16 million.
As a result of this restructuring, approximately 160 positions will be
eliminated. A provision of approximately (Pounds)10 million was recorded in
Fiscal Year 1998 to reflect the cost of these work force reductions.
UK ENVIRONMENTAL REGULATION
Yorkshire's businesses are subject to numerous regulatory requirements with
respect to the protection of the environment. The principal laws which have
environmental implications for Yorkshire are the Electricity Act, the
Environmental Protection Act 1990 and the Environment Act 1995.
The Electricity Act requires Yorkshire to consider the preservation of
natural beauty and the conservation of natural and man-made features of
particular interest when it formulates proposals for development in connection
with certain of its activities. Environmental assessments are required to be
carried out in certain cases including overhead line constructions at higher
voltages and generating station developments. Yorkshire has produced a
Corporate Environmental Policy Statement and an Electricity Act Schedule 9
Statement which sets out the manner in which it intends to comply with its
environmental obligations.
Possible adverse effects of electro-magnetic fields ("EMFs") from various
sources, including transmission and distribution lines, have been the subject
of a number of studies and increasing public discussion. The current
scientific research is inconclusive as to whether EMFs may cause adverse
health effects. There is the possibility that the passage of legislation and
changing regulatory standards would require measures to mitigate EMFs, with
resulting increases in capital and operational costs. In addition, the
potential exists for public liability with respect to lawsuits brought by
plaintiffs alleging damages caused by EMFs. The only UK standards for exposure
to power frequency EMFs are those promulgated by the National Radiological
Protection Board and relate to the levels above which physiological effects
have been observed. Yorkshire fully complies with these standards.
Yorkshire believes that it has taken, and intends to continue taking,
measures to comply with the applicable law and government regulations for the
protection of the environment. There are no material legal or administrative
proceedings pending against Yorkshire with respect to any environmental
matter. Yorkshire estimates (Pounds)7 million was spent on environmental
compliance in Fiscal Year 1998, approximately half of which was of a capital
nature. This level of expenditures is expected to continue in future Fiscal
Years.
UK AND EU COMPETITION LAW
Yorkshire's businesses are subject to the competition rules of both the UK
and the European Community.
The UK Restrictive Trade Practices Act 1976 stipulates that failure to
furnish to the Office of Fair Trading an agreement that is registrable under
such Act renders unenforceable certain restrictions contained in such
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agreement. Briefly stated, the Fair Trading Act 1973 and the Competition Act
1980 both regulate the activities of companies with market power. UK
competition law, particularly the law relating to restrictive agreements, is
in the process of reform and is likely to follow the approach of European
Community law.
The Treaty of Rome contains provisions which prohibit anti-competitive
agreements and practices, including the abuse of a dominant position within
the European Union ("EU") or a substantial part of it. Penalties for violation
of these provisions include fines, third party damages and infringing
contractual provisions being unenforceable.
A new Competition Bill has been introduced to bring the UK law into line
with EU Competition Rules. It is prohibition legislation and also gives
stronger powers to the Regulator.
In January 1993, the UK implemented the EU Utilities Directive on the
procedures to be followed for the award of supply and works contracts by
utility companies, including electricity utilities. This directive was
replaced by EU Directive 93/36, which was implemented by the UK in December
1996 and which covers service contracts as well as supply and work contracts.
Those contracts that exceed the relevant financial thresholds have to be
advertised in the Official Journal of the European Communities. Suppliers and
contractors who believe they have suffered harm from failure to implement the
correct procedure in awarding the contract are able to institute proceedings
in the English High Court. The European Commission also has the power to
intervene prior to the award of a contract. Yorkshire Group believes that
Yorkshire has complied with any obligations it may have under those
regulations but the interpretation and application of those regulations and of
the European Union directives which they implement is not free from doubt and
no assurance can be given that any claim for damages against Yorkshire for
breach of the rules would be unsuccessful.
EMPLOYEES
Yorkshire had approximately 4,150 employees (approximately 4,025 full-time
equivalent) at the end of Fiscal Year 1998. Yorkshire Group has no employees
because it is a holding company with no operations. Approximately 61% of
Yorkshire's employees are represented by labor unions. All Yorkshire employees
who are not party to a personal employment contract are subject to a
collective bargaining agreement called The Electricity Business Agreement.
This Agreement may be amended by agreement between Yorkshire and the unions
and is terminable with 12 months' notice by either side. Yorkshire believes
that its relations with its employees are favorable. See "--Business
Restructuring" for a discussion of planned staffing reductions.
PROPERTY
Yorkshire owns the freehold of its principal offices north of Leeds.
Yorkshire has both network and non-network land and buildings.
Network Land and Buildings
At March 31, 1998, Yorkshire had interests in approximately 15,000 network
properties, comprising principally sub-station sites.
Non-Network Land and Buildings
At March 31, 1998, Yorkshire had freehold and leasehold interests in non-
network properties comprising chiefly offices, depots, warehouses, workshops
and a number of former retail outlets. The net book value of total non-network
land and buildings at March 31, 1998 was (Pounds)37 million.
LEGAL PROCEEDINGS
Yorkshire is routinely a party to legal proceedings arising in the ordinary
course of business which are not material, either individually or in the
aggregate. Yorkshire currently is not a party to any material legal
proceedings nor is it aware of any threatened material legal proceedings.
On May 18, 1998, Optimum Solutions Limited ("Optimum"), a company that
conducts research and development in the UK electric industry, entered a claim
in the UK High Court of Justice, Chancery Division,
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against Yorkshire, Eastern Electricity plc, which is also a REC, NGC (as
defined herein) and Logica plc alleging, in the case of Yorkshire, that
Yorkshire breached a confidentiality agreement with Optimum regarding the use
of confidential information in Yorkshire's preparation for the competitive
changes to the electricity supply market in and after 1998. Optimum requests
an injunction against the continued use of, and the return of, such
confidential information, an unspecified amount of damages relating to breach
of contract and equitable compensation for misuse of such confidential
information. Yorkshire is currently assessing its response to this claim. The
final outcome of this matter cannot now be determined.
Litigation is ongoing with respect to another corporation's use of actuarial
surpluses declared in the Electricity Supply Pension Scheme ("ESPS"). The
Pension Ombudsman (a UK arbitrator appointed by statute) has issued a "final
determination" in favor of complaints made by members of the ESPS relating to
another corporation's use of the ESPS surplus to offset such corporation's
additional costs of early payment of pensions as a result of reorganization or
redundancy, together with additional contributions required after a valuation.
Under that determination, the Pension Ombudsman directed such corporation to
pay into ESPS the amount of that use of the surplus plus interest. The Pension
Ombudsman's final determination has been successfully challenged in the
courts. At the same time, the courts also considered other areas of
uncertainty relating to the uses made of actuarial surpluses arising in the
ESPS, including the ability to reduce or suspend standard employer
contributions to reduce such surpluses. The courts ruled that such reductions
were permissible. The final decisions of the courts are subject to appeal. If
any of the decisions are reversed on appeal they may have an adverse effect on
Yorkshire, which has made similar use of its actuarial surplus, but no
assurance can be given as to the extent of that effect.
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THE ELECTRIC UTILITY INDUSTRY IN GREAT BRITAIN
The information set forth below relating to the electric utility industry in
Great Britain has been derived from publicly available sources.
SUMMARY
The following summarizes the general structure of the electric utility
industry in England and Wales as it has developed since the privatization of
the industry in 1990. The electric utility industry in England and Wales is
divided into various functions, with different companies participating in the
respective functions. This is in contrast to the US utility industry, in which
vertically integrated companies generally participate in all functions.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Function Description of Function Major Participants
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Generation Power station production of electricity. National Power plc, PowerGen plc,
British Energy plc, The Energy Group
plc, First Hydro Company
- ----------------------------------------------------------------------------------------------------------------------------------
Wholesale Trading The Pool is a single market for the bulk trading All generators and suppliers of electricity.
(buying and selling) of virtually all the
electricity generated in England and Wales.
- ----------------------------------------------------------------------------------------------------------------------------------
Transmission Bulk transfer of electricity across the Grid, which The National Grid Company ("NGC")
is a high voltage open-access system from
generators to RECs.
- ----------------------------------------------------------------------------------------------------------------------------------
Distribution A REC's transfer of electricity from NGC's high Yorkshire and the 11 other RECs
voltage transmission system across the REC's low
voltage distribution system to end- user consumers.
Each REC has a substantially regulated monopoly
for distribution of electricity in its franchise
area. Accordingly, a REC is the exclusive
distributor of electricity within its franchise
area regardless of the identity of the generator or
supplier actually selling the electricity at retail
to the end-user. This regulated monopoly in the
distribution business can be distinguished from the
efforts to introduce competition in the supply
business.
- ----------------------------------------------------------------------------------------------------------------------------------
Supply The retail sale of electricity to end-user Yorkshire, the 11 other RECs and a
consumers. It is generally similar to power- variety of other companies holding
marketing in the US. End-user consumers are supply licenses issued by the Regulator.
divided into two groups: Other companies include the generators
and other energy providers
(i) Franchise Supply Customers. Currently, they
must buy their electricity from their local REC.
Starting in September 1998, they will be allowed
to buy from any licensed supplier. However, the
local REC will still distribute their electricity.
(ii) Non-Franchise Supply Customers. Currently,
they can purchase their electricity from any
licensed supplier although it is distributed by the
local REC.
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
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INDUSTRY STRUCTURE
Great Britain has two separate but connected electricity markets, each with
a different commercial framework. In England and Wales electricity is produced
by generators, the largest of which are National Power plc ("National Power"),
PowerGen plc ("PowerGen") and Nuclear Electric plc, a subsidiary of British
Energy plc ("British Energy"). Electricity is transmitted through the Grid by
NGC and distributed by the twelve RECs in their respective franchise areas.
Most customers are currently supplied with electricity by their local REC,
although there are other suppliers holding second-tier supply licenses,
including other generators and RECs, who can compete to supply customers with
higher Peak Demand in such REC's franchise area.
In Scotland there are two vertically integrated companies, Scottish Power
plc ("Scottish Power") and Scottish Hydro Electric plc ("Hydro Electric"),
each generating, transmitting, distributing and supplying electricity within
their respective franchise areas as well as competing to supply electricity
elsewhere. Scottish Nuclear, another subsidiary of British Energy, sells all
the electricity it generates to Scottish Power and Hydro Electric.
The interconnection between the two transmission systems, owned by Scottish
Power and NGC, is capable of transferring electricity between Scotland and
England. There is also an interconnection with France, owned by NGC and
Electricite de France, through which electricity can be transferred between
France and England and Wales.
Virtually all electricity generated in England and Wales is sold by
generators and bought by suppliers through the Pool. A generator which is also
a licensed supplier must nevertheless sell all the electricity it generates
into the Pool and purchase all the electricity which it supplies from the
Pool. Because Pool prices fluctuate, generators and suppliers may enter into
bilateral arrangements, such as CFDs, to provide a degree of protection
against such fluctuations. See "Business--Risk Management".
There is no equivalent to the Pool in Scotland, but Scottish Power and Hydro
Electric are obligated by their licenses to offer electricity for sale to
second-tier suppliers. They are also required to provide access to their
transmission and distribution systems on a non-discriminatory basis to
competing suppliers and generators.
INDUSTRY BACKGROUND
The industry structure described above was put in place in March 1990 in
order to introduce competition into the generation and supply of electricity.
At the same time, a licensing regime was introduced for the electricity
industry both in England and Wales as well as in Scotland.
The RECs, which at that time collectively owned NGG, NGC's holding company,
were privatized in December 1990. National Power and PowerGen were partly
privatized in March 1991 (with the balance of the UK government's holdings
being sold to investors in March 1995). Scottish Power and Hydro Electric were
privatized in June 1991 and British Energy was privatized in July 1996. By
December 1995, most of the RECs ownership of NGG had been publicly sold, and
NGG was listed on the London Stock Exchange. Since the summer of 1995, 11 of
the RECs have been acquired by other companies. Yorkshire was indirectly
acquired by Yorkshire Group in April 1997. On June 29, 1998, PowerGen
announced a (Pounds)1.96 billion agreed purchase of East Midlands Electricity
plc. from Dominion Resources Inc., the Virginia-based utility holding company.
In 1990, the vast majority of generating capacity in England and Wales was
owned by three generators. However, since that time competition in generation
has increased as RECs and other new entrant generators have constructed new
plants and as imports through the interconnections with Scotland and France
have grown. In addition, pursuant to undertakings given to the Regulator,
National Power and PowerGen have disposed of an aggregate of 6,000 MW of
generating capacity to The Energy Group plc ("Energy Group").
Competition in supply has been progressively introduced both in England and
Wales and in Scotland. The RECs in England and Wales, and Scottish Power and
Hydro Electric in Scotland, are subject to competition from second-tier
suppliers for the supply of electricity to larger customers in their
respective franchise areas. In April
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1990, electricity users with a Peak Demand in excess of 1 MW became Non-
Franchise Customers of a REC and therefore were allowed to choose their
electricity supplier. In April 1994, the Non-Franchise Customer class was
expanded to include users with a Peak Demand in excess of 100 kW. Currently,
all electricity customers in Great Britain are scheduled to be able to choose
their electricity supplier over a six month phase in the period beginning in
September 1998, according to customers' designated postal codes.
DISTRIBUTION OF ELECTRICITY
Accessibility Requirements
Each of the RECs is required to offer terms for connection to its
distribution system to any person, for use of its distribution system to any
authorized electricity operator and for the provision of supplemental and
backup supplies to any person. In providing use of its distribution system, a
REC must not discriminate between its own supply business and that of any
other authorized electricity operator, or between those of other authorized
electricity operators; nor may its charges differ except where justified by
differences in cost. Similar principles apply to the provision of supplemental
and backup supplies of electricity, and in the carrying out of connection
works. Disputes over the terms of offers may be determined by the Regulator.
Price Control
Revenue from the distribution business is controlled by a formula
principally based on P x (1+(RPI-Xd)) where Xd is currently 3% (the
"Distribution Price Control Formula"). P is the previous year's maximum
average price per unit of electricity distributed. Because the maximum average
price in any year is therefore based in part on the maximum average price in
the preceding year, a price reduction in any given year has an ongoing effect
on the maximum average price for all subsequent years. RPI is a measure of
inflation, and equals the percentage change in the UK Retail Price Index
between the six month period of July to December of the two previous years.
Because RPI is based on a weighted average of the prices of goods and services
purchased by a typical household, which bear little resemblance to the inputs
contributing to Yorkshire's business costs, the RPI calculation may not
accurately reflect the price changes affecting Yorkshire. The Xd factor is
established by the Regulator following review. This formula determines the
maximum average price per unit of electricity distributed (in pence per
kilowatt hour) which a REC is entitled to charge. This price, when multiplied
by the expected number of units to be distributed, determines the expected
distribution revenues of the REC for the relevant year. The current
Distribution Price Control Formula permits RECs to partially retain additional
revenues due to increased distributions of units and allows for a pound for
pound increase in operating profit for efficient operations and reduction of
expenses within a review period. However, during the next Distribution Price
Control Formula review, the Regulator may reduce any such increase in
operating profit to the extent he determines it not to be a function of
efficiency savings or, if genuine efficiency savings have been made, he
determines that customers should benefit through lower prices in the future.
Upon privatization, the Regulator set different Xd factors for each of the
RECs to permit annual price increases by the RECs of between 0% and 2.5% (1.3%
for Yorkshire) greater than RPI for the five year period ending on March 31,
1995. Following a scheduled distribution price review by the Regulator of all
twelve RECs in August 1994, the Regulator required an overall real reduction
in regulated distribution prices for Fiscal Year 1996 of between 11% and 17%
(14% for Yorkshire) from the previous year, and set the Xd factor for the
subsequent four year period ending on March 31, 2000 to subtract 2% from RPI
in each such year. Also in connection with the August 1994 distribution price
review, the Regulator, (i) halved from 100% to 50% the extent to which
distribution revenues would be allowed to vary with the number of units of
electricity distributed and (ii) determined numbers of Franchise Area
customers based on REC forecasts for each year through and including Fiscal
Year 2000, allowing distribution revenues to vary by 50% of the predetermined
annual change in such forecast numbers. The stated intention of the Regulator
in introducing this change was "to remove any artificial incentive on the
companies to sell more electricity, while retaining a general incentive for
companies to seek out and meet the needs of their customers". In light of
information concerning the financial position of the RECs that emerged during
the unsuccessful bid by Trafalgar House plc for Northern Electric plc (one of
the
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RECs) and representations by Consumers' Committees and others, the Regulator
conducted an unscheduled distribution price review of all twelve RECs in July
1995. As a result of this unscheduled review, the Regulator revised regulated
distribution prices for the four year period ending on March 31, 2000,
requiring an overall real reduction in regulated distribution prices for
Fiscal Year 1997 of between 10% and 13% (13% for Yorkshire) from the previous
year, and resetting the Xd factor for the remaining three year period ending
on March 31, 2000 to subtract 3% from RPI in each such year.
The Distribution Price Control Formula is expected to be further reviewed
with effect from April 1, 2000. Following the review, the Regulator will make
a proposal for a revised formula to apply from that date. If a REC does not
agree with the proposal the Regulator may refer the proposal to the MMC and,
following the publication of the report of the MMC, the Regulator may make
appropriate modifications to the REC's PES License.
In setting the distribution charges each year, each REC must project the
permitted maximum average charge per unit to be distributed in that year. The
projection will have to take account of forecasts of units distributed,
distribution line losses, the actual change in RPI and NGC exit charges.
Failure to forecast accurately may result in overcharging or undercharging,
which is taken into account in the following year through a correction factor
in the Distribution Price Control Formula. If a REC has overcharged in the
previous year, the maximum average charge per unit distributed is reduced by
an amount to reflect the excess income received, to which is added interest.
In the event of undercharging, the Distribution Price Control Formula allows
the licensee to recover the shortfall in income plus interest.
In certain instances, however, overcharging or undercharging by a REC above
specific percentage thresholds may result in adjustments by the Regulator. If,
in any year, the average charge per unit distributed exceeds the permitted
maximum average charge per unit distributed by more than 3%, then, in the next
following year, the REC may not increase distribution charges unless it has
satisfied the Regulator that the average charge per unit in that next
following year is not likely to exceed the permitted maximum average charge.
If, with respect to any two successive years, the sum of the amounts by which
the average charge per unit distributed has exceeded the permitted maximum
average charge per unit distributed in the second of those years is more than
4% of that permitted maximum average charge, then, in the next following year,
the REC may be required by the Regulator to adjust its charges so that they
fall within the maximum permitted average charge. If, with respect to two
successive years, the licensee undercharges by more than 10% of the maximum
average charge, the Regulator may, by directions to the licensee, limit the
amount by which such undercharging may be recovered.
Since April 1995, the Distribution Price Control Formula has been notionally
divided into metering and non-metering components, with the metering component
equal to about 10% of each REC's allowed revenue. However, the Regulator
indicated when making these proposals that there should be no presumption that
this sum would be assigned to a metering business.
Operations related to the metering of network connections to non half-hourly
metered customers (generally residential and other small customers) are
subject to the metering component of the Distribution Price Control Formula.
Such price controls are scheduled to be disapplied from April 1, 2000, at
which time competitive market pricing is scheduled to be introduced. In a
joint statement issued in January 1998, the Regulator and OFGAS made proposals
concerning competition in meter reading. See "Business--Supply Business--
Strategy for the Supply Business". Competitive market pricing already exists
for operations related to the metering of network connections to half-hourly
metered customers.
Connection charges are levied when a customer first connects to a REC's
distribution system or makes a material change in electricity supply
requirements. These charges are excluded from the Distribution Price Control
Formula. In the August 1994 distribution review, the Regulator introduced the
concept of competition in providing connections to new customers and limited
the extent to which, and the circumstances in which, customers wishing to be
connected would be required to pay for the costs of reinforcement of the
distribution system.
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Data Management Services
Beginning in September 1998, the electricity supply market for Franchise
Supply Customers is currently scheduled to be opened to competition and
customers will be able to select the supplier of their choice. Significant
additional costs have been, and will be, incurred by the distribution business
to develop new systems to facilitate competition. The new services, termed
"data management services" include meter operation, data retrieval, processing
and aggregation, meter point administration and distribution use of system
billing.
Assuming that competition in supply starts as currently scheduled in
September 1998 for Franchise Supply Customers, Yorkshire Group presently
estimates that costs totalling (Pounds)72 million will have been incurred for
re-engineering and information technology work. Of such amount, approximately
(Pounds)19 million was expensed in Fiscal Year 1997 and (Pounds)2 million in
Fiscal Year 1998. The Regulator has made proposals (which have been accepted
by Yorkshire) to allow Yorkshire recovery of (Pounds)23 million over a five
year period ending March 31, 2003. A further (Pounds)7 million is expected to
be recovered through Pool cost recovery and other national mechanisms and
(Pounds)8 million is expected to be capitalized as such amount is expected to
provide future benefits to the supply business. As a result of the above, the
residual amount of approximately (Pounds)13 million, which will not be
recovered or capitalized, will be expensed in Fiscal Year 1999 as incurred.
The Regulator has also made proposals (which have been accepted by
Yorkshire) to provide an annual allowance of (Pounds)3 million for the period
1998 through 2000 to cover operating costs. This allowance will be reviewed at
the time of the Distribution Price Control Formula Review in 2000.
Such proposals therefore will allow Yorkshire to recover up to 52% of its
forecasted set-up and operating costs over a five year period. The shortfall
could be higher if: (i) operating costs are higher than anticipated (e.g.,
there is a higher level of customer activity); (ii) recovery of operating
costs is disallowed or reduced when the Distribution Price Control Formula is
reviewed for the period beginning April 1, 2000; or (iii) the integrated
national systems do not work as contemplated or require substantial
redevelopment.
SUPPLY OF ELECTRICITY
Licensed Suppliers
Subject to minor exceptions, all electricity customers in Great Britain must
be supplied by a licensed supplier. Licensed suppliers purchase electricity
and make open access use of the transmission and distribution networks to
achieve delivery to customers' premises.
There are two types of licensed suppliers: public electricity (or first-
tier) suppliers, also known as PESs, and second-tier suppliers. PESs include
the RECs, Scottish Power and Hydro Electric each supplying in its respective
franchise area. Second-tier suppliers include National Power, PowerGen,
Nuclear Electric, Scottish Power, Hydro Electric and other PESs (including
RECs supplying outside their respective franchise areas) and a number of
independent second-tier suppliers.
At present, a Franchise Supply Customer can only buy electricity from the
REC authorized to supply the relevant franchise area. Franchise Supply
Customers typically include residential and small commercial and industrial
customers. Non-Franchise Supply Customers are not limited to buying
electricity from the local REC and can choose to buy from a second-tier
supplier. Such customers are typically larger commercial and industrial
electricity users. Second-tier suppliers compete with one another and with the
local REC to supply customers in this competitive (or "non-franchise") sector
of the market.
Price Regulation
The supply of electricity to Franchise Supply Customers currently remains
subject to price control. The maximum average charge per unit of electricity
supplied (in pence per kilowatt hour) was controlled by a formula principally
based upon (P X (1 + (RPI-Xs)) + Y) (the "Supply Price Control Formula") where
Xs was
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2%. The initial value of Xs was set at 0 for all the RECs on March 31, 1990.
The Supply Price Control Formula was reviewed by the Regulator with effect
from April 1, 1994, when the Xs factor was set at 2% for all the RECs. This
applied until March 31, 1998. P was the previous year's maximum average price
per unit of electricity supplied (in pence per kilowatt hour) that relates to
the REC supply business's own costs and margin. RPI was a measure of
inflation, equaling the percentage change in the UK Retail Price Index between
the six month period of July to December of the two previous years. Because
RPI is based on a weighted average of the prices of goods and services
purchased by a typical household, which bear little resemblance to the inputs
contributing to Yorkshire's business costs, the RPI calculation may not
accurately reflect the price changes affecting Yorkshire. The Y factor was a
pass-through of certain costs which are either largely outside the management
control of the REC or have been regulated elsewhere. The Y factor thus covered
the REC's electricity purchase costs, including both direct Pool purchase
costs and costs of hedging, transmission charges made by NGC, REC distribution
charges and the Fossil Fuel Levy (described below) or amounts equivalent
thereto in respect of the purchase of non-leviable electricity which are
attributable to Franchise Supply Customers. The Supply Price Control Formula
was therefore designed to focus downward pressure on costs and working
capital, which are viewed as being within suppliers' direct control.
As with the Distribution Price Control Formula, there was a correction
factor in the Supply Price Control Formula in the event of overcharging or
undercharging. If a REC had overcharged in the previous year, the maximum
average charge per unit supplied was reduced by an amount to reflect the
excess income received, to which was added interest. In the event of
undercharging, the Supply Price Control Formula allowed the licensee to
recover the shortfall in income plus interest.
Under the current licensing regime, over a six-month period currently
scheduled to commence in September 1998 all customers, including those who are
currently Franchise Supply Customers, will be permitted to choose their
electricity supplier. The Regulator indicated in his supply price restraint
proposals published in October 1997, which proposals Yorkshire accepted, that
price regulation for supply to all residential and smaller business customers
within Yorkshire's Franchise Area, whose annual consumption is under 12,000
kWh, would be extended beyond March 31, 1998 until an adequate level of
competition is established, and, at least, until March 31, 2000. The Regulator
has indicated that the nature and extent of possible restraints after that
date will be reviewed in the light of experience and prospects and that such
review would take place concurrently with the ongoing review of the
Distribution Price Control Formula.
The license modifications that have been implemented to effect the new
controls take the form of a series of price caps on the tariffs applicable to
residential and small business customers. The new controls (when taken
together with the reduction in the Fossil Fuel Levy which became effective on
April 1, 1998) have resulted in the implementation of small reductions,
effective April 1, 1998, in the tariffs for Yorkshire's residential and small
business customers compared to the corresponding tariffs in effect in August
1997. See "Fossil Fuel Levy". The new controls also require an additional 3%
below inflation reduction effective April 1, 1999. The license modifications
also discontinued the automatic pass-through of costs previously passed
through to residential and small business customers, consisting primarily of
purchased power costs.
In addition, the license modifications provide for an allowable charge to
cover the additional cost of providing data management services that will be
required to be provided by each REC. For a discussion of the costs associated
with these data management services, see"--Distribution of Electricity--Data
Management Services". The duration and level of the allowances for operating
costs are likely to be reviewed at the time of the next Distribution Price
Control Formula review. The license modifications also provide for restraints
on pre-payment meter charges.
Further, the license modifications stipulated that a REC should be
penalized: (i) where it starts to open its market more than three months after
the market opening by the first REC; (ii) where it opens successive tranches
of its market more than three months after the opening of the corresponding
tranche by the first REC; and (iii) where the market opening of the first REC
has been delayed beyond April 1998. The penalties will be calculated
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at 1% of the operating revenues of the supply business for Franchise Supply
Customers per month of delay, weighted by the proportion of customers affected
and applied as a reduction is allowed for distribution business income. If
Yorkshire does not open its market to competition until after April 1999, it
would incur a penalty of approximately (Pounds)6 million. It is now apparent
that some penalty will be incurred due to the delay in the opening of the
competitive market for Franchise Supply Customers until September 1998 and a
provision of (Pounds)3 million has been included in the results for Fiscal
Year 1998. Yorkshire Group expects that Yorkshire will be prepared to open its
Franchise Area to such competition in September 1998.
THE POOL
The Pool was established in April 1990 for bulk trading of electricity in
England and Wales between generators and suppliers. The Pool reflects two
principal characteristics of the physical generation and supply of electricity
from a particular generator to a particular supplier. First, it is not
possible to trace electricity from a particular generator to a particular
supplier. Second, it is not practicable to store electricity in significant
quantities, creating the need for a constant matching of supply and demand.
Subject to certain exceptions, all electricity generated in England and Wales
must be sold and purchased through the Pool. All licensed generators and
suppliers must become signatories to the Pooling and Settlement Agreement,
which governs the constitution and operation of the Pool and the calculation
of payments due to and from generators and suppliers. The Pool also provides
centralized settlement of accounts and clearing. The Pool does not itself buy
or sell electricity.
Prices for electricity are set by the Pool daily for each half hour of the
following day based on the bids of the generators and a complex set of
calculations matching supply and demand and taking account of system
stability, security and other costs. Each day, generators inform NGC of the
amount of electricity which each of their generating units will be able to
provide the next day and the price at which they are willing to operate each
such unit. NGC uses this information to construct a "merit order" which ranks
each generating unit in order of increasing price. NGC then schedules the
stations to operate according to such merit order, calling into service the
least expensive generating units first and continuing to call generating units
into service until enough are operating to meet the demand of all suppliers.
Factors which may constrain NGC's ability to order stations into operation in
strict observance of the merit order include transmission system constraints
and the inflexibility of some generating units. A computerized system (the
settlement system) is used to calculate prices and to process metered,
operational and other data and to carry out the other procedures necessary to
calculate the payments due under the Pool trading arrangements. The settlement
system is administered on a day to day basis by NGC Settlements Limited, a
subsidiary of NGC, as settlement system administrator.
The UK government recently invited the Regulator to review these electricity
wholesale trading arrangements, trading arrangements outside the Pool and
price setting mechanisms. The review was launched in January 1998 with an
announcement that the Regulator and an independent panel had been asked to
report to the Energy Minister by July 1998.
FOSSIL FUEL LEVY
All the RECs are obligated to obtain a specified amount of generating
capacity from non-fossil fuel sources (the "NFFOs"). Because electricity
generated from non-fossil fuel plants is generally more expensive than
electricity from fossil fuel plants, a levy system (the "Fossil Fuel Levy")
has been instituted to reimburse the generators and the RECs for the extra
costs involved. The Regulator sets the rate of the Fossil Fuel Levy annually.
The current Fossil Fuel Levy is 0.9% of the value of sales of electricity made
in England and Wales and 0.8% of the value of sales of electricity made in
Scotland.
REGULATION UNDER THE ELECTRICITY ACT
The Regulator
The principal legislation governing the structure and regulation of the
electricity industry in Great Britain is the Electricity Act. The Electricity
Act established the industry structure described above so as to enable
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privatization to take place. The Electricity Act also created the
institutional framework under which the industry is currently regulated,
including the office of the Regulator, who is appointed by the Secretary of
State. The present Regulator, Professor Stephen Littlechild, was appointed for
a five year term commencing September 1, 1989 and he was reappointed in 1994
for a further five year term ending on August 31, 1999 but has agreed to leave
following the proposed appointment in late 1998 of an energy regulator with
responsibility for gas and electricity. Professor Littlechild holds the formal
title of Director General of Electricity Supply and is head of OFFER.
The Regulator's functions under the Electricity Act include granting
licenses to generate, transmit or supply electricity (a function which he
exercises under a general authority from the Secretary of State); proposing
modifications to licenses and, in case of non-acceptance of such proposals by
licensees, making license modification references to the MMC; enforcing
compliance with license conditions; advising the Secretary of State in respect
of the setting of each NFFO round; calculating the Fossil Fuel Levy rate and
collecting the levy; determining certain disputes between electricity
licensees and customers; and setting standards of performance for electricity
licensees. The term "supply" as used in the context of the Electricity Act and
the PES License covers both distribution and supply activities.
The Regulator exercises concurrently with the Director General of Fair
Trading certain functions relating to monopoly situations under the Fair
Trading Act 1973 and certain functions relating to courses of conduct which
have, or are intended or likely to have, the effect of restricting, distorting
or preventing competition in the generation, transmission or supply of
electricity under the Competition Act 1980.
The Electricity Act requires the Regulator and the Secretary of State to
exercise their functions in the manner each considers is best calculated to
ensure that all reasonable demands for electricity are satisfied, secure that
license holders are able to finance their licensed activities and promote
competition in the generation and supply of electricity.
Subject to these duties, the Secretary of State and the Regulator are
required to exercise their functions in the manner which each considers is
best calculated: to protect the interests of consumers of electricity supplied
by licensed suppliers in respect of price, continuity of supply, and the
quality of electricity supply services; to promote efficiency and economy on
the part of licensed electricity suppliers and the efficient use of
electricity supplied to consumers; to promote research and development by
persons authorized by license to generate, transmit or supply electricity; to
protect the public from the dangers arising from the generation, transmission
or supply of electricity; and to secure the establishment and maintenance of
machinery for promoting the health and safety of workers in the electricity
industry. The Secretary of State and the Regulator also have a duty to take
into account the effect on the physical environment of activities connected
with the generation, transmission or supply of electricity.
In performing their duties to protect the interests of consumers in respect
of prices and other terms of supply, the Secretary of State and the Regulator
are required to take into account in particular the interests of consumers in
rural areas. In performing their duties to protect the interests of consumers
in respect of the quality of electricity supply services, they are required to
take into account in particular the interests of those who are disabled or of
pensionable age.
On June 30, 1997, the UK government announced its intention to conduct a
comprehensive review of the regulatory framework governing the electricity
distribution and supply businesses in England and Wales, as well as the
regulatory framework applicable to other privatized utilities. The review
culminated in the March Green Paper which sets forth a number of proposals of
the UK Government designed to reexamine utility regulation in the UK. Among
the main proposals contained within the March Green Paper are the retention of
"RPI-X" as the fundamental basis for price regulation; increased transparency
and consistency of regulation; the merger of OFFER and OFGAS; the separate
licensing of the distribution and supply businesses of the PESs; amendment of
the statutory duties of utility regulators to provide a new primary duty to
exercise their functions in the manner best calculated to protect the
interests of the consumers in the short and long term, wherever possible
through
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promoting competition; and adopting price regulation to distinguish between
income earned through companies' own efforts and income which results from
other factors. Some of these proposals would require primary legislation.
Responses to the March Green Paper by interested parties were due by May 31,
1998.
Yorkshire submitted comments on the March Green Paper on May 29, 1998. In
summary, Yorkshire welcomed the review of the regulation and supported the
objectives of fairness and efficiency as the key to promoting customer
interests and allowing the industry to develop, but suggested that the
existing regulatory system had delivered significant benefits to customers and
that any changes should not undermine such benefits. Yorkshire also supported
the creation of a single energy regulator and procedural changes to foster
greater consistency in decision making. Furthermore, while agreeing with the
need to consider the separation of the distribution and supply businesses,
Yorkshire suggested that the licenses could be separated without forcing
divestiture of such businesses and that the costs and overhead in putting in
place any new arrangements should be minimized
On May 13, 1998, the Regulator issued a consultation paper on the separation
of distribution and supply businesses for PESs and the future treatment of
metering and meter reading. The material proposals and recommendations set out
in the consultation paper are as follows:
1. Full separation of the ownership of the supply and distribution
business was recommended and appropriate interim arrangements should be
contemplated for separate companies to comprise the distribution and supply
activities, each acting independently of the other.
2. Measures should be introduced to ensure that each PES supply
subsidiary operates at arm's length from the distribution subsidiary. These
measures would include separate contracts between the supply and
distribution businesses, avoiding the sharing of facilities between the
businesses, including requiring separate management teams for the two
businesses and minimizing corporate headquarters activities.
3. The distribution company should be responsible for the maintenance and
operation of the network and have a statutory duty to develop and maintain
an efficient, coordinated and economical system of electricity distribution
and to facilitate competition in generation and supply. It should connect
any person to the network on reasonable terms and act as a "last resort"
meter reading service, bought in from meter reading companies, for those
suppliers not wishing to provide the service themselves.
4. All suppliers should be placed on the same legislative footing and
tariff supply should be replaced by supply under contract. License
conditions would be introduced to protect customers and competitors against
dominant suppliers.
5. Metering services should be open to competition and arrangements for
transmission in Scotland should be brought into line with those in England
and Wales.
Responses to this consultation paper were requested by June 15, 1998. In its
June 1998 response to this consultation paper, Yorkshire supported separate
licenses allowing separate regulation of supply and distribution activities,
but opposed the measures proposed by OFFER on ownership and stringent
operating separation. In opposing such measures, Yorkshire, among other
things, questioned whether the potentially high costs of implementing such
measures were justified. Yorkshire concluded that its position is consistent
with the UK Government's proposals in the March Green Paper and the position
of other PESs.
The Regulator intends to have a further consultation on separation of
businesses in the latter part of 1998 and to outline proposals on separation
of businesses in September 1998. The Regulator intends any revised definitions
of distribution, supply and metering responsibilities to be taken into account
in setting price controls and revising charging arrangements scheduled for
2000.
In October 1997, the UK government invited the Regulator to consider
parameters for a review of electricity trading arrangements. Such a review
would focus on the wholesale electricity market in England and Wales and would
likely cover existing trading within the Pool, trading arrangements outside
the Pool and price setting mechanisms. The impact on, and possible need for
change to, the framework of regulatory controls could also be considered,
including Pool governance, regulation of and access to the Grid, licenses, the
Electricity Act and the implications of European Union law. A review of
certain of these issues was launched in January 1998 with an announcement that
the Regulator and an independent panel had been asked to report to the Energy
Minister by July 1998.
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In December 1997, the UK government announced a review of energy sources for
power generation, including fuel diversity, sustainable development and the
role of coal. Representations of interested parties were to be submitted by
mid-February 1998. While the review is underway, the Secretary of State has
deferred decisions on most outstanding or new applications for the
construction of generating stations. An Energy Select Committee Report on the
Coal Industry issued in April 1998 recommended that such deferral, as it
relates to the construction of gas fired generating stations, be lifted as
soon as possible. The Trade and Industry Select Committee is also undertaking
an inquiry into a number of aspects of UK energy policy. See "Risk Factors--
Factors Relating to Yorkshire's Business--Governmental Review of Utility
Regulation".
On June 25, 1998, the UK Government issued a consultation paper on its
review of energy sources for power generation. The preliminary general
conclusions of the review were:
1. There are basic flaws in the existing electricity market arrangements
which need to be corrected to ensure that the UK Government can achieve its
policy of diverse, secure and sustainable energy supplies at competitive
prices for consumers, while protecting the environment; and
2. The prices for electricity consumers have been excessive and, in the
absence of restrictions, a decrease of at least 10% in wholesale
electricity prices should be possible in the medium term.
Problems identified during the review included:
1. Despite the fact of substantial new gas entry into the market,
competition has not significantly increased nor has the price of
electricity decreased as expected;
2. Although the Pool ensures that electricity is available to all when
needed, it has led to distortions which have affected the choice of energy
sources for power stations; such distortions have favored gas plants which
are operated inflexibly over flexible coal plants and have led to an
increase in construction of gas-fired stations to the detriment of coal-
fired stations;
3. Given that electricity cannot be stored, gas-fired stations must be
modified to provide for the ability to produce electricity on demand,
similar to coal-fired capacity;
4. Independent consultants have focused on several technical issues that
must be reviewed if there is to be further growth in gas-fired combined-
cycle gas turbine generation; and
5. As a result of the distorted market, dependence on gas could increase,
which raises concerns over diversity and security of supply of energy power
generation.
The UK Government's statement notes that the Regulator has identified
significant problems in the Pool and market structure. He recommended (i)
reforming the electricity trading arrangements to ensure that all plants play
a full role in competition and (ii) addressing the market power of the major
generators.
The UK Government agrees with the necessity of reforming the market
structure but noted that the time needed for such reform could be lengthy.
Accordingly, the UK Government proposes to apply a stricter policy on power
station consents while the reform agenda is addressed.
Yorkshire submitted its response to the consultation document on July 20,
1998. In general, Yorkshire supported the UK Government's overall objective to
develop secure, diverse and sustainable supplies of energy at competitive
prices and agreed that energy policy should be consistent with a competitive
industrial sector and the long term energy needs of the UK. Yorkshire agreed
with the UK Government's proposal to reform the electricity trading
arrangements and to reduce the market power of the two major generators, but
expressed its concern at the prospect of a more strict consent policy for gas-
fired generation projects. Yorkshire urged that the review be completed as
swiftly as possible and that the final measures taken not interfere with the
commercial development of competitive generation projects.
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CONSUMERS' COMMITTEE
The Regulator is required under the Electricity Act to establish a
consumers' committee for the franchise area of each PES License holder (or, if
the Secretary of State so determines, for the franchise areas of two or more
such suppliers). Each committee comprises a chairman appointed by the
Regulator after consultation with the Secretary of State and between 10 and 20
other members appointed by the Regulator after consultation with the committee
chairman. The duties of each committee are to make representations to, and
consult with, their allocated PES License holders about matters affecting the
interests of customers or potential customers of such supplier(s), to review
matters affecting the interests of electricity consumers in such committee's
area, and to advise the Regulator on any other matter which warrants
discussion or which is referred to them by the Regulator.
LICENSES
Generation Licenses
Unless covered by an exemption, all electricity generators engaging in the
construction, expansion or operation of a power station in Great Britain are
required to have a generation license. There are currently 51 generation
license holders, including RPG, in Great Britain. Although generation is not
subject to price control, generators are not permitted to discriminate between
customers or cross subsidize their licensed activities. The conditions
attached to a generation license in England and Wales require the holder,
among other things, to comply with the Grid Code, to comply with any REC's
distribution code to the extent applicable, to be a member of the Pool and to
submit relevant generating sets for central dispatch. The conditions attached
to a generation license in Scotland require the holder, among other things, to
comply with the Scottish Grid Code. Failure to comply with any of the
generation license conditions may subject the licensee to a variety of
sanctions, including enforcement orders by the Regulator or license revocation
if the license holder is not in compliance with an enforcement order.
PES Licenses
Each of the RECs, Scottish Power and Scottish Hydro Electric has a PES
License for its Franchise Area and is required, under the Electricity Act, to
supply electricity upon request to any premises in that area, except in
specified circumstances. Each PES is also required not to discriminate between
its own supply business and other users of its distribution system and the PES
License prohibits cross subsidy between the various regulated businesses. As
described above, PESs are subject to separate price controls on the amounts
they may charge for the use of their distribution system by all customers in
their Franchise Area and for the supply of electricity to Franchise Supply
Customers. The PES Licenses also require the licensee to procure electricity
at the best price reasonably obtainable having regard to the sources
available.
As part of his continued monitoring of the electric utility industry, the
Regulator published on August 15, 1996 comparative information relating to the
RECs' economic purchasing performance. The publication entitled "Yardstick of
Electricity Purchase Costs", compared in yardstick value terms, the generation
costs which RECs passed through to Franchise Supply Customers in Fiscal Years
1995 and 1996 under the Supply Price Control Formula. The Regulator has
reviewed the supply price controls applicable to PES License holders and
published in October 1997 proposals for new controls to take effect on April
1, 1998. He issued a consultation paper on this matter on September 5, 1996
entitled "The Competitive Electricity Market from 1998: Price Restraints". He
subsequently issued four further consultation papers in January, May, July and
August, 1997. The October 1997 proposals were for maximum price restraints in
respect of supply to residential and small business customers for a period of
at least two years beginning April 1, 1998, which would eliminate the pass-
through of costs to such customers, consisting primarily of purchased power
costs. Yorkshire accepted these proposals. See "--Supply of Electricity--Price
Regulation".
In England and Wales, each PES License limits the extent of the generation
capacity in which the relevant REC may hold an interest without the prior
consent of the Regulator ("own-generation limits"). These own-
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generation limits, expressed in megawatts, currently restrict the
participation of a REC in generation to a level of approximately 15% of the
simultaneous maximum electricity consumption in that REC's franchise area at
the time of privatization. In the case of Yorkshire, the own-generation limit
is fixed at 800 MW.
The Regulator has stated that it would be reasonable to consider a REC's
request to increase its own- generation limit on the condition that it
accepted explicit restrictions on the contracts it signed with its supply
business, and that at a minimum the REC would be prohibited from entering into
additional own-generation contracts in its franchise market. The Regulator
considers that an increase in own-generation limits subject to such
restrictions could allow a REC to contribute more fully to the development of
competition in generation without the allegation that it was exploiting its
captive market and local monopoly position. In June 1996, the Regulator stated
that he had indicated to Energy Group, in the context of its acquisition of
6,000 MW of generating capacity from National Power and PowerGen, that he
would be favorably inclined to relax the own-generation limits of Energy Group
subject to the Regulator and Energy Group agreeing to license modifications as
set out in a consultation paper which he had published in August 1995.
The Regulator has made modifications to 14 PES Licenses in connection with
the introduction of competition for Franchise Supply Customers currently
scheduled to begin in September 1998. These modifications comprise a number of
new obligations to offer services to all competing suppliers. These services
are generally known as data management services, including registration, data
collection and aggregation, meter operation and provision of prepayment meter
infrastructure. These proposals have been accepted by Yorkshire. The Regulator
has issued full modifications to the first-tier and second-tier licenses to
encompass the changes. In response to respective individual requirements, the
PESs are providing collectively a data transfer service. Preparations are
being made to provide these services as part of a program of work and in
October 1997 the Regulator made final proposals for the recovery of the costs
of this program which were accepted by Yorkshire in November 1997.
The RECs are also contributing to a program of work by the Pool to adopt
settlement arrangements for the competitive market in 1998. It has been agreed
that these costs, subject to a cap above which recovery would be partial, will
be recovered from charges to be made to suppliers by the Pool over a five year
period.
Second-Tier Supply Licenses
Other than a PES in its Franchise Area and subject to certain other
exceptions, a supplier of electricity to premises in Great Britain must
possess a second-tier supply license. Subject to the restrictions described in
"--Supply of Electricity" above, second-tier licensees may compete for the
supply of electricity with one another and with the PES for the relevant area.
There are currently 40 second-tier supply license holders for England and
Wales, including Yorkshire, and 27 for Scotland.
Transmission Licenses
In England and Wales, NGC is the only transmission license holder. The
transmission license imposes on NGC the obligation to operate the merit order
system for the central dispatch of generating units and gives NGC
responsibility for the economic purchasing of ancillary services from
generators and suppliers. The transmission license requires NGC to offer terms
on a nondiscriminatory basis for the carrying out of works for connection to,
and use of, the transmission system.
Modifications to Licenses
Subject to a power of veto by the Secretary of State, the Regulator may
modify license conditions with the agreement of the license holder. He must
first publish the proposed modifications and consider representations or
objections made. If the Regulator fails to agree to modifications with a
license holder, he may refer a matter relating to generation, transmission or
supply of electricity under a license to the MMC. If the MMC finds that the
matter referred to it has, or may be expected to have, specified effects
adverse to the public interest which
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could be remedied or prevented by a license modification, the Regulator is
required to make modifications that appear to him requisite for the purpose of
remedying or preventing the adverse effects identified by the MMC.
Modifications to License conditions may also be made by the Secretary of State
as a consequence of monopoly, merger or other competition references under
general UK competition law.
Following the acquisition of Yorkshire by Yorkshire Group, the Regulator
proposed that Yorkshire's PES License be modified, by agreement, to take into
account the fact that the PES License is now held by a subsidiary company. In
particular, the Regulator proposed that the license be modified to provide
that, with few exceptions, the only business activities which Yorkshire is
permitted to undertake directly are its franchise and second-tier supply
businesses and its distribution business. The license modifications also
require Yorkshire to ensure that it has sufficient management resources and
financial resources and facilities to conduct its supply and distribution
businesses and to comply with its statutory and license obligations. Yorkshire
is required to provide an annual certificate to the Regulator approved by the
Yorkshire Board of Directors and signed by a Director to that effect and in
the interim to notify the Regulator immediately of any changes threatening the
validity of such certificates. Additionally, the license modifications require
Yorkshire to obtain from AEP and NCE legally enforceable undertakings in favor
of Yorkshire that they and their subsidiaries will refrain from any action
which would be likely to cause Yorkshire to breach any of its obligations
under the Electricity Act or the PES License. Further, the consent of the
Regulator is required for Yorkshire to create security over its assets, to
incur indebtedness or to give guarantees, unless the transaction is on normal
commercial and arm's length terms and for a "permitted purpose" (which refers
to the supply, distribution or generation business, or any business conducted
by Yorkshire or its affiliates or subsidiaries on March 31, 1997) or the
transaction involves any businesses whose aggregate revenues in any financial
year do not exceed 5% of the aggregate turnover of the supply, second-tier
supply and distribution businesses in the previous financial year. The consent
of the Regulator also is required before Yorkshire may transfer assets or make
loans to affiliates or subsidiaries except for certain specified purposes,
including payment of dividends out of distributable reserves, repayments of
capital, and payments on normal commercial and arm's length terms for goods,
services or assets supplied. These provisions are subject to an overriding
provision in the PES License which prevents any REC from disposing of (which
would include creating a security interest in) distribution assets without the
Regulator's express prior consent. Additionally, the license modifications
require Yorkshire to use reasonable efforts to maintain the investment grade
credit ratings of its debt. Finally, because Yorkshire is now owned by
Yorkshire Group, the Regulator required Yorkshire to obtain from AEP and NCE
legally enforceable undertakings to provide information to Yorkshire, as
licensee, in order to comply with requirements of the Regulator. These
modifications to the PES License have been agreed to by Yorkshire and took
effect on December 15, 1997 and the required undertakings were also provided
on December 15, 1997. In February 1998, the Regulator issued, for public
consultation, proposals for further modifications to the licenses of PESs that
have been subject to takeovers. Further proposals are expected to be made by
the Regulator in light of this consultation paper that may result in further
modifications to PES licenses. See "Risk Factors--Factors Relating to
Yorkshire's Business--Regulatory Policies Affecting Yorkshire Group".
TERM AND REVOCATION OF LICENSES
Yorkshire's PES License will continue in effect until at least 2025 unless
revoked. Under ordinary circumstances, the license may not be revoked except
on 25 years' prior notice, which notice may not be given until 2000.
Otherwise, the Secretary of State may revoke a PES License by not less than 30
days' notice in writing to the licensee in certain specified circumstances
including any failure to comply with a final order of the Regulator requiring
the license holder to comply with its license conditions or requirements, or
the insolvency of the licensee.
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MANAGEMENT
MANAGEMENT OF YORKSHIRE GROUP
The following table sets forth certain information with respect to the
officers and directors of Yorkshire Group as of March 31, 1998:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- ------------------------------------
<S> <C> <C>
Wayne H. Brunetti................. 55 Chairman and Director
Donald M. Clements, Jr............ 48 Director
Armando A. Pena................... 53 Chief Financial Officer and Director
Dr. E. Linn Draper, Jr. .......... 56 Director
Richard C. Kelly.................. 51 Director
Teresa S. Madden.................. 42 Director
</TABLE>
Dr. E. Linn Draper, Jr. Has been a Director of Yorkshire Group since
February 1997. Since April 1993 has been Chairman of the Board of Directors of
AEP and all of its major subsidiaries. In March 1992, appointed President of
AEP and President and Chief Operating Officer of American Electric Power
Service Corporation. Serves as a Director of BCP Management, Inc. and Cell Net
Data Systems.
Donald M. Clements, Jr. Has been a Director of Yorkshire Group since
February 1997. Since October 1995, has been President of AEP Resources, Inc.
Joined AEP in September 1994 as Senior Vice President. From 1978 to 1994, was
employed with Gulf States Utility Company.
Armando A. Pena. Since February 1997, has been a Director and, since July
1997, has been Chief Financial Officer of Yorkshire Group. Since January 1998,
has been Chief Financial Officer, and, since March 1996, Senior Vice President
and Treasurer of American Electric Power Service Corporation. Since November
1995, has been Treasurer of all of AEP's major subsidiaries. From 1989 to
March 1996, was Vice President-Finance of American Electric Power Service
Corporation.
Wayne H. Brunetti. Since February 1997, has been a Director and, since April
1998, has been Chairman of Yorkshire Group. Since August 1997, has been
President and Chief Executive Officer of NCE. Since January 1996, has been the
President and Chief Executive Officer of Public Service Company of Colorado.
Joined Public Service Company of Colorado in July 1994 as President and Chief
Operating Officer. From 1991 to July 1994, was President and Chief Executive
Officer of Management Systems International, a management consulting firm.
Serves as a Director of e prime and YGSC Natural Fuels.
Richard C. Kelly. Has been a Director of Yorkshire Group since February
1997. Since August 1997, has been Executive Vice President, Finance and
Support Services and Chief Financial Officer of NCE. From 1990 to August 1997,
was Chief Financial Officer of Public Service Company of Colorado.
Teresa S. Madden. Has been a Director of Yorkshire Group since February
1997. Since September 1997, has been Controller and Secretary of NCE. From
1990 to August 1997, was Director of Corporate Accounting and Assistant
Secretary of Public Service Company of Colorado.
MANAGEMENT COMPENSATION OF YORKSHIRE GROUP
The officers and directors of Yorkshire Group listed above (each an "AEP/NCE
Officer or Director", as applicable) receive no cash or non-cash compensation
as a result of their services performed for Yorkshire Group. The salaries of
all AEP/NCE Officers and Directors are paid by either AEP or NCE, as
applicable, solely for the services performed by them for either AEP or NCE,
as applicable.
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MANAGEMENT OF YORKSHIRE FINANCE
The following table sets forth certain information with respect to the Board
of Directors of Yorkshire Finance as of March 31, 1998:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Graham J. Hall................................................ 54 Director
Roger Dickinson............................................... 51 Director
Andrew G. Donnelly............................................ 42 Director
</TABLE>
Graham J. Hall. Has been a Director of Yorkshire Finance since August 1997.
Since January 1998, has been the Chief Executive of Yorkshire. From April 1997
to December 1997, was the Group Operations Director of Yorkshire. From 1990
through 1997, was the Group Executive Director, Distribution of Yorkshire.
Roger Dickinson. Has been a Director of Yorkshire Finance since August 1997.
Since 1989, has been Group Company Secretary and Solicitor of Yorkshire.
Andrew G. Donnelly. Has been a Director of Yorkshire Finance since December
1997. Since January 1998, has been Finance Director of Yorkshire. From January
1996 through December 1997, was Group Financial Controller of Yorkshire. From
1993 to 1996, was Financial Controller, System Division of Yorkshire.
MANAGEMENT COMPENSATION OF YORKSHIRE FINANCE
The directors of Yorkshire Finance listed immediately above receive no cash
or non-cash compensation as a result of their services performed for Yorkshire
Finance. The salaries of all directors listed immediately above are paid by
Yorkshire solely for their services performed for Yorkshire.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
As described under "Business--Business Restructuring", Yorkshire currently
contemplates that its generation assets may be transferred to an entity or to
entities other than Yorkshire Group or its subsidiaries. Such entity or
entities may be an indirect subsidiary or may be indirect subsidiaries of a US
Parent. It is expected that proceeds from the transfer of these assets will be
used to reduce debt of the Yorkshire Group.
Total assets less current liabilities employed by the generation business at
March 31, 1998 were (Pounds)136 million. Operating income attributable to the
generation business in Fiscal Year 1998 was (Pounds)16 million. See
"Business--Business Restructuring".
SECURITY OWNERSHIP
Yorkshire Group is wholly owned indirectly by AEP and NCE. Yorkshire Finance
is wholly owned by Yorkshire Group. The following table shows the number of
shares of common stock of AEP and NCE, respectively, owned by the directors
and executive officers of Yorkshire Group and Yorkshire Finance as of March
31, 1998:
<TABLE>
<CAPTION>
NUMBER OF SHARES
NAME TITLE OF SECURITY BENEFICIALLY OWNED(1)
- ---- ----------------- ---------------------
<S> <C> <C>
Dr. E. Linn Draper, Jr................. AEP Common Stock 7632(2)(3)
Donald M. Clements, Jr................. AEP Common Stock 1052(2)
Armando A. Pena........................ AEP Common Stock 4666(2)
Wayne H. Brunetti...................... NCE Common Stock 371,504(4)(5)(6)
Richard C. Kelly....................... NCE Common Stock 128,607(4)(6)(7)
Teresa S. Madden....................... NCE Common Stock 30,080(4)(6)
Directors of Yorkshire Finance and
Yorkshire Group as a group
(6 persons)........................... AEP Common Stock 13,350(8)
NCE Common Stock 530,191(8)
</TABLE>
- --------
(1) "Beneficial ownership" means the sole or shared power to vote, or to
direct the voting of, a security and/or investment power with respect to a
security.
(2) Includes shares of AEP common stock held in the AEP Savings Plan as
follows: Dr. Draper 2,917 shares, Mr. Clements 1,052 shares and Mr. Pena
3,298 shares.
(3) Includes 4,715 shares of AEP common stock held in joint tenancy with Dr.
Draper's wife.
(4) Includes shares of NCE common stock in the form of unexercised stock
options awarded pursuant to the Omnibus Incentive Plan as follows: Mr.
Brunetti 352,334, Mr. Kelly 118,050 and Ms. Madden 28,550 shares.
(5) Includes 18,700 shares of NCE common stock held in joint tenancy.
(6) Includes shares of NCE common stock held in the NCE Employee Savings and
Stock Option Plan as follows: Mr. Brunetti 470, Mr. Kelly 2,718 and Ms.
Madden 1,125.
(7) Includes 263 shares of NCE common stock held by Mr. Kelly's wife in the
NCE Savings Plan.
(8) Represents less than 1% of outstanding common stock of AEP and NCE, as
applicable.
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THE EXCHANGE OFFER
PURPOSE OF THE EXCHANGE OFFER
In connection with the sale of the Original Senior Notes, Yorkshire Group
and Yorkshire Finance entered into the Registration Rights Agreement with the
Initial Purchasers, pursuant to which Yorkshire Group and Yorkshire Finance
agreed to use their reasonable best efforts to file and to cause to become
effective with the Commission a registration statement with respect to the
exchange of the Original Senior Notes for senior notes with terms identical in
all material respects to the terms of the Original Senior Notes except as
described herein. A copy of the Registration Rights Agreement has been filed
as an exhibit to the Registration Statement of which this Prospectus is a
part.
The Exchange Offer is being made to satisfy the contractual obligations of
Yorkshire Group and Yorkshire Finance under the Registration Rights Agreement.
The form and terms of the Exchange Senior Notes are the same as the form and
terms of the Original Senior Notes except that the Exchange Senior Notes have
been registered under the Securities Act and will not be subject to certain
restrictions on transfer applicable to the Original Senior Notes, and will not
provide for any increase in the interest rate thereon. In that regard, the
Original Senior Notes provide, among other things, that, if a registration
statement relating to the Exchange Offer has not been filed and declared
effective within certain specified periods, the interest rate borne by the
Original Senior Notes will increase by 0.25% per annum until such registration
statement is filed or declared effective, as the case may be. Upon
consummation of the Exchange Offer, holders of Original Senior Notes will not
be entitled to any increase in the interest rate thereon or any further
registration rights under the Registration Rights Agreement, except under
limited circumstances. See "Risk Factors-Consequences of a Failure to Exchange
Original Senior Notes" and "Description of the Original Securities."
The Exchange Offer is not being made to, nor will the Yorkshire Finance
accept tenders for exchange from, holders of Original Senior Notes in any
jurisdiction in which the Exchange Offer or the acceptance thereof would not
be in compliance with the securities or blue sky laws of such jurisdiction.
Solely for the purposes of this section entitled "The Exchange Offer",
unless the context requires otherwise, the term "holder" with respect to the
Exchange Offer shall include any person who owns an interest in the Book-Entry
Interests. As described under "Description of the Exchange Senior Notes--Form,
Denomination, Book-Entry Procedures and Transfer," each person owning an
interest in the Book-Entry Interests must rely on the procedures of the Book-
Entry Depositary and DTC and, if such person is not a Participant in DTC, on
the procedures of the Participant through which such person owns its interest
to exercise any rights granted to, and perform any obligations of, a holder of
Senior Notes, including rights and obligations in connection with the Exchange
Offer. Furthermore, in the description of the procedures relating to this
section, references to the terms "Exchange Senior Notes" and "Original Senior
Notes", unless the context requires otherwise, shall be deemed to include
interests in the Book-Entry Interests relating to such securities.
Pursuant to the Exchange Offer, Yorkshire Group will exchange as soon as
practicable after the Expiration Date the Original Notes Guarantee for the
Exchange Notes Guarantee corresponding to the aggregate principal amount of
Original Senior Notes accepted for exchange. The Exchange Notes Guarantee has
also been registered under the Securities Act.
TERMS OF THE EXCHANGE OFFER
Yorkshire Finance hereby offers, upon the terms and subject to the
conditions set forth in this Prospectus and in the accompanying Letter of
Transmittal, to exchange (i) up to $350,000,000 aggregate principal amount of
2003 Exchange Senior Notes for a like aggregate principal amount of 2003
Original Senior Notes and (ii) up to $300,000,000 aggregate principal amount
of 2008 Exchange Senior Notes for a like aggregate principal amount of 2008
Original Senior Notes, each properly tendered on or prior to the Expiration
Date and not properly withdrawn in accordance with the procedures described
below. Yorkshire Finance will issue, promptly after the Expiration Date, an
aggregate principal amount of up to $650,000,000 of Exchange Senior Notes in
exchange
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for a like principal amount of outstanding Original Senior Notes tendered and
accepted in connection with the Exchange Offer. Holders may tender their
Original Senior Notes in whole or in part in denominations of not less than
$1,000 and integral multiples thereof.
The Exchange Offer is not conditioned upon any minimum principal amount of
Original Senior Notes being tendered. As of the date of this Prospectus,
$650,000,000 aggregate principal amount of the Original Senior Notes is
outstanding.
Holders of Original Senior Notes do not have any appraisal or dissenters'
rights in connection with the Exchange Offer. Original Senior Notes which are
not tendered for or are tendered but not accepted in connection with the
Exchange Offer will remain outstanding and be entitled to the benefits of the
Indenture, but will not be entitled to any further registration rights under
the Registration Rights Agreement except under limited circumstances. See
"Risk Factors--Consequences of a Failure to Exchange Original Senior Notes"
and "Description of the Original Securities."
If any tendered Original Senior Notes are not accepted for exchange because
of an invalid tender, the occurrence of certain other events set forth herein
or otherwise, certificates for any such unaccepted Original Senior Notes will
be returned, or appropriate book-entry transfer will be made, as the case may
be, without expense, to the tendering holder thereof promptly after the
Expiration Date.
Holders who tender Original Senior Notes in connection with the Exchange
Offer will not be required to pay brokerage commissions or fees or, subject to
the instructions in the Letter of Transmittal, transfer taxes with respect to
the exchange of Original Senior Notes in connection with the Exchange Offer.
Yorkshire Group will pay all charges and expenses, other than certain
applicable taxes described below, in connection with the Exchange Offer. See
"--Fees and Expenses."
NEITHER YORKSHIRE GROUP, THE DIRECTORS OF YORKSHIRE GROUP, YORKSHIRE
FINANCE, THE DIRECTORS OF YORKSHIRE FINANCE NOR THE TRUSTEE MAKE ANY
RECOMMENDATION TO HOLDERS OF ORIGINAL SENIOR NOTES AS TO WHETHER TO TENDER OR
REFRAIN FROM TENDERING ALL OR ANY PORTION OF THEIR ORIGINAL SENIOR NOTES
PURSUANT TO THE EXCHANGE OFFER. IN ADDITION, NO ONE HAS BEEN AUTHORIZED TO
MAKE ANY SUCH RECOMMENDATION. HOLDERS OF ORIGINAL SENIOR NOTES MUST MAKE THEIR
OWN DECISIONS WHETHER TO TENDER PURSUANT TO THE EXCHANGE OFFER AND, IF SO, THE
PRINCIPAL AMOUNT OF ORIGINAL SENIOR NOTES TO TENDER BASED ON SUCH HOLDERS' OWN
FINANCIAL POSITIONS AND REQUIREMENTS.
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" means 5:00 p.m, New York City time, on September
, 1998, unless the Exchange Offer is extended by Yorkshire Finance or
Yorkshire Group (in which case the term "Expiration Date" shall mean the
latest date and time to which the Exchange Offer is extended).
Yorkshire Finance and Yorkshire Group expressly reserve the right in their
sole and absolute discretion, subject to applicable law, at any time and from
time to time, (i) to delay the acceptance of the Original Senior Notes for
exchange, (ii) to terminate the Exchange Offer (whether or not any Original
Senior Notes have theretofore been accepted for exchange) if Yorkshire Group
or Yorkshire Finance determines, in its sole and absolute discretion, that any
of the events or conditions referred to under "--Conditions to the Exchange
Offer" have occurred or exist or have not been satisfied, (iii) to extend the
Expiration Date of the Exchange Offer and retain all Original Senior Notes
tendered pursuant to the Exchange Offer, subject, however, to the right of
holders of Original Senior Notes to withdraw their tendered Original Senior
Notes as described under "--Withdrawal Rights" and (iv) to waive any condition
or otherwise amend the terms of the Exchange Offer in any respect. If the
Exchange Offer is amended in a manner determined by Yorkshire Finance and
Yorkshire Group to constitute a material change, or if Yorkshire Finance and
Yorkshire Group waive a material condition of the Exchange
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Offer, Yorkshire Finance and Yorkshire Group will promptly disclose such
amendment by means of a prospectus supplement that will be distributed to the
registered holders of the Senior Notes and Yorkshire Finance and Yorkshire
Group will extend the Exchange Offer to the extent required by Rule 14e-1
under the Exchange Act.
Any such delay in acceptance, extension, termination or amendment will be
followed promptly by oral or written notice thereof to the Exchange Agent and
by making a public announcement thereof, and such announcement in the case of
an extension will be made no later than 9:00 a.m., New York City time, on the
next business day after the previously scheduled Expiration Date. Without
limiting the manner in which Yorkshire Finance and Yorkshire Group may choose
to make any public announcement and, subject to applicable law, Yorkshire
Finance and Yorkshire Group shall have no obligation to publish, advertise or
otherwise communicate any such public announcement other than by issuing a
release to an appropriate news agency.
ACCEPTANCE FOR EXCHANGE AND ISSUANCE OF EXCHANGE SENIOR NOTES
Upon the terms and subject to the conditions of the Exchange Offer,
Yorkshire Finance will exchange, and will issue to the Exchange Agent,
Exchange Senior Notes for Original Senior Notes validly tendered and not
withdrawn promptly after the Expiration Date.
In all cases, delivery of Exchange Senior Notes in exchange for Original
Senior Notes tendered and accepted for exchange pursuant to the Exchange Offer
will be made only after timely receipt by the Exchange Agent of (i) Original
Senior Notes or a book-entry confirmation of a book-entry transfer of Original
Senior Notes into the Exchange Agent's account at DTC, including an Agent's
Message (as defined below) if the tendering holder has not delivered a Letter
of Transmittal (ii) the Letter of Transmittal (or facsimile thereof), properly
completed and duly executed, with any required signature guarantees or (in the
case of a book-entry transfer) an Agent's Message in lieu of the Letter of
Transmittal, and (iii) any other documents required by the Letter of
Transmittal.
The term "book-entry confirmation" means a timely confirmation of a book-
entry transfer of Original Senior Notes into the Exchange Agent's account at
DTC. The term "Agent's Message" means a message, transmitted by DTC to and
received by the Exchange Agent and forming a part of a book-entry
confirmation, which states that DTC has received an express acknowledgment
from the tendering Participant, which acknowledgment states that such
Participant has received and agrees to be bound by the Letter of Transmittal
and that Yorkshire Finance and Yorkshire Group may enforce such Letter of
Transmittal against such Participant.
Subject to the terms and conditions of the Exchange Offer, Yorkshire Finance
will be deemed to have accepted for exchange, and thereby exchanged, Original
Senior Notes validly tendered and not withdrawn as, if and when Yorkshire
Finance gives oral or written notice to the Exchange Agent of the Yorkshire
Finance's acceptance of such Original Senior Notes for exchange pursuant to
the Exchange Offer. The Exchange Agent will act as agent for Yorkshire Finance
for the purpose of receiving tenders of Original Senior Notes, Letters of
Transmittal and related documents, and as agent for tendering holders for the
purpose of receiving Original Senior Notes, Letters of Transmittal and related
documents and transmitting Exchange Senior Notes to validly tendering holders.
Such exchange will be made promptly after the Expiration Date. If for any
reason whatsoever, acceptance for exchange or the exchange of any Original
Senior Notes tendered pursuant to the Exchange Offer is delayed (whether
before or after Yorkshire Finance's acceptance for exchange of Original Senior
Notes) or Yorkshire Finance extends the Exchange Offer or is unable to accept
for exchange or exchange Original Senior Notes tendered pursuant to the
Exchange Offer, then, without prejudice to the Yorkshire Finance's rights set
forth herein, the Exchange Agent may, nevertheless, on behalf of Yorkshire
Finance and subject to Rule 14e-l(c) under the Exchange Act, retain tendered
Original Senior Notes and such Original Senior Notes may not be withdrawn
except to the extent tendering holders are entitled to withdrawal rights as
described under "--Withdrawal Rights."
Pursuant to the Letter of Transmittal or Agent's Message in lieu thereof, a
holder of Original Senior Notes will warrant and agree in the Letter of
Transmittal that it has full power and authority to tender, exchange, sell,
assign and transfer Original Senior Notes, that Yorkshire Finance will acquire
good, marketable and unencumbered title to the tendered Original Senior Notes,
free and clear of all liens, restrictions, charges and
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encumbrances, and the Original Senior Notes tendered for exchange are not
subject to any adverse claims or proxies. The holder also will warrant and
agree that it will, upon request, execute and deliver any additional documents
deemed by Yorkshire Finance or the Exchange Agent to be necessary or desirable
to complete the exchange, sale, assignment, and transfer of the Original
Senior Notes tendered pursuant to the Exchange Offer.
PROCEDURES FOR TENDERING ORIGINAL SENIOR NOTES
Valid Tender. Except as set forth below, in order for Original Senior Notes
to be validly tendered pursuant to the Exchange Offer, a properly completed
and duly executed Letter of Transmittal (or facsimile thereof), with any
required signature guarantees, or (in the case of a book-entry tender) an
Agent's Message in lieu of the Letter of Transmittal, and any other required
documents, must be received by the Exchange Agent at one of its addresses set
forth under "Exchange Agent" and either (i) tendered Original Senior Notes
must be received by the Exchange Agent, or (ii) such Original Senior Notes
must be tendered pursuant to the procedures for book-entry transfer set forth
below and a book-entry confirmation, including an Agent's Message if the
tendering holder has not delivered a Letter of Transmittal, must be received
by the Exchange Agent, in each case on or prior to the Expiration Date, or
(iii) the guaranteed delivery procedures set forth below must be complied
with.
If less than all of the Original Senior Notes are tendered, a tendering
holder should fill in the amount of Original Senior Notes being tendered in
the appropriate box on the Letter of Transmittal. The entire amount of
Original Senior Notes delivered to the Exchange Agent will be deemed to have
been tendered unless otherwise indicated.
THE METHOD OF DELIVERY OF CERTIFICATES, THE LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND SOLE RISK OF THE TENDERING
HOLDER AND DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE
EXCHANGE AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL, RETURN RECEIPT
REQUESTED, PROPERLY INSURED, OR AN OVERNIGHT DELIVERY SERVICE IS RECOMMENDED.
IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY.
Book-Entry Transfer. The Exchange Agent will establish an account with
respect to the Original Senior Notes at DTC for purposes of the Exchange Offer
within two business days after the date of this Prospectus. Any financial
institution that is a Participant in DTC's book-entry transfer facility system
may make a book-entry delivery of the Original Senior Notes by causing DTC to
transfer such Original Senior Notes into the Exchange Agent's account at DTC
in accordance with DTC's procedures for transfers. However, although delivery
of Original Senior Notes may be effected through book-entry transfer into the
Exchange Agent's account at DTC, the Letter of Transmittal (or facsimile
thereof), properly completed and duly executed, with any required signature
guarantees, or an Agent's Message in lieu of the Letter of Transmittal, and
any other required documents, must in any case be delivered to and received by
the Exchange Agent at its address set forth under "--Exchange Agent" on or
prior to the Expiration Date, or the guaranteed delivery procedure set forth
below must be complied with.
DELIVERY OF DOCUMENTS TO DTC IN ACCORDANCE WITH DTC'S PROCEDURES DOES NOT
CONSTITUTE DELIVERY TO THE EXCHANGE AGENT.
Signature Guarantees. Certificates for the Original Senior Notes need not be
endorsed and signature guarantees on the Letter of Transmittal are unnecessary
unless (a) a certificate for the Original Senior Notes is registered in a name
other than that of the person surrendering the certificate or (b) such holder
completes the box entitled "Special Issuance Instructions" or "Special
Delivery Instructions" in the Letter of Transmittal. In the case of (a) or (b)
above, such certificates for Original Senior Notes must be duly endorsed or
accompanied by a properly executed bond power, with the endorsement or
signature on the bond power and on the Letter of Transmittal guaranteed by a
firm or other entity identified in Rule 17Ad-15 under the Exchange Act as an
"eligible guarantor institution," including (as such terms are defined
therein): (i) a bank; (ii) a broker, dealer, municipal securities broker or
dealer or government securities broker or dealer, (iii) a credit union; (iv) a
national
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securities exchange, registered securities association or clearing agency; or
(v) a savings association that is a participant in a Securities Transfer
Association (an "Eligible Institution"), unless surrendered on behalf of such
Eligible Institution. See Instruction 1 to the Letter of Transmittal.
Guaranteed Delivery. If a holder desires to tender Original Senior Notes
pursuant to the Exchange Offer and the certificates for such Original Senior
Notes are not immediately available or time will not permit all required
documents to reach the Exchange Agent on or prior to the Expiration Date, or
the procedures for book-entry transfer cannot be completed on a timely basis,
such Original Senior Notes may nevertheless be tendered, provided that all of
the following guaranteed delivery procedures are complied with:
(a) such tenders are made by or through an Eligible Institution;
(b) a properly completed and duly executed Notice of Guaranteed Delivery,
substantially in the form accompanying the Letter of Transmittal, is
received by the Exchange Agent, as provided below, on or prior to the
Expiration Date; and
(c) the certificates (or a book-entry confirmation) representing all tendered
Original Senior Notes, in proper form for transfer, together with a
properly completed and duly executed Letter of Transmittal (or facsimile
thereof), with any required signature guarantees, or an Agent's Message in
lieu of the Letter of Transmittal, and any other documents required by the
Letter of Transmittal, are received by the Exchange Agent within three New
York Stock Exchange trading days after the date of execution of such
Notice of Guaranteed Delivery.
The Notice of Guaranteed Delivery may be delivered by hand, or transmitted
by facsimile or mail to Exchange Agent and must include a guarantee by an
Eligible Institution in the form set forth in such notice.
Notwithstanding any other provision hereof, the delivery of Exchange Senior
Notes in exchange for Original Senior Notes tendered and accepted for exchange
pursuant to the Exchange Offer will in all cases be made only after timely
receipt by the Exchange Agent of Original Senior Notes, or of a book-entry
confirmation with respect to such Original Senior Notes, and a properly
completed and duly executed Letter of Transmittal (or facsimile thereof),
together with any required signature guarantees, or an Agent's Message in lieu
of the Letter of Transmittal, and any other documents required by the Letter
of Transmittal. Accordingly, the delivery of Exchange Senior Notes might not
be made to all tendering holders at the same time, and will depend upon when
Original Senior Notes, book-entry confirmations with respect to Original
Senior Notes and other required documents are received by the Exchange Agent.
The Yorkshire Finance's acceptance for exchange of Original Senior Notes
tendered pursuant to any of the procedures described above will constitute a
binding agreement between the tendering individual and Yorkshire Finance upon
the terms and subject to the conditions of the Exchange Offer.
Determination of Validity. All questions as to the form of documents,
validity, eligibility (including time of receipt) and acceptance for exchange
of any tendered Original Senior Notes will be determined by Yorkshire Finance
and Yorkshire Group, in their sole discretion, whose determination shall be
final and binding on all parties. Yorkshire Finance and Yorkshire Group
reserve the absolute right, in their sole and absolute discretion, to reject
any and all tenders determined by them not to be in proper form or the
acceptance of which, or exchange for, may, in the opinion of counsel to
Yorkshire Finance and Yorkshire Group, be unlawful. Yorkshire Finance and
Yorkshire Group also reserve the absolute right, subject to applicable law, to
waive any of the conditions of the Exchange Offer as set forth under "--
Conditions to the Exchange Offer" or any condition or irregularity in any
tender of Original Senior Notes of any particular holder whether or not
similar conditions or irregularities are waived in the case of other holders.
The interpretation by Yorkshire Finance and Yorkshire Group of the terms and
conditions of the Exchange Offer (including the Letter of Transmittal and the
instructions thereto) will be final and binding. No tender of Original Senior
Notes will be deemed to have been validly made until all irregularities with
respect to such tender
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have been cured or waived. Neither Yorkshire Group, any affiliates or assigns
of Yorkshire Group or Yorkshire Finance, the Exchange Agent nor any other
person shall be under any duty to give any notification of any irregularities
in tenders or incur any liability for failure to give any such notification.
If any Letter of Transmittal, endorsement, bond power, power of attorney, or
any other document required by the Letter of Transmittal is signed by a
trustee, executor, administrator, guardian, attorney-in-fact, officer of a
corporation or other person acting in a fiduciary or representative capacity,
such person should so indicate when signing, and unless waived by Yorkshire
Finance and Yorkshire Group, proper evidence satisfactory to Yorkshire Finance
and Yorkshire Group, in their sole discretion, of such person's authority to
so act must be submitted.
A beneficial owner of Original Senior Notes that are held by or registered
in the name of a broker, dealer, commercial bank, trust company or other
nominee or custodian is urged to contact such entity promptly if such
beneficial holder wishes to participate in the Exchange Offer.
RESALES OF EXCHANGE SENIOR NOTES
Yorkshire Finance is making the Exchange Offer for the Exchange Senior Notes
in reliance on the position of the staff of the Division of Corporation
Finance of the Commission as set forth in certain interpretive letters
addressed to third parties in other transactions. However, neither Yorkshire
Finance nor Yorkshire Group sought its own interpretive letter and there can
be no assurance that the staff of the Division of Corporation Finance of the
Commission would make a similar determination with respect to the Exchange
Offer as it has in such interpretive letters to third parties. Based on these
interpretations by the staff of the Division of Corporation Finance of the
Commission, and subject to the two immediately following sentences, Yorkshire
Finance and Yorkshire Group believe that Exchange Senior Notes issued pursuant
to this Exchange Offer in exchange for Original Senior Notes may be offered
for resale, resold and otherwise transferred by a holder thereof (other than a
holder who is a broker-dealer) without further compliance with the
registration and prospectus delivery requirements of the Securities Act,
provided that such Exchange Senior Notes are acquired in the ordinary course
of such holder's business and that such holder is not participating, and has
no arrangement or understanding with any person to participate, in a
distribution (within the meaning of the Securities Act) of such Exchange
Senior Notes. However, any holder of Original Senior Notes who is an
"affiliate" of Yorkshire Group or Yorkshire Finance or who intends to
participate in the Exchange Offer for the purpose of distributing Exchange
Senior Notes, or any broker-dealer who purchased Original Senior Notes from
Yorkshire Finance to resell pursuant to Rule 144A or any other available
exemption under the Securities Act, (a) will not be able to rely on the
interpretations of the staff of the Division of Corporation Finance of the
Commission set forth in the above-mentioned interpretive letters, (b) will not
be permitted or entitled to tender such Original Senior Notes in the Exchange
Offer and (c) must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any sale or other
transfer of such Original Senior Notes unless such sale is made pursuant to an
exemption from such requirements. In addition, as described below, if any
broker-dealer holds Original Senior Notes acquired for its own account as a
result of market-making or other trading activities and exchanges such
Original Senior Notes for Exchange Senior Notes, then such broker-dealer must
deliver a prospectus meeting the requirements of the Securities Act in
connection with any resales of such Exchange Senior Notes.
Each holder of Original Senior Notes who wishes to exchange Original Senior
Notes for Exchange Senior Notes in the Exchange Offer will be required to
represent that (i) it is not an "affiliate" of Yorkshire Group or Yorkshire
Finance, (ii) any Exchange Senior Notes to be received by it are being
acquired in the ordinary course of its business, (iii) it has no arrangement
or understanding with any person to participate in a distribution (within the
meaning of the Securities Act) of such Exchange Senior Notes and (iv) if such
holder is not a broker-dealer, such holder is not engaged in, and does not
intend to engage in, a distribution (within the meaning of the Securities Act)
of such Exchange Senior Notes. In addition, Yorkshire Finance and Yorkshire
Group may require such holder, as a condition to such holder's eligibility to
participate in the Exchange Offer, to furnish to Yorkshire Group and Yorkshire
Finance (or an agent thereof) in writing information as to the number of
"beneficial owners" (within the meaning of Rule 13d-3 under the Exchange Act)
on behalf of whom such holder
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holds the Original Senior Notes to be exchanged in the Exchange Offer. Each
broker-dealer that receives Exchange Senior Notes for its own account pursuant
to the Exchange Offer must acknowledge that it acquired the Original Senior
Notes for its own account as the result of market-making activities or other
trading activities and must agree that it will deliver a prospectus meeting
the requirements of the Securities Act in connection with any resale of such
Exchange Senior Notes. The Letter of Transmittal states that by so
acknowledging and by delivering a prospectus, a broker-dealer will not be
deemed to admit that it is an "underwriter" within the meaning of the
Securities Act. Based on the position taken by the staff of the Division of
Corporation Finance of the Commission in the interpretive letters referred to
above, Yorkshire Group and Yorkshire Finance believe that Participating
Broker-Dealers who acquired Original Senior Notes for their own accounts as a
result of market-making activities or other trading activities may fulfill
their prospectus delivery requirements with respect to the Exchange Senior
Notes received upon exchange of such Original Senior Notes (other than
Original Senior Notes which represent an unsold allotment from the initial
sale of the Original Senior Notes) with a prospectus meeting the requirements
of the Securities Act, which may be the prospectus prepared for an exchange
offer so long as it contains a description of the plan of distribution with
respect to the resale of such Exchange Senior Notes. Accordingly, this
Prospectus, as it may be amended or supplemented from time to time, may be
used by a Participating Broker-Dealer during the period referred to below in
connection with resales of Exchange Senior Notes received in exchange for
Original Senior Notes where such Original Senior Notes were acquired by such
Participating Broker-Dealer for its own account as a result of market-making
or other trading activities. Subject to certain provisions set forth in the
Registration Rights Agreement, Yorkshire Group and Yorkshire Finance have
agreed that this Prospectus, as it may be amended or supplemented from time to
time, may be used by a Participating Broker-Dealer in connection with resales
of such Exchange Senior Notes for a period not exceeding 180 days after the
Expiration Date (subject to extension under certain limited circumstances
described below). See "Plan of Distribution." However, a Participating Broker-
Dealer who intends to use this Prospectus in connection with the resale of
Exchange Senior Notes received in exchange for Original Senior Notes pursuant
to the Exchange Offer must notify Yorkshire Group or Yorkshire Finance, or
cause Yorkshire Group or Yorkshire Finance to be notified, on or prior to the
Expiration Date, that it is a Participating Broker-Dealer. Such notice may be
given in the space provided for that purpose in the Letter of Transmittal or
may be delivered to the Exchange Agent at one of the addresses set forth
herein under "Exchange Agent." Any Participating Broker-Dealer who is an
"affiliate" of Yorkshire Group or Yorkshire Finance may not rely on such
interpretive letters and must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with any resale
transaction.
In that regard, each Participating Broker-Dealer who surrenders Original
Senior Notes pursuant to the Exchange Offer will be deemed to have agreed, by
execution of the Letter of Transmittal or delivery of an Agent's Message in
lieu thereof, that upon receipt of notice from Yorkshire Group or Yorkshire
Finance of the occurrence of any event or the discovery of (i) any fact which
makes any statement contained or incorporated by reference in this Prospectus
untrue in any material respect or (ii) any fact which causes this Prospectus
to omit to state a material fact necessary in order to make the statements
contained or incorporated by reference herein, in light of the circumstances
under which they were made, not misleading or (iii) of the occurrence of
certain other events specified in the Registration Rights Agreement, such
Participating Broker-Dealer will suspend the sale of Exchange Senior Notes
pursuant to this Prospectus until Yorkshire Group or Yorkshire Finance has
amended or supplemented this Prospectus to correct such misstatement or
omission, and has furnished copies of the amended or supplemented Prospectus
to such Participating Broker-Dealer, or Yorkshire Group or Yorkshire Finance
has given notice that the sale of the Exchange Senior Notes may be resumed, as
the case may be. If Yorkshire Group or Yorkshire Finance gives such notice to
suspend the sale of the Exchange Senior Notes, it shall extend the 180-day
period referred to above during which Participating Broker-Dealers are
entitled to use this Prospectus in connection with the resale of Exchange
Senior Notes by the number of days during the period from and including the
date of the giving of such notice to and including the date when Participating
Broker-Dealers shall have received copies of the amended or supplemented
Prospectus necessary to permit resales of the Exchange Senior Notes or to and
including the date on which Yorkshire Group or Yorkshire Finance has given
notice that the sale of Exchange Senior Notes may be resumed, as the case may
be.
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WITHDRAWAL RIGHTS
Except as otherwise provided herein, tenders of Original Senior Notes may be
withdrawn at any time on or prior to the Expiration Date.
In order for a withdrawal to be effective a written, telegraphic, telex or
facsimile transmission of such notice of withdrawal must be timely received by
the Exchange Agent at its address set forth under "--Exchange Agent" on or
prior to the Expiration Date. Any such notice of withdrawal must specify the
name of the person who tendered the Original Senior Notes to be withdrawn, the
aggregate principal amount of Original Senior Notes to be withdrawn, and (if
certificates for such Original Senior Notes have been tendered) the name of
the registered holder of the Original Senior Notes as set forth on the
Original Senior Notes, if different from that of the person who tendered such
Original Senior Notes. If Original Senior Notes have been delivered or
otherwise identified to the Exchange Agent, then prior to the physical release
of such Original Senior Notes, the tendering holder must submit the serial
numbers shown on the particular Original Senior Notes to be withdrawn and the
signature on the notice of withdrawal must be guaranteed by an Eligible
Institution, except in the case of Original Senior Notes tendered for the
account of an Eligible Institution. If Original Senior Notes have been
tendered pursuant to the procedures for book-entry transfer set forth under
"--Procedures for Tendering Original Senior Notes," the notice of withdrawal
must specify the name and number of the account at DTC to be credited with the
withdrawal of Original Senior Notes, in which case a notice of withdrawal will
be effective if delivered to the Exchange Agent by written, telegraphic, telex
or facsimile transmission. Withdrawals of tenders of Original Senior Notes may
not be rescinded. Original Senior Notes properly withdrawn will not be deemed
validly tendered for purposes of the Exchange Offer, but may be retendered at
any subsequent time on or prior to Expiration Date by following any of the
procedures described above under "--Procedures for Tendering Original Senior
Notes."
All questions as to the validity, form and eligibility (including time of
receipt) of such withdrawal notices will be determined by Yorkshire Finance
and Yorkshire Group, in their sole discretion, whose determination shall be
final and binding on all parties. Neither Yorkshire Finance, Yorkshire Group,
any affiliates or assigns of Yorkshire Finance or Yorkshire Group, the
Exchange Agent nor any other person shall be under any duty to give any
notification of any irregularities in any notice of withdrawal or incur any
liability for failure to give any such notification. Any Original Senior Notes
which have been tendered but which are withdrawn will be returned to the
holder thereof promptly after withdrawal.
INTEREST ON EXCHANGE SENIOR NOTES
Holders of Original Senior Notes whose Original Senior Notes are accepted
for exchange will not receive interest on such Original Senior Notes and will
be deemed to have waived the right to receive any interest on such Original
Senior Notes accruing from and including February 25, 1998. Holders of
Exchange Senior Notes as of the record date for the payment of interest on
October 15, 1998 will be entitled to receive interest accruing from and
including February 25, 1998.
CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provisions of the Exchange Offer, or any extension
of the Exchange Offer, Yorkshire Finance and Yorkshire Group will not be
required to accept for exchange, or to exchange, any Original Senior Notes for
any Exchange Senior Notes, and, as described below, may terminate the Exchange
Offer (whether or not any Original Senior Notes have theretofore been accepted
for exchange) or may waive any conditions to or amend the Exchange Offer, if
any of the following conditions has occurred or exists or has not been
satisfied.
(a) there shall occur a change in the current interpretation, by the staff of
the Commission, which permits the Exchange Senior Notes issued pursuant to
the Exchange Offer in exchange for Original Senior Notes to be offered for
resale, resold and otherwise transferred by holders thereof (other than
broker-dealers and any such holder which is an "affiliate" of Yorkshire
Finance or Yorkshire Group within the meaning of Rule
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405 under the Securities Act) without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided that such
Exchange Senior Notes are acquired in the ordinary course of such holders'
business and such holders have no arrangement or understanding with any
person to participate in the distribution of such Exchange Senior Notes; or
(b) any law, statute, rule or regulation shall have been adopted or enacted
which, in the judgment of Yorkshire Finance or Yorkshire Group, would
reasonably be expected to impair its ability to proceed with the Exchange
Offer; or
(c) a stop order shall have been issued by the Commission or any state
securities authority suspending the effectiveness of the Registration
Statement, or proceedings shall have been initiated or, to the knowledge
of Yorkshire Group or Yorkshire Finance, threatened for that purpose, or
any governmental approval has not been obtained, which approval Yorkshire
Group or Yorkshire Finance shall, in its sole discretion, deem necessary
for the consummation of the Exchange Offer as contemplated hereby.
If Yorkshire Group or Yorkshire Finance determines in its sole and absolute
discretion that any of the foregoing events or conditions has occurred or
exists or has not been satisfied, it may, subject to applicable law, terminate
the Exchange Offer (whether or not any Original Senior Notes have theretofore
been accepted for exchange) or may waive any such condition or otherwise amend
the terms of the Exchange Offer in any respect. If such waiver or amendment
constitutes a material change to the Exchange Offer, Yorkshire Group or
Yorkshire Finance will promptly disclose such waiver or amendment by means of
a prospectus supplement that will be distributed to the registered holders of
the Original Senior Notes and will extend the Exchange Offer to the extent
required by Rule 14e-1 under the Exchange Act.
EXCHANGE AGENT
The Bank of New York has been appointed as Exchange Agent for the Exchange
Offer. Delivery of the Letters of Transmittal and any other required
documents, questions, requests for assistance, and requests for additional
copies of this Prospectus or of the Letter of Transmittal should be directed
to the Exchange Agent as follows:
<TABLE>
<S> <C> <C>
By Mail: By Hand or Overnight Courier:
Tender & Exchange Department For Information and To Tender & Exchange Department
101 Barclay Street Confirm By Telephone: 101 Barclay Street
Floor 7E (212) 815-5789 Corporate Trust Services Window
New York, New York 10286 Facsimile Transmissions: Ground Floor
Attention: Diana Torres (212) 815-6339 New York, New York 10286
(ELIGIBLE INSTITUTIONS ONLY) Attention: Diana Torres
</TABLE>
Delivery to other than the above addresses or facsimile number will not
constitute a valid delivery.
The exchange of Original Senior Notes for Exchange Senior Notes pursuant to
the Exchange Offer, and any related transactions, may be effected through the
Paying Agent in Luxembourg.
FEES AND EXPENSES
Yorkshire Group has agreed to pay the Exchange Agent reasonable and
customary fees for its services and will reimburse it for its reasonable out-
of-pocket expenses in connection therewith. Yorkshire Group will also pay
brokerage houses and other custodians, nominees and fiduciaries the reasonable
out-of-pocket expenses incurred by them in forwarding copies of this
Prospectus and related documents to the beneficial owners of Original Senior
Notes and in handling or tendering for their customers.
Holders who tender their Original Senior Notes for exchange will not be
obligated to pay any transfer taxes in connection therewith. If, however,
Exchange Senior Notes are to be delivered to, or are to be issued in the name
of, any person other than the registered holder of the Original Senior Notes
tendered or if a transfer tax is
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imposed for any reason other than the exchange of Original Senior Notes in
connection with the Exchange Offer, then the amount of any such transfer taxes
(whether imposed on the registered holder or any other persons) will be
payable by the tendering holder. If satisfactory evidence of payment of such
taxes or exemption therefrom is not submitted with the Letter of Transmittal,
the amount of such transfer taxes will be billed directly to such tendering
holder.
Neither Yorkshire Group nor Yorkshire Finance will make any payment to
bankers, dealers or other nominees soliciting acceptances of the Exchange
Offer.
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DESCRIPTION OF THE EXCHANGE SENIOR NOTES
The Original Senior Notes have been issued and the Exchange Senior Notes
will be issued as series of debt securities (the "Debt Securities") under and
governed by an Indenture, as supplemented by indentures supplemental thereto
(collectively, the "Indenture"), among Yorkshire Finance, Yorkshire Group, The
Bank of New York, as trustee (the "Trustee"), principal paying agent,
registrar and transfer agent, and Banque Generale du Luxembourg S.A., as
paying and transfer agent (the "Paying Agent"). The following summaries of
certain provisions of the Indenture do not purport to be complete and are
subject to, and are qualified in their entirety by reference to, all the
provisions of the Indenture. The Indenture is qualified as an indenture under
the Trust Indenture Act of 1939, as amended (the "1939 Act"). The terms of the
Exchange Senior Notes will include those stated in the Indenture and those
made a part of the Indenture by reference to the 1939 Act. Copies of the
Indenture are available for inspection on a Business Day during normal
business hours at the principal office of Yorkshire Group, at the office of
the Trustee in The City of New York and at the office of the Paying Agent in
Luxembourg. The Holders are entitled to the benefits of, are bound by, and are
deemed to have notice of, all the provisions of the Indenture. Wherever
particular sections or defined terms of the Indenture are referred to, such
sections or defined terms are incorporated herein by reference.
GENERAL
The Indenture does not limit the aggregate principal amount of Debt
Securities that may be issued thereunder and provides that Debt Securities may
be issued from time to time in one or more series. The 2003 Exchange Senior
Notes will be issued in the aggregate principal amount of up to $350,000,000
and will mature on February 25, 2003 at their principal amount (unless
previously redeemed). The 2008 Exchange Senior Notes will be issued in the
aggregate principal amount of up to $300,000,000 and will mature on February
25, 2008 at their principal amount (unless previously redeemed). The Exchange
Senior Notes of each series will bear interest at the relevant rates per annum
shown on the cover page of this Prospectus from February 25, 1998 or from the
most recent interest payment date to which interest has been paid or provided
for. Interest on the Exchange Senior Notes will be payable semi-annually in
arrears on April 15 and October 15 of each year, commencing on October 15,
1998, until the relevant principal amount has been paid or made available for
payment. Interest on the Exchange Senior Notes will be computed on the basis
of a 360-day year of twelve 30-day months. The regular record date for the
payment of interest on the Exchange Senior Notes is the date fifteen (15)
calendar days immediately prior to an interest payment date.
The principal of and interest on the Exchange Senior Notes will be payable
in US dollars or in such other coin or currency of the US as at the time of
payment is legal tender for the payment of public and private debts.
The Original Senior Notes are listed on the Luxembourg Stock Exchange.
Application will be made to list the Exchange Senior Notes on the Luxembourg
Stock Exchange.
The Senior Notes (including the Original Senior Notes and the Exchange
Senior Notes) will be direct, unsecured and unsubordinated obligations of
Yorkshire Finance ranking pari passu with all other unsecured and
unsubordinated obligations of Yorkshire Finance (other than those obligations
preferred by operation of law). Yorkshire Finance is a special purpose entity
formed solely as a financing vehicle for Yorkshire Group and its affiliates.
Therefore, the ability of Yorkshire Finance to pay principal of, premium, if
any, and interest on the Senior Notes is dependent upon the receipt by it of
payments from Yorkshire Group. Yorkshire Group issued two promissory notes to
Yorkshire Finance with the payment dates and amounts of each such promissory
note tied to the payment dates and amounts of each respective series of the
Senior Notes. Payments required under each promissory note will be sufficient
to pay when due the principal of, and premium if any, and interest on the
applicable series of the Senior Notes. If Yorkshire Group were not to make
such payments for any reason, Yorkshire Finance will not have sufficient funds
to make payments on the Senior Notes. In such event, a holder of Senior Notes
would rely on the enforcement of its rights against Yorkshire Group pursuant
to the terms of the Guarantee.
EXCHANGE NOTES GUARANTEE
Yorkshire Group will irrevocably and unconditionally guarantee the due and
punctual payment of principal of, premium, if any, and interest on the
Exchange Senior Notes when and as the same shall become due and
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payable, whether at maturity, upon redemption or otherwise. The Exchange Notes
Guarantee will be a direct, unsecured and unsubordinated obligation of
Yorkshire Group ranking pari passu with all other unsecured and unsubordinated
obligations of Yorkshire Group (other than those obligations preferred by
operation of law). At March 31, 1998, Yorkshire Group had unsecured and
unsubordinated debt outstanding in the amount of (Pounds)1,514 million
($2,538 million).
Yorkshire Group is a non-operating holding company, conducting substantially
all of its business through Yorkshire and its subsidiaries. Except to the
extent that Yorkshire Group receives funds from the US Parents in the future,
Yorkshire Group will rely on dividends, indirectly, from Yorkshire to meet its
obligations for payment of its outstanding obligations, including any payments
necessary pursuant to the Exchange Notes Guarantee, and corporate expenses.
Furthermore, Yorkshire Group's obligations under the Exchange Notes Guarantee
will effectively be subordinated to all existing and future indebtedness and
liabilities of subsidiaries of Yorkshire Group (other than Yorkshire Finance
or similar financing vehicles for Yorkshire Group), including Yorkshire. As a
result, the rights of holders of the Exchange Senior Notes in respect of
claims on the assets of each of Yorkshire Group's subsidiaries upon any
liquidation or administration are structurally subordinated to, and therefore
will be subject to the prior claims of, the creditors of such subsidiaries
(including trade creditors), except to the extent that Yorkshire Group may
itself be a creditor with recognized claims against such subsidiaries. At
March 31, 1998, the direct and indirect subsidiaries of Yorkshire Group had
total indebtedness (excluding indebtedness owed to Yorkshire Group) of
approximately (Pounds)1,050 million ($1,760 million) and such subsidiaries may
incur additional indebtedness in the future.
FORM, DENOMINATION, BOOK-ENTRY PROCEDURES AND TRANSFER
General
The Exchange Senior Notes will be issued initially only as Global Senior
Notes in bearer form and will be payable only in US dollars. Title to such
Global Senior Notes will pass by delivery. Upon issuance, the Trustee will
authenticate and deliver the Global Senior Notes of each series to The Bank of
New York, which will hold the Global Senior Notes as depositary (the "Book-
Entry Depositary") for the benefit of DTC. Pursuant to the terms of the
deposit agreement (the "Deposit Agreement") dated as of February 1, 1998 among
Yorkshire Finance, the Book-Entry Depositary and the holders and beneficial
owners from time to time of interests in the Book-Entry Interests, and a
letter of representations from Yorkshire Finance, the Book-Entry Depositary to
DTC (the "Letter of Representations"), the Book-Entry Depositary will issue to
DTC, in respect of each Global Senior Note, one or more Book-Entry Interests,
which together will represent a 100% beneficial interest in such Global Senior
Notes. Beneficial owners from time to time of interests in the Book-Entry
Interests, by their acceptance of delivery of such interests, consent to be
bound by the terms and conditions of the Indenture, Deposit Agreement and
Letter of Representations, and the Book-Entry Interests shall be governed
thereby.
The Book-Entry Depositary will record Cede & Co., as nominee of DTC, on its
books as the initial registered owner of the Book-Entry Interests and will
also record any subsequent registration and transfer of the Book-Entry
Interests. Unless and until the Global Senior Notes are exchanged in whole for
Definitive Registered Senior Notes, the Book-Entry Depositary may not register
the transfer of the Book-Entry Interests except as a whole: (i) by DTC to a
nominee of DTC, (ii) by a nominee of DTC to DTC or another nominee of DTC or
(iii) by DTC or any such nominee to a successor of DTC or a nominee of such
successor.
DTC will operate a system of dealing in the Book-Entry Interests by
maintaining book-entries on its records. Ownership of beneficial interests in
the Book-Entry Interests will be limited to Participants, including but not
limited to depositaries for Euroclear and Cedel Bank or Indirect Participants.
Upon the issuance by the Book-Entry Depositary of the Book-Entry Interests to
DTC, DTC will credit, on its book-entry registration and transfer system, the
Participants' accounts with the respective interests owned by such
Participants. Ownership of beneficial interests in the Book-Entry Interests
will be shown on, and the transfer of such beneficial interests in the Book-
Entry Interests will be effected only through, records maintained by DTC (with
respect to interests of Participants) and the records of Participants (with
respect to interests of Indirect Participants) and in accordance
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with the applicable procedures of DTC (and, if applicable, those of Euroclear
and Cedel Bank). The laws of some states of the United States may require that
certain purchasers of securities take physical delivery of Definitive
Registered Senior Notes. Such limits and such laws may impair the ability of
such purchasers to own, transfer or pledge interests in the Book-Entry
Interests.
Unless and until the Global Senior Notes are exchanged in whole for
Definitive Registered Senior Notes, the Global Senior Notes may not be
transferred except as a whole and with Yorkshire Finance consent: (i) by the
Book-Entry Depositary to a nominee of such Book-Entry Depositary; (ii) by a
nominee of such Book-Entry Depositary to such Book-Entry Depositary or another
nominee of such Book-Entry Depositary; or (iii) by such Book-Entry Depositary
or any such nominee to a successor Book-Entry Depositary or a nominee of such
successor Book-Entry Depositary.
For so long as the Book-Entry Depositary, or its nominee, is the Holder of
the Global Senior Notes, the Book-Entry Depositary or its nominee, or the
successor of either of them, as the case may be, will be considered the sole
Holder of such Global Senior Notes (and, therefore, the Exchange Senior Notes)
for all purposes under the Indenture. Except as set forth below under "--
Definitive Registered Senior Notes", beneficial owners of interests in Book-
Entry Interests will not be entitled to have Exchange Senior Notes registered
in their names, will not receive or be entitled to receive physical delivery
of Exchange Senior Notes in definitive bearer or registered form and will not
be considered the owners or Holders thereof under the Indenture or the Deposit
Agreement. Accordingly, each person owning an interest in the Book-Entry
Interests must rely on the procedures of the Book-Entry Depositary and DTC
and, if such person is not a Participant in DTC, on the procedures of the
Participant through which such person owns its interest, to exercise any
rights granted to, and perform any obligations of, a Holder under the
Indenture or the Deposit Agreement. Those interests held through Euroclear or
Cedel Bank may also be subject to the procedures and requirements of such
system.
The Global Senior Notes, Book-Entry Interests and interests therein will be
issued, and may be transferred, only in denominations of $1,000 and integral
multiples thereof.
DTC
DTC has advised Yorkshire Finance as follows: DTC is a limited-purpose trust
company organized under the New York Banking Law, a "banking organization"
within the meaning of the New York Uniform Commercial Code, and a "clearing
agency" registered pursuant to the provisions of Section 17A of the Exchange
Act. DTC holds securities that its Participants deposit with DTC. DTC also
facilitates the settlement among Participants of securities transactions, such
as transfers and pledges, in deposited securities through electronic
computerized book-entry changes in Participants' accounts, thereby eliminating
the need for physical movement of securities certificates. Participants
include securities brokers and dealers, banks, trust companies, clearing
corporations and certain other organizations. DTC is owned by a number of its
Participants, the New York Stock Exchange, Inc., the American Stock Exchange,
Inc. and the National Association of Securities Dealers, Inc. Access to the
DTC system is also available to Indirect Participants such as securities
brokers and dealers, banks and trust companies that clear through or maintain
a custodial relationship with a Participant, either directly or indirectly.
The rules applicable to DTC and its Participants are on file with the
Commission.
Euroclear and Cedel Bank
Euroclear and Cedel Bank each hold securities for their account holders and
facilitate the clearance and settlement of securities transactions by
electronic book-entry transfer between their respective account holders,
thereby eliminating the need for physical movements of certificates and any
risk from lack of simultaneous transfers of securities.
Euroclear and Cedel Bank provide various services including safekeeping,
administration, clearance and settlement of internationally traded securities
and securities lending and borrowing. Euroclear and Cedel Bank also deal with
residential securities markets in several countries through established
depositary and custodial relationships. Euroclear and Cedel Bank have
established an electronic link between their two systems which allows their
respective account holders to settle trades with each other.
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Account holders in Euroclear and Cedel Bank are world-wide financial
institutions, including underwriters, securities brokers and dealers, banks
trust companies and clearing corporations. Indirect access to Euroclear and
Cedel Bank is available to other institutions that clear through or maintain a
custodial relationship with an account holder of either system.
Account holders' overall contractual relations with Euroclear and Cedel Bank
are governed by the respective rules and operating procedures of Euroclear and
Cedel Bank and any applicable laws. Euroclear and Cedel Bank act under such
rules and operating procedures only on behalf of their respective account
holders and have no record of or relationship with persons holding through
their respective account holders.
Transfers and Settlement
All transfers of interests in Book-Entry Interests will be recorded on the
book-entry system maintained by DTC, will be effected in accordance with DTC's
procedures, and will be settled in same-day funds. Transfers between account
holders in Euroclear and Cedel Bank will be effected in the ordinary way in
accordance with their respective rules and operating procedures.
Subject to compliance with the transfer restrictions applicable to the
Exchange Senior Notes, cross-market transfers between Participants, on the one
hand, and Euroclear or Cedel Bank account holders, on the other hand, will be
effected in DTC in accordance with DTC's rules on behalf of Euroclear or Cedel
Bank, as the case may be, by its respective depositary; however, such cross-
market transfers will require delivery of instructions to Euroclear or Cedel
Bank, as the case may be, by the counterparty in such system in accordance
with the rules and procedures and within the established deadlines of such
system. Euroclear account holders and Cedel Bank account holders may not
deliver instructions directly to the depositaries for Euroclear or Cedel Bank.
Because of time zone differences, the securities account of a Euroclear or
Cedel Bank account holder purchasing an interest in a Book-Entry Interest from
a Participant will be credited, and any such crediting will be reported to the
relevant Euroclear or Cedel Bank account holder, during the securities
settlement processing day (which must be a business day for Euroclear and
Cedel Bank) immediately following the DTC settlement date. Cash received in
Euroclear or Cedel Bank as a result of sales of interests in a Book-Entry
Interest by or through a Euroclear or Cedel Bank account holder to a
Participant will be received with value on the DTC settlement date but will be
available in the relevant Euroclear or Cedel Bank cash account only as of the
business day for Euroclear or Cedel Bank following the DTC settlement date.
Payments on the Exchange Senior Notes
Payments of any amounts in respect of the Global Senior Notes will be made
by Yorkshire Finance through a Paying Agent to the Book-Entry Depositary, as
the Holder thereof. An installment of principal, premium, if any, or interest
on the Exchange Senior Notes shall be considered paid on the date it is due if
the Trustee or Paying Agent holds at 11:00 a.m. New York City time on that
date money deposited by or on behalf of Yorkshire Finance in immediately
available funds, designated for and sufficient to pay the installment in full.
The Book-Entry Depositary will pay an amount equal to the amount received from
such Paying Agent to DTC, which will distribute such payments to its
Participants.
DTC, upon receipt of any such payment from the Book-Entry Depositary, will
immediately credit Participants' accounts with payments in amounts
proportionate to their respective ownership of interests in the Book-Entry
Interests as shown on the records of DTC. Payments by Participants to owners
of interests in the Book-Entry Interests held through such Participants will
be governed by standing customer instructions and customary practices
(including, if applicable, the practices of Euroclear or Cedel Bank), and will
be the responsibility of such Participants and not of DTC.
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Neither Yorkshire Group, Yorkshire Finance nor any agent of Yorkshire Group
or Yorkshire Finance (including but not limited to any Paying Agent) will have
any responsibility or liability for any aspect relating to payments (including
payments of Additional Amounts, if any) made or to be made by the Book-Entry
Depositary to DTC in respect of the Exchange Senior Notes or the Book-Entry
Interests therein. None of Yorkshire Group, the Trustee, the Paying Agents,
the Book-Entry Depositary, the Initial Purchasers or any agent of any of the
foregoing will have any responsibility or liability for any aspect relating to
payments (including payments of Additional Amounts, if any) made or to be made
by DTC on account of a Participant's or Indirect Participant's ownership of an
interest in the Book-Entry Interests or for maintaining, supervising or
reviewing any records relating to a Participant's or Indirect Participant's
interest in the Book-Entry Interests.
If any Definitive Registered Senior Note has been issued, the principal
thereof will be payable to the person in whose name such Definitive Registered
Senior Note is registered, upon surrendering such Definitive Registered Senior
Note at the office of any Paying Agent. Such payments of principal shall be
made by US dollar check drawn on, or by any transfer to a US dollar account
maintained by the Holder with, a bank located in New York City. An installment
of interest payable on such Definitive Registered Senior Note on the stated
maturity of such installment (an "Interest Payment Date") will be paid to the
person in whose name such Definitive Registered Senior Note is registered at
the close of business on the 15th day (whether or not a Business Day)
immediately preceding the due date for payment (each a "Record Date"), unless
a subsequent record date is set by the Trustee in extraordinary circumstances
as provided in the Indenture. In the event of redemption affecting Definitive
Registered Senior Notes, interest accrued but unpaid to the redemption date
will be payable to the person to whom principal is payable. Installments of
interest on such Definitive Registered Senior Notes to be paid on an Interest
Payment Date will be made by check to the person entitled thereto as such
person's address appearing on the Security Register. Payments of any interest
on the Definitive Registered Senior Notes may also be made, in the case of a
Holder of at least $1,000,000 aggregate principal amount of a series of such
Exchange Senior Notes by wire transfer to a US Dollar account maintained by
the payee with a bank in the United States; provided that such Holder elects
payment by wire transfer by giving written notice to the Trustee or a Paying
Agent to such effect designating such account no later than 15 days
immediately preceding the relevant date for payment (or such other date as the
Trustee may accept in its discretion).
Any monies deposited by Yorkshire Finance or Yorkshire Group with the
Trustee or any Paying Agent, or held by Yorkshire Finance in trust, for the
payment of the principal, premium, if any, or any interest or Additional
Amounts on any Exchange Senior Notes and remaining unclaimed at the end of two
years after such principal, premium, interest or Additional Amounts become due
and payable will be repaid to Yorkshire Finance upon its written request, or,
if then held by Yorkshire Finance, discharged from such trust. The Holder
shall thereafter have the status of an unsecured general creditor of Yorkshire
Finance with respect to such amounts, and shall look only to Yorkshire Finance
or Yorkshire Group for payment thereof.
If the due date for payment of principal, premium, if any, or any interest
installment or any Additional Amounts in respect of any Exchange Senior Note
is not a Business Day, the Holder thereof will not be entitled to payment of
the amount due until the next succeeding Business Day and will not be entitled
to any further interest or other payment in respect of any such delay. Under
the Indenture, "Business Day" means each day which is not a Saturday, a Sunday
or a day on which banking institutions in any place of payment of the Senior
Notes of that series are authorized or obligated by law to remain closed.
Except as otherwise required by law, all payments to the Book-Entry
Depositary in respect of the Global Senior Notes, and all payments to the
Holders of the Definitive Registered Senior Notes, if issued, will be made
free and clear of, any Gross-Up Taxes. If, however, any such deduction or
withholding is required to be made, Yorkshire Finance or Yorkshire Group will,
subject to certain limitations, pay such Additional Amounts as will result in
the payment to each Holder of the Global Senior Notes and the Definitive
Registered Senior Notes, if any, of the amount that would otherwise have been
receivable by such Holder in the absence of such deduction or withholding,
except as described under "--Additional Amounts". If Definitive Registered
Senior Notes are
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issued pursuant to an Optional Definitive Security Request, neither Yorkshire
Finance nor Yorkshire Group will be obligated to pay Additional Amounts in
respect of such Definitive Registered Senior Notes.
In addition to a Paying Agent in the Borough of Manhattan, The City of New
York, Yorkshire Finance will, for so long as the Senior Notes are listed on
the Luxembourg Stock Exchange and the rules of such exchange so require,
maintain a Paying Agent in Luxembourg.
Redemption of Book-Entry Interests
In the event the Exchange Senior Notes of a series (or a portion thereof)
are redeemed, the Book-Entry Depositary will deliver an amount equal to the
amount received by it in respect of the redemption of the related Global
Senior Note to DTC. The redemption price payable in connection with the
redemption of interests in a Book-Entry Interest will be equal to the
aggregate amount received by the Book-Entry Depositary in connection with the
redemption of the related Global Senior Note (or portion thereof). For any
redemptions of a Global Senior Note in part, selection of interests in the
related Book-Entry Interest to be redeemed will be made by DTC on a pro rata
basis (or on such other basis as DTC deems fair and appropriate); provided
that no interest in such Book-Entry Interest of $10,000 principal amount or
less shall be redeemed in part.
In the case of redemption in full, the Book-Entry Depositary will surrender
the Global Senior Notes to the Trustee or the Paying Agent in Luxembourg (for
so long as the Senior Notes are listed on the Luxembourg Stock Exchange and
the rules of such Exchange so require) for cancellation and shall cancel the
Book-Entry Interests issued with respect to such Global Senior Note. In the
case of partial redemption, the Book-Entry Depositary will surrender the
related Global Senior Note to the Trustee or the Paying Agent in Luxembourg
(for so long as the Senior Notes are listed on the Luxembourg Stock Exchange
and the rules of such Exchange so require) for reduction of principal amount
by endorsement on the reverse of such Global Senior Note (and such Global
Senior Note will be delivered to the Book-Entry Depositary), and the Book-
Entry Depositary will record on its books a corresponding reduction in the
principal amount of the Book-Entry Interests issued with respect to such
Global Senior Note.
Action by Holders of Exchange Senior Notes
Yorkshire Finance understands that under current industry practices, if (i)
it or the Trustee requests any action of Holders of Exchange Senior Notes or
(ii) an owner of an interest in a Book-Entry Interest desires to give or take
any action that either a Holder is entitled to give or take under the
Indenture or the owner of an interest in a Book-Entry Interest is entitled to
give or take under the Deposit Agreement, DTC would authorize the Participants
owning the relevant interest in the Book-Entry Interests relating to such
Exchange Senior Notes to give or take such action, and such Participants would
authorize Indirect Participants to give or take such action or would otherwise
act upon the instructions of owners of interests in such Book-Entry Interests
holding though them.
No later than 10 days from receipt by the Book-Entry Depositary of notice of
any solicitation of consents or request for a waiver or other action with
respect to the Book-Entry Interests or the Global Senior Notes, as the case
may be, under the Deposit Agreement or the Indenture, the Book-Entry
Depositary will mail to DTC a notice containing; (i) such information as is
contained in the notice received by the Book-Entry Depositary; (ii) a
statement of the record date with respect to such consent, waiver or other
action; (iii) a statement that, on or prior to a specified date (which
specified date may be set no later than 180 days after the record date) (the
"Expiration Date"), DTC will be entitled, subject to the provisions of or
governing the Book-Entry Interests or Global Senior Notes, as the case may be,
to instruct the Book-Entry Depositary as to such consent, waiver or such
action; and (iv) a statement specifying the manner in which such instructions
may be given. Upon receipt by the Book-Entry Depositary of instructions from
DTC on or prior to the Expiration Date and in the specified manner, the Book-
Entry Depositary will endeavor (insofar as practicable and permitted under the
provisions of or governing such Book-Entry Interests or Global Senior Notes,
as the case may be) to take such measures regarding the consent, waiver or
other action in respect of such Book-Entry Interests or Global Senior Notes,
as the case may be, as shall be in accordance with DTC's instructions except
as described under "--Action by
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Book-Entry Depositary". The Book-Entry Depositary will not itself exercise any
discretion in the granting of consents or waivers or the taking of any other
action in respect of any such Book-Entry Interests or Global Senior Notes, as
the case may be. DTC is expected to follow its customary practices and
procedures with respect to soliciting instructions from its Participants.
Reports and Notices
So long as the Senior Notes are listed on the Luxembourg Stock Exchange and
the rules of the Luxembourg Stock Exchange so require, notices to Holders of
the Senior Notes so listed will, in addition to being sent to the Book-Entry
Depositary, also be published in a leading newspaper having general
circulation in Luxembourg (which is expected to be the Luxemburger Wort). The
Book-Entry Depositary will immediately (and in no event later than 10 days
from receipt) send to DTC a copy of any notices, reports and other
communications received by it relating to Yorkshire Finance, the Senior Notes
or the Book-Entry Interests. In the case of Definitive Registered Senior
Notes, all notices regarding the Senior Notes will, in addition to publication
as referred to above (if applicable), be mailed to the Holders by first-class
mail at their respective addresses as they appear on the registration books of
the transfer agent and registrar.
Action by Book-Entry Depositary
In connection with any right or power vested in the Holder of the Global
Senior Notes under the Deposit Agreement or the Indenture, if requested in
writing by DTC, the Book-Entry Depositary will take such action as shall be
requested in such notice; provided that the Book-Entry Depositary has been
offered security or indemnity satisfactory to it against the costs, expenses
and liabilities that might be incurred by it in compliance with such request
by DTC.
Amendment and Termination of Deposit Agreement
The Deposit Agreement may be amended by agreement between Yorkshire Finance
and the Book-Entry Depositary, and the consent of DTC shall not be required in
connection with any amendment to the Deposit Agreement (i) to cure any formal
defect, omission, inconsistency or ambiguity in such Deposit Agreement, (ii)
to add to the covenants and agreements of Yorkshire Finance or the Book-Entry
Depositary, (iii) to effect the assignment of the Book-Entry Depositary's
rights and duties to a qualified successor, (iv) to comply with the Securities
Act, the Exchange Act, the Investment Company Act of 1940, as amended, or the
1939 Act or any other applicable securities laws, (v) to modify the Deposit
Agreement in connection with an amendment to the Indenture that does not
require the consent of DTC or (vi) to modify, alter, amend or supplement the
Deposit Agreement in any other respect not inconsistent with such agreement
which in the opinion of counsel acceptable to Yorkshire Finance, is not
materially adverse to DTC or beneficial owners of an interest in the Book-
Entry Interests. Except as provided in the preceding sentence, no amendment
which materially adversely affects DTC or any beneficial owner of an interest
in the Book-Entry Interests may be made to the Deposit Agreement without the
consent of DTC or such beneficial owner.
The Deposit Agreement shall cease to be of further effect when (i) either
(a) the Indenture has been satisfied and discharged pursuant to the provisions
thereof or (b) Definitive Registered Senior Notes have been issued and the
Global Senior Notes have been canceled; (ii) Yorkshire Finance has paid or
caused to be paid all sums payable by it thereunder; and (iii) Yorkshire
Finance has delivered to the Book-Entry Depositary certain documentation
stating that all conditions precedent to satisfaction and discharge of the
Deposit Agreement have been complied with.
Resignation of Book-Entry Depositary
The Book-Entry Depositary may at any time resign as Book-Entry Depositary
with respect to the Global Senior Notes upon 60 days' written notice to
Yorkshire Finance and DTC. If a successor depositary meeting the
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requirements specified in the Deposit Agreement has agreed to enter into
arrangements with the same effect as the Deposit Agreement, the resignation of
the Book-Entry Depositary shall become effective and, upon the request of
Yorkshire Finance or the successor Book-Entry Depositary, the resigning Book-
Entry Depositary shall deliver, among other things, the Global Senior Notes to
that successor. If no such successor has been appointed by Yorkshire Finance
within 120 days, the terms of the Deposit Agreement will oblige the Book-Entry
Depositary to request that Definitive Registered Senior Notes in such names
and denominations as DTC shall instruct in writing with respect to such Global
Senior Notes be issued. The Book-Entry Depositary will thereupon surrender
such Global Senior Notes to the Trustee for cancellation and the Trustee shall
distribute such Definitive Registered Senior Notes in accordance with the
instructions of DTC.
Obligation of Book-Entry Depositary
The Book-Entry Depositary will undertake to perform only such duties as are
specifically set forth in the Deposit Agreement and, subject to certain
exceptions set forth in the Deposit Agreement, will assume no obligation or
liability under the Deposit Agreement other than for its own bad faith,
negligence or willful misconduct in the performance of its duties thereunder.
Definitive Registered Senior Notes
Beneficial owners of the Book-Entry Interests shall be entitled to receive
Definitive Registered Senior Notes only in the limited circumstances set forth
in this paragraph. The Book-Entry Depositary will promptly notify the Trustee
and request in writing that Yorkshire Finance issue and the Trustee
authenticate and deliver Definitive Registered Senior Notes in exchange for
the Global Senior Notes representing either series of Exchange Senior Notes,
as a whole but not in part, in such names and authorized denominations as DTC
shall specify, if: (i) DTC notifies Yorkshire Finance and the Book-Entry
Depositary that it is unwilling or unable to continue to hold the Book-Entry
Interests related to the Global Senior Notes of such series or DTC at any time
ceases to be a "clearing agency" registered as such under the Exchange Act
and, in either case, a successor is not appointed by the Yorkshire Finance
within 120 days; (ii) the Book-Entry Depositary notifies Yorkshire Finance
that it is unwilling or unable to continue as Book-Entry Depositary with
respect to the Global Senior Notes of such series and no successor Book-Entry
Depositary is appointed within 120 days; or (iii) Yorkshire Finance, in its
sole discretion, executes and delivers to the Trustee an officers' certificate
providing that the Global Senior Notes of such series shall be so
exchangeable. In addition, if an Event of Default shall have occurred and be
continuing with respect to the Exchange Senior Notes, any beneficial owner of
interests in Book-Entry Interests in the Global Senior Notes of such series
shall, upon written request, be entitled to receive Definitive Registered
Senior Notes in exchange for such interests (an "Optional Definitive Security
Request"). In no event will an owner of beneficial interests in the Book-Entry
Interests be entitled to receive definitive Exchange Senior Notes in bearer
form on account of such ownership.
Definitive Registered Senior Notes so issued will be issued only in minimum
denominations of $1,000 and integral multiples thereof and will be issued in
registered form only, without coupons, and shall have the same interest rate,
terms, maturity and, in the same aggregate principal amount as the Global
Senior Notes for which they are exchanged. Such Definitive Registered Senior
Notes shall be registered in the name or names of such persons as the Book-
Entry Depositary shall notify the Trustee based on the instructions of DTC. It
is expected that such instructions may be based upon directions received by
DTC from its Participants with respect to ownership of beneficial interests in
the Book-Entry Interests.
PARTICIPANTS AND INDIRECT PARTICIPANTS SHOULD BE AWARE THAT, UNDER CURRENT
UK TAX LAW, UPON THE ISSUANCE TO SUCH PARTICIPANTS AND INDIRECT
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PARTICIPANTS OF DEFINITIVE REGISTERED SENIOR NOTES, SUCH PARTICIPANTS AND
INDIRECT PARTICIPANTS, AS HOLDERS OF DEFINITIVE REGISTERED SENIOR NOTES, WILL
BECOME SUBJECT TO UK INCOME TAX (CURRENTLY AT THE RATE OF 20%) TO BE WITHHELD
ON ANY PAYMENTS OF INTEREST ON THE EXCHANGE SENIOR NOTES AS SET FORTH UNDER
"CERTAIN INCOME TAX CONSIDERATIONS--UK INCOME TAX CONSIDERATIONS". IF SUCH
DEFINITIVE REGISTERED SENIOR NOTES ARE ISSUED FOLLOWING AN EVENT OF DEFAULT
WITH RESPECT TO A SERIES OF EXCHANGE SENIOR NOTES PURSUANT TO THE REQUEST OF
BENEFICIAL OWNERS OF INTERESTS IN THE BOOK-ENTRY INTERESTS IN ALL OF THE
GLOBAL SENIOR NOTES OF SUCH SERIES, YORKSHIRE FINANCE WILL NOT BE OBLIGATED TO
PAY ANY ADDITIONAL AMOUNTS IN RESPECT OF SUCH DEFINITIVE REGISTERED SENIOR
NOTES.
However, holders of Definitive Registered Senior Notes may be entitled to
receive a refund of withheld amounts from the UK Inland Revenue in certain
circumstances. See "Certain Income Tax Considerations--UK Income Tax
Considerations". In addition, if an owner of a beneficial interest in a Book-
Entry Interest receives Definitive Registered Senior Notes other than pursuant
to its request, such owner will be entitled to receive Additional Amounts with
respect to such Definitive Registered Senior Notes. See "--Additional
Amounts".
Transfer and Exchange of Definitive Registered Senior Notes
In the event that Definitive Registered Senior Notes are issued, a Holder
may transfer or exchange the Definitive Registered Senior Notes in accordance
with the Indenture. Yorkshire Finance and the transfer agent and registrar may
require a Holder, among other things, to furnish appropriate endorsements and
transfer documents, and may require a Holder to pay a sum sufficient to cover
any taxes, other governmental charges and fees required by law or permitted by
the Indenture. Yorkshire Finance is not required to issue, register the
transfer of or exchange Definitive Registered Senior Notes of any series
during a period beginning at the opening of business 15 days before the day of
the mailing of a notice of redemption as required by the Indenture and ending
at the close of business on the day of such mailing, or to register the
transfer of or exchange any Definitive Registered Senior Notes so selected for
redemption in whole or in part, except that Yorkshire Finance shall be
required to register the transfer of or exchange the unredeemed portion of any
Definitive Registered Senior Notes being redeemed in part. Upon the issuance
of Definitive Registered Senior Notes, Holders will be able to transfer and
exchange Definitive Registered Senior Notes at the offices of the Trustee or,
so long as the Senior Notes are listed on the Luxembourg Stock Exchange and
the rules of such Exchange so require, at the office or agency maintained by
the Paying Agent for such purpose in Luxembourg; provided that all transfers
and exchanges must be effected in accordance with the terms of the Indenture
and, among other things, be recorded in the Security Register maintained by
the transfer agent and registrar. In case of a transfer or partial redemption
of Definitive Registered Senior Notes, a holder thereof may obtain a new
Definitive Registered Senior Note from the Paying Agent in Luxembourg.
PURCHASE AND CANCELLATION
Yorkshire Finance and Yorkshire Group may at any time purchase Exchange
Senior Notes in the open market or otherwise at any price (subject to
applicable US securities laws). Any purchase by tender shall be made available
to all holders of Exchange Senior Notes. Any Exchange Senior Notes so
purchased must be promptly surrendered to any Paying Agent for cancellation.
All Exchange Senior Notes that are redeemed or purchased by Yorkshire
Finance or Yorkshire Group will promptly be cancelled. Any Definitive
Registered Senior Notes so cancelled will be forwarded to or to the order of
the Paying Agent and such Definitive Registered Senior Notes may not be
reissued or resold.
COVENANTS
Except as otherwise set forth under "--Defeasance and Covenant Defeasance",
below, for so long as any Senior Notes remain outstanding or any amount
remains unpaid on any of the Senior Notes, Yorkshire Finance and Yorkshire
Group, as applicable, will comply with the terms of the covenants set forth
below.
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Maintenance of Office or Agency
Yorkshire Finance will maintain (i) in the Borough of Manhattan, The City of
New York, an office or agency of the Trustee where the Senior Notes may be
paid and notices and demands to or upon Yorkshire Finance in respect of the
Senior Notes and the Indenture may be served and, if Definitive Registered
Senior Notes have been issued, an office or agency of a transfer agent where
Senior Notes may be surrendered for registration of transfer and exchange, and
(ii) an office or agency of the Paying Agent where the Senior Notes may be
paid and an office or agency of a transfer agent in Luxembourg so long as the
Senior Notes are listed on the Luxembourg Stock Exchange and the rules of such
Exchange so require. Yorkshire Finance will give prompt written notice to the
Trustee of the location, and any change in the location, of any such office or
agency. If at any time Yorkshire Finance shall fail to maintain any required
office or agency or shall fail to furnish the Trustee with the address
thereof, all presentations, surrenders, notices and demands may be served at
the office of the Trustee.
Consolidation, Merger, Conveyance, Sale or Lease
Nothing contained in the Indenture or the Senior Notes shall prevent
Yorkshire Finance or Yorkshire Group from consolidating with or merging into
another corporation or corporations, or successive consolidations or mergers,
or conveying, transferring, leasing or otherwise disposing of its properties
and assets substantially as an entirety to any person, provided that (a) the
successor entity expressly assumes all of Yorkshire Finance's applicable
obligations on the Senior Notes or Yorkshire Group's applicable obligations
under the Guarantee, as the case may be, and (b) immediately after giving
effect to such transaction no Event of Default, and no event which, after
notice or lapse of time or both, would become an Event of Default, shall have
happened and be continuing. In addition, Yorkshire Finance and Yorkshire Group
may assign and delegate all of its rights and obligations under the Indenture,
the Senior Notes, any supplemental indenture relating to the Senior Notes, the
Guarantee and all other documents, agreements and instruments related thereto,
as applicable, to any Person that owns all of the ordinary shares of Yorkshire
Finance or Yorkshire Group or to any Person that owns all of the ordinary
shares of a Person that owns all of the ordinary shares of Yorkshire Finance
or Yorkshire Group, and upon any such Person assuming such rights and
obligations Yorkshire Finance or Yorkshire Group shall be automatically
released from such obligations, provided that immediately after giving effect
to such transaction no Event of Default, and no event which, after notice or
lapse of time or both, would become an Event of Default shall have happened
and be continuing.
In the event that any such successor entity is organized under the laws of a
country located outside of a Taxing Jurisdiction and withholding or deduction
is required by law for or on account of any present or future taxes, duties,
assessments or governmental charges of whatever nature imposed, levied,
collected, withheld or assessed by or within such country in which the
successor entity is organized or by or within any political subdivision
thereof or any authority therein or thereof having power to tax, the successor
entity shall pay to the relevant Holder of the Global Senior Notes or to the
relevant Holders of the Definitive Registered Senior Notes, as the case may
be, such Additional Amounts, under the same circumstances and subject to the
same limitations as are specified for "Gross-Up Taxes," as is set forth under
"--Additional Amounts" below, but substituting for the applicable Taxing
Jurisdiction in each place the name of the country under the laws of which
such successor entity is organized, managed and controlled or has a place of
business. In addition, such successor entity shall be entitled to effect an
optional tax redemption of the Senior Notes under the same circumstances and
subject to the same limitations as are set forth under "--Optional Tax
Redemption" below, but substituting for the applicable Taxing Jurisdiction in
each place the name of the country under the laws of which such successor
entity is organized, managed and controlled or has a place of business.
An assumption of the obligations of Yorkshire Finance under the Senior Notes
may be deemed for US federal income tax purposes to be an exchange of the
Senior Notes for new debt instruments by their beneficial owners, possibly
resulting in recognition of taxable gain or loss for these purposes and
possibly other adverse
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US tax consequences. Investors should consult their tax advisers regarding the
US federal, state and local income tax consequences of such an assumption.
Limitation on Liens
Nothing contained in the Indenture in any way restricts or prevents
Yorkshire Finance, Yorkshire Group or any subsidiary of Yorkshire Finance or
Yorkshire Group from incurring any indebtedness; provided, that each of
Yorkshire Finance and Yorkshire Group shall not, and Yorkshire Group shall not
cause or permit any Significant Subsidiary (as defined below) to issue, assume
or guarantee any Debt (as defined below) secured by a Lien (as defined below)
upon any property or assets (other than cash) of Yorkshire Finance, Yorkshire
Group or such Significant Subsidiary, as applicable, without effectively
providing that the outstanding Senior Notes (together with, if Yorkshire Group
so determines, any other indebtedness or obligation then existing or
thereafter created ranking equally with the Senior Notes) shall be secured
equally and ratably with (or prior to) such Debt so long as such Debt shall be
so secured. The foregoing restriction on Liens will not, however, apply to:
(a) Liens in existence on the date of original issue of the Senior Notes;
(b) (i) any Lien created or arising over any property which is acquired,
constructed or created by Yorkshire Finance, Yorkshire Group or any of its
Significant Subsidiaries, but only if (A) such Lien secures only principal
amounts (not exceeding the cost of such acquisition, construction or
creation) raised for the purposes of such acquisition, construction or
creation, together with any costs, expenses, interest and fees incurred in
relation thereto or a guarantee given in respect thereof, (B) such Lien is
created or arises on or before 90 days after the completion of such
acquisition, construction or creation and (C) such Lien is confined solely
to the property so acquired, constructed or created; or (ii) any Lien to
secure Debt of Yorkshire Finance, Yorkshire Group or a Significant
Subsidiary incurred in connection with a specifically identifiable project
where the Lien relates and is confined to a property or properties
(including, without limitation, shares or other rights of ownership in the
entity(ies) which own such property or project) involved in such project
and acquired by Yorkshire Finance, Yorkshire Group or a Significant
Subsidiary after the date of original issue of the Senior Notes and the
recourse of the creditors in respect of such Debt is limited to any or all
of such project and property (including as aforesaid);
(c) any Lien securing amounts not more than 90 days overdue or otherwise
being contested in good faith;
(d) (i) rights of financial institutions to offset credit balances in
connection with the operation of cash management programs established for
the benefit of Yorkshire Finance, Yorkshire Group or a Significant
Subsidiary or in connection with the issuance of letters of credit for the
benefit of Yorkshire Finance, the Yorkshire Group, and/or a Significant
Subsidiary; (ii) any Lien securing Debt of Yorkshire Finance, Yorkshire
Group or a Significant Subsidiary incurred in connection with the financing
of accounts receivable; (iii) any Lien incurred or deposits made in the
ordinary course of business, including, but not limited to, (A) any
mechanics', materialmen's, carriers', workmen's, vendors' or other like
Liens and (B) any Liens securing amounts in connection with workers'
compensation, unemployment insurance and other types of social security;
(iv) any Lien upon specific items of inventory or other goods and proceeds
of Yorkshire Finance, Yorkshire Group or a Significant Subsidiary securing
obligations of Yorkshire Finance, Yorkshire Group or a Significant
Subsidiary in respect of bankers' acceptances issued or created for the
account of such person to facilitate the purchase, shipment or storage of
such inventory or other goods; (v) any Lien incurred or deposits made
securing the performance of tenders, bids, leases, trade contracts (other
than for borrowed money), statutory obligations, surety bonds, appeal
bonds, government contracts, performance bonds, return-of-money bonds and
other obligations of like nature incurred in the ordinary course of
business; (vi) any Lien created by Yorkshire Finance, Yorkshire Group or a
Significant Subsidiary under or in connection with or arising out of any
pooling and settlement agreements or pooling and settlement arrangements of
the electricity industry including, without limitation, the Pooling and
Settlement Agreement dated March 30, 1990, as amended, modified or
supplemented from time to time, or any transactions or arrangements entered
into in connection with the hedging or management of risks relating to
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the UK electricity industry; (vii) any Lien constituted by a right of set
off or right over a margin call account or any form of cash or cash
collateral or any similar arrangement for obligations incurred in respect
of the hedging or management of risks under transactions involving any
currency or interest rate swap, cap or collar arrangements, forward
exchange transaction, option, warrant, forward rate agreement, futures
contract or other derivative instrument of any kind; (viii) any Lien
arising out of title retention or like provisions in connection with the
purchase of goods and equipment in the ordinary course of business; and
(ix) any Lien securing reimbursement obligations under letters of credit,
guarantees and other forms of credit enhancement given in connection with
the purchase of goods and equipment in the ordinary course of business;
(e) Liens in favor of Yorkshire Group, Yorkshire Finance or a Significant
Subsidiary;
(f) (i) Liens on any property or assets acquired from a corporation which
is merged with or into Yorkshire Finance, Yorkshire Group or a Significant
Subsidiary, or any Liens on the property or assets of any corporation or
other entity existing at the time such corporation or other entity becomes
a subsidiary of Yorkshire Finance or Yorkshire Group and, in either such
case, is not created in anticipation of any such transaction (unless such
Lien was created to secure or provide for the payment of any part of the
purchase price of such corporation); (ii) any Lien on any property or
assets existing at the time of acquisition thereof and which is not created
in anticipation of such acquisition (unless such Lien was created to secure
or provide for the payment of any part of the purchase price of such
property or assets); and (iii) any Lien created or outstanding on or over
any asset of any entity which becomes a Significant Subsidiary on or after
the date of the issuance of the Senior Notes when such Lien is created
prior to the date on which such entity becomes a Significant Subsidiary;
(g) (i) Liens required by any contract or statute in order to permit
Yorkshire Finance, Yorkshire Group or a Significant Subsidiary to perform
any contract or subcontract made by it with or at the request of a
governmental entity or any department, agency or instrumentality thereof,
or to secure partial, progress, advance or any other payments by Yorkshire
Finance, Yorkshire Group or a Significant Subsidiary to such governmental
unit pursuant to the provisions of any contract or statute; (ii) any Lien
securing industrial revenue, development or similar bonds issued by or for
the benefit of Yorkshire Finance, Yorkshire Group or a Significant
Subsidiary, provided that such industrial revenue, development or similar
bonds are nonrecourse to Yorkshire Finance, Yorkshire Group or such
Significant Subsidiary; and (iii) any Lien securing taxes or assessments or
other applicable governmental charges or levies;
(h) (i) any Lien which arises pursuant to any order of attachment,
distraint or similar legal process arising in connection with court
proceedings and any Lien which secures the reimbursement obligation for any
bond obtained in connection with an appeal taken in any court proceeding,
so long as the execution or other enforcement of such Lien arising pursuant
to such legal process is effectively stayed and the claims secured thereby
are being contested in good faith and, if appropriate, by appropriate legal
proceedings, or any Lien in favor of a plaintiff or defendant in any action
before a court or tribunal as security for costs and/or expenses; or (ii)
any Lien arising by operation of law or by order of a court or tribunal or
any lien arising by an agreement of similar effect, including, without
limitation, judgment liens; or
(i) any extension, renewal or replacement (or successive extensions,
renewals or replacements), as a whole or in part, of any Liens referred to
in the foregoing clauses, for amounts not exceeding the principal amount of
the Debt secured by the Lien so extended, renewed or replaced, provided
that such extension, renewal or replacement Lien is limited to all or a
part of the same property or assets that were covered by the Lien extended,
renewed or replaced (plus improvements on such property or assets).
Notwithstanding the foregoing, Yorkshire Finance, Yorkshire Group or a
Significant Subsidiary may create or permit to subsist Liens over any of their
respective property or assets so long as the aggregate amount of Debt secured
by all such Liens (excluding therefrom the amount of Debt secured by Liens set
forth in clauses (a) through (i), inclusive, above) does not exceed 10% of
Consolidated Net Tangible Assets.
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"Significant Subsidiary" is defined in the Indenture as, at any particular
time, any subsidiary of Yorkshire Group whose gross assets or gross revenues
(having regard to Yorkshire Group's direct and/or indirect beneficial interest
in the shares, or the like, of that subsidiary) represent at least 25% of the
consolidated gross assets or consolidated gross revenues, as the case may be,
of Yorkshire Group.
"Consolidated Net Tangible Assets" is defined in the Indenture as the total
of all assets (including revaluations thereof as a result of commercial
appraisals, price level restatement or otherwise) appearing on a consolidated
balance sheet of Yorkshire Group, net of applicable reserves and deductions,
but excluding goodwill, trade names, trademarks, patents, unamortized debt
discount and all other like intangible assets (which term shall not be
construed to include such revaluations), less the aggregate of the
consolidated current liabilities of Yorkshire Group appearing on such balance
sheet.
"Debt" is defined in the Indenture as all obligations of Yorkshire Finance,
Yorkshire Group and its Significant Subsidiaries evidenced by bonds,
debentures, notes or similar evidences of indebtedness in each case for money
borrowed.
"Lien" is defined in the Indenture as any mortgage, lien, pledge, security
interest or other encumbrance; provided, however, that the term "Lien" shall
not mean any easements, rights-of-way, restrictions and other similar
encumbrances and encumbrances consisting of zoning restrictions, leases,
subleases, licenses, sublicenses, restrictions on the use of property or
defects in the title thereto.
Limitation on Sale and Lease-Back Transactions
The Indenture provides that, so long as any of the Senior Notes remain
outstanding, each of Yorkshire Finance and Yorkshire Group shall not, and
Yorkshire Group shall not cause or permit any Significant Subsidiary to, enter
into any arrangement with any person providing for the leasing by Yorkshire
Finance, Yorkshire Group or a Significant Subsidiary of any assets which have
been or are to be sold or transferred by Yorkshire Finance, Yorkshire Group or
such Significant Subsidiary to such person (a "Sale and Lease-Back
Transaction") unless: (i) such transaction involves a lease for a temporary
period not to exceed three years; (ii) such transaction is between Yorkshire
Finance, Yorkshire Group or a Significant Subsidiary and an affiliate of
Yorkshire Group; (iii) Yorkshire Finance or Yorkshire Group would be entitled
to incur Debt secured by a Lien on the assets or property involved in such
transaction at least equal in amount to the Attributable Debt with respect to
such Sale and Lease-Back Transaction, without equally and ratably securing the
Senior Notes, as described under "--Limitation on Liens" above, other than as
described in the paragraph immediately succeeding clause (i) of the first
paragraph thereof; (iv) such transaction is entered into within 90 days after
the initial acquisition by Yorkshire Finance or Yorkshire Group of the assets
or property subject to such transaction; (v) after giving effect thereto, the
aggregate amount of all Attributable Debt with respect to all such Sale and
Lease-Back Transactions then in effect does not exceed 10% of Consolidated Net
Tangible Assets; or (vi) Yorkshire Finance, Yorkshire Group or a Significant
Subsidiary within the 12 months preceding the sale or transfer or the 12
months following the sale or transfer, regardless of whether such sale or
transfer may have been made by Yorkshire Finance, Yorkshire Group or such
Significant Subsidiary, applies, in the case of a sale or transfer for cash,
an amount equal to the net proceeds thereof and, in the case of a sale or
transfer otherwise than for cash, an amount equal to the fair value of the
assets so leased at the time of entering into such arrangement (as determined
by the Board of Directors of Yorkshire Finance, Yorkshire Group or such
Significant Subsidiary), (a) to the retirement of Debt, incurred or assumed by
Yorkshire Finance, Yorkshire Group or a Significant Subsidiary which by its
terms matures at, or is extendible or renewable at the option of the obligor
to, a date more than 12 months after the date of incurring, assuming or
guaranteeing such debt or (b) to investment in any assets of Yorkshire
Finance, Yorkshire Group or a Significant Subsidiary.
MODIFICATION OF THE INDENTURE
The Indenture contains provisions permitting Yorkshire Finance, Yorkshire
Group and the Trustee to modify the Indenture or any supplemental indenture or
the rights of the Holders of the Debt Securities of each
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series to be affected with the consent of the Holders of a majority in
aggregate principal amount of the Debt Securities at the time outstanding of
all series to be affected (voting as a class), subject to the same conditions
described below under "--Modification or Waiver of Certain Covenants".
The Indenture also contains provisions permitting Yorkshire Finance,
Yorkshire Group and the Trustee to amend the Indenture in certain
circumstances without the consent of the Holders of any Debt Securities to
cure any ambiguity, to correct or supplement any provision therein which may
be defective or inconsistent with any other provision therein, to evidence the
merger of Yorkshire Finance or Yorkshire Group or the replacement of the
Trustee and to make any other provisions with respect to matters or questions
arising under the Indenture that do not materially and adversely affect the
interests of any Holders of Debt Securities.
EVENTS OF DEFAULT
An Event of Default with respect to a series of the Debt Securities is
defined in the Indenture as being: (a) default for 30 days in payment of any
interest or any Additional Amounts on any Debt Security of that series; (b)
default in payment of principal of, or premium, if any, on any Debt Security
of that series when due at maturity, upon redemption, by declaration or
otherwise, or failure to make any sinking or analogous fund payment
established with respect to such series; (c) material default in the
performance, or material breach, of any covenant or obligation of Yorkshire
Finance or Yorkshire Group in the Indenture and continuance of such material
default or breach for a period of 90 days after written notice is given to
Yorkshire Finance or Yorkshire Group by the Trustee or to Yorkshire Finance or
Yorkshire Group and the Trustee by the Holders of at least 25% in aggregate
principal amount of the outstanding Debt Securities of such series; (d)
default in the payment of the principal of any bond, debenture, note or other
evidence of indebtedness, in each case for money borrowed, or in the payment
of principal under any mortgage, indenture or instrument under which there may
be issued or by which there may be secured or evidenced any indebtedness for
money borrowed, of Yorkshire Finance, Yorkshire Group or any Significant
Subsidiary, which default for payment of principal is in an aggregate
principal amount exceeding US $50,000,000 (or its equivalent in any other
currency or currencies) when such indebtedness becomes due and payable
(whether at maturity, upon redemption or acceleration or otherwise), if such
default shall continue unremedied or unwaived for more than 30 Business Days
and the time for payment of such amount has not been expressly extended; (e)
the failure of Yorkshire Finance, Yorkshire Group or a Significant Subsidiary
generally to pay its debts as they become due, or the admission in writing of
its inability to pay its debts generally, or the making of a general
assignment for the benefit of its creditors, or the institution of any
proceeding by or against Yorkshire Finance, Yorkshire Group or a Significant
Subsidiary (other than any such proceeding brought against Yorkshire Finance,
Yorkshire Group or a Significant Subsidiary that is dismissed within 180 days
from the commencement thereof) seeking to adjudicate it bankrupt or insolvent,
or seeking liquidation, winding up, reorganization, arrangement, adjustment,
protection, relief or composition (in each case, other than a solvent
liquidation, winding up, reorganization, arrangement, adjustment, protection,
relief or composition) of it or its debts under any law relating to
bankruptcy, insolvency, reorganization, moratorium or relief of debtors, or
seeking the entry of an order for relief or appointment of an administrator,
receiver, trustee, intervenor or other similar official for it or for any
substantial part of its property, or the taking of any action by Yorkshire
Finance, Yorkshire Group or a Significant Subsidiary to authorize any of the
actions set forth in this clause (e); and (f) the Guarantee shall be held in a
judicial proceeding to be unenforceable or invalid or shall cease for any
reason to be in full force and effect.
If an Event of Default with respect to the Debt Securities of any series
shall occur and be continuing, either the Trustee or the Holders of at least
25% in aggregate principal amount of such series may declare the principal
amount of such series, and any interest accrued thereon, to be due and payable
immediately. At any time after such declaration of acceleration has been made,
but before a judgment or decree for payment of money has been obtained, if all
Events of Default have been cured (other than the non-payment of principal of
such Debt Securities which has become due solely by reason of such declaration
of acceleration), then such declaration of acceleration shall be automatically
annulled and rescinded.
No Holder of Debt Securities of any series shall have any right to institute
any proceeding, judicial or otherwise, with respect to the Indenture, or for
the appointment of a receiver or trustee, or for any other remedy thereunder,
unless (a) such Holder has previously given written notice to the Trustee of a
continuing Event of
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Default with respect to such series; (b) the Holders of not less than 25% in
principal amount of such series shall have made written request to the Trustee
to institute proceedings in respect of such Event of Default in its own name
as Trustee; (c) such Holder or Holders have offered the Trustee indemnity
satisfactory to the Trustee against the costs, expenses and liabilities to be
incurred in compliance with such request; (d) the Trustee, for 60 days after
its receipt of such notice, request and offer of indemnity, has failed to
institute any such proceeding; and (e) no direction inconsistent with such
written request has been given to the Trustee during such 60 day period by the
Holders of a majority in the outstanding principal amount of such series.
However, such limitations do not apply to a suit instituted by a Holder of
any Debt Security for the enforcement of the payment of the principal of and
premium, if any, or interest on such Debt Security on or after the applicable
due date specified in such Debt Security.
ADDITIONAL AMOUNTS
All payments of principal of, premium, if any, and interest with respect to,
the Global Senior Notes and the Definitive Registered Senior Notes, if any,
and all payments made pursuant to any Guarantee, shall be made free and clear
of, and without withholding or deduction for or on account of, any present or
future taxes, duties, assessments or governmental charges of whatever nature
imposed, levied, collected, withheld or assessed by or within a Taxing
Jurisdiction or by or within any political subdivision thereof or any
authority therein or thereof having power to tax ("Gross-Up Taxes"), unless
such withholding or deduction is required by law. In the event of any such
withholding or deduction, Yorkshire Finance or Yorkshire Group, as the case
may be, shall pay to the Holder of the Global Senior Notes or to the Holders
of the Definitive Registered Senior Notes, as the case may be, the amount that
would otherwise have been due to such Holder in the absence of such
withholding or deduction, except that no Additional Amounts shall be payable:
(a) to, or to a Person on behalf of, a Holder who is liable for such
Gross-Up Taxes with respect to the Senior Notes or the Guarantee by reason
of such Holder having some connection with the relevant Taxing Jurisdiction
(including being a citizen or resident or national of, or carrying on a
business or maintaining a permanent establishment in, or being physically
present in, the relevant Taxing Jurisdiction) other than the mere holding
of a Senior Note or the receipt of principal of, premium, if any, and
interest in respect thereof or in respect of the Guarantee;
(b) to, or to a Person on behalf of, a Holder who presents a Senior Note
(where presentation is required) for payment more than 30 days after the
Relevant Date (as defined below) except to the extent that such Holder
would have been entitled to such Additional Amounts on presenting such
Senior Note for payment on the last day of such period of 30 days;
(c) to, or to a Person on behalf of, a Holder who presents a Senior Note
(where presentation is required) in a Taxing Jurisdiction;
(d) to, or to a Person on behalf of, a Holder who would not be liable or
subject to the withholding or deduction by making a declaration of non-
residence or similar claim for exemption to the relevant tax authority; or
(e) to, or to a Person on behalf of, a Holder of a Definitive Registered
Senior Note issued pursuant to an Optional Definitive Security Request.
Such Additional Amounts will also not be payable where, had the beneficial
owner of the Senior Notes (or any interest therein) been the Holder of the
Senior Notes, he would not have been entitled to payment of Additional Amounts
by reason of any one or more of clauses (a) through (e) above. If Yorkshire
Finance or Yorkshire Group, as applicable, shall determine that Additional
Amounts will not be payable because of the immediately preceding sentence,
Yorkshire Finance or Yorkshire Group, as applicable, will inform such Holder
promptly after making such determination setting forth the reason(s) therefor.
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"Relevant Date" means whichever is the later of (i) the date on which such
payment first becomes due and (ii) if the full amount payable has not been
received in The City of New York by the Book-Entry Depositary or the Trustee
on or prior to such due date, the date on which, the full amount having been
so received, notice to that effect shall have been given to the Holders in
accordance with the Indenture.
Any reference in this Prospectus to the payment of principal of, premium, if
any, or interest with respect to the Senior Notes or any payments pursuant to
the Guarantee shall be deemed to include any such Additional Amounts payable
in connection therewith.
OPTIONAL REDEMPTION
The Senior Notes of each series will be redeemable in whole or in part, at
the option of Yorkshire Finance at any time, on not less than 30 days' notice
prior to the Redemption Date, at a price equal to the greater of (i) 100% of
the principal amount of the series of Senior Notes being redeemed and (ii) the
sum of the present values of the remaining scheduled payments of principal of
and interest on the series of Senior Notes being redeemed (excluding the
portion of any such interest accrued to the Redemption Date) discounted (for
purposes of determining present value) to the Redemption Date on a semi-annual
basis (assuming a 360-day year consisting of twelve 30-day months) at a
discount rate equal to the Treasury Yield plus 10 basis points, in the case of
the 2003 Exchange Senior Notes, and 20 basis points, in the case of the 2008
Exchange Senior Notes, plus, in either case, accrued interest thereon to the
Redemption Date.
"Treasury Yield" means, with respect to any Redemption Date, the rate per
annum equal to the semi-annual equivalent yield to maturity of the Comparable
Treasury Issue, assuming a price for the Comparable Treasury Issue (expressed
as a percentage of its principal amount) equal to the Comparable Treasury
Price for such Redemption Date.
"Comparable Treasury Issue" means the US treasury security selected by an
Independent Investment Banker as having a maturity comparable to the remaining
term of such Senior Notes to be redeemed that would be utilized, at the time
of selection and in accordance with customary financial practice, in pricing
new issues of corporate debt securities of comparable maturity to the
remaining term of the Senior Notes.
"Comparable Treasury Price" means, with respect to any Redemption Date, (i)
the average of the bid and asked prices for the Comparable Treasury Issue
(expressed in each case as a percentage of its principal amount) on the third
business day preceding such Redemption Date, as set forth in the daily
statistical release (or any successor release) published by the Federal
Reserve Bank of New York and designated "Composite 3:30 p.m. Quotations for US
Government Securities" or (ii) if such release (or any successor release) is
not published or does not contain such prices on such business day, the
Reference Treasury Dealer Quotation for such Redemption Date.
"Independent Investment Banker" means an independent investment banking
institution of national standing appointed by Yorkshire Finance and reasonably
acceptable to the Trustee.
"Reference Treasury Dealer Quotation" means, with respect to the Reference
Treasury Dealer and any Redemption Date, the average, as determined by
Yorkshire Finance, of the bid and asked prices for the Comparable Treasury
Issue (expressed in each case as a percentage of its principal amount and
quoted in writing to Yorkshire Finance by such Reference Treasury Dealer at
5:00 p.m. on the third business day preceding such Redemption Date).
"Reference Treasury Dealer" means a primary US government securities dealer
in New York City appointed by Yorkshire Finance and reasonably acceptable to
the Trustee.
Notice of redemption shall be given in accordance with "--Form,
Denomination, Book-Entry Procedures and Transfer--Reports and Notices" above
not less than 30 days nor more than 60 days prior to the Redemption Date.
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If fewer than all the Senior Notes are to be redeemed, selection of Senior
Notes for redemption will be made by the Trustee in any manner the Trustee
deems fair and appropriate and that complies with applicable legal and
securities exchange requirements.
Unless Yorkshire Finance defaults in payment of the redemption price, from
and after the Redemption Date, the Senior Notes or portions thereof called for
redemption will cease to bear interest, and the holders thereof will have no
right in respect to such Senior Notes except the right to receive the
redemption price thereof.
OPTIONAL TAX REDEMPTION
If (a) Yorkshire Finance or Yorkshire Group satisfies the Trustee prior to
the giving of a notice as provided below that it has or will become obligated
to pay Additional Amounts with respect to a series of the Senior Notes as a
result of either (x) any change in, or amendment to, the laws or regulations
of a Taxing Jurisdiction, or any change in the application or interpretation
of such laws or regulations, which change or amendment becomes effective on or
after the date of the Offering Memorandum relating to the Original Senior
Notes or (y) the issuance of Definitive Registered Senior Notes pursuant to an
Optional Definitive Security Request or clause (i) or (iii) of the first
sentence under "--Form, Denomination, Book-Entry Procedures and Transfer--
Definitive Registered Senior Notes" above, and (b) such obligation cannot be
avoided by Yorkshire Finance or Yorkshire Group taking reasonable measures
available to it, Yorkshire Finance may, at its option, on giving not more than
60 nor less than 30 days' notice to the Holders, redeem the Senior Notes of a
series, in whole but not in part, in each case at a price equal to their
principal amount, together with accrued and unpaid interest, provided that no
such notice of redemption shall be given earlier than 90 days prior to the
earliest date on which Yorkshire Finance or Yorkshire Group would be obligated
to pay such Additional Amounts were a payment in respect of the Senior Notes
of such series then due. Prior to the publication of any notice of redemption
pursuant to this paragraph, Yorkshire Finance or Yorkshire Group shall deliver
to the Trustee a certificate signed by a director of Yorkshire Finance or
Yorkshire Group stating that the obligation referred to in clause (a) above
cannot be avoided by Yorkshire Finance or Yorkshire Group taking reasonable
measures available to it, and the Trustee shall accept such certificate as
sufficient evidence of the satisfaction of the condition precedent set forth
in clause (b) above, in which event it shall be conclusive and binding on the
Holders.
In the event a Global Senior Note is redeemed in whole or in part pursuant
to this provision or "--Optional Redemption" above, the Book-Entry Depositary
will redeem, from the amount received by it in respect of the redemption of
such Global Senior Note, an equal amount of the related Book-Entry Interests
issued to DTC. The redemption price payable in connection with the redemption
of such Book-Entry Interests will be equal to the amount received by the Book-
Entry Depositary in connection with the redemption of the related Global
Senior Notes.
DEFEASANCE AND COVENANT DEFEASANCE
Yorkshire Finance, at its option, may elect (a) to be discharged from any
and all obligations in respect of a series of Senior Notes ("Defeasance")
(except in each case for the obligations to, among other things, register the
transfer or exchange of such Senior Notes, replace stolen, lost or mutilated
Senior Notes, maintain paying agencies, hold moneys for payments in trust and
pay when due all principal, premium, if any, and interest (including any
Additional Amounts then known) solely out of moneys held in trust) or (b) not
to comply with certain covenants ("Covenant Defeasance") of the Indenture with
respect to a series of Senior Notes described above under "--Covenants--
Consolidation, Merger, Conveyance, Sale or Lease", "--Limitation on Liens"
and""--Limitation on Sale and Lease-Back Transactions" if, in either case,
Yorkshire Finance irrevocably deposits with the Trustee, as trust funds in
trust specifically pledged as security for, and dedicated solely to, the
benefit of the Holder or Holders of such Senior Notes of such series, (i)
money or (ii) US Government Obligations which through the payment of interest
and principal in respect thereof in accordance with their terms will provide,
not later than one day before the due date of any payment, money, or (iii) a
combination thereof, in each case in an amount sufficient, in the opinion of a
nationally recognized firm of independent accountants, to pay and discharge
the principal of and premium, if any, and interest (including any Additional
Amounts then known) on the outstanding Senior Notes of such series on the
dates such payments are due in accordance with the terms of the
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Senior Notes of such series (or if Yorkshire Finance has designated a
Redemption Date pursuant to the next paragraph, to and including the
Redemption Dates so designated by Yorkshire Finance). Certain other conditions
precedent to effecting Defeasance or Covenant Defeasance include: (A) that the
Senior Notes will not be delisted by any securities exchange on which they are
traded as a result of the deposit of trust funds in trust; (B) that no Event
of Default or event which with notice or lapse of time would become an Event
of Default (including by reason of such deposit) with respect to the Senior
Notes of such series shall have occurred and be continuing on the date of such
deposit or insofar as an Event of Default described in clause (e) of the first
paragraph under "--Events of Default" is concerned, at any time during the
period ending on the 91st day of such deposit (it being understood that such
condition will not be satisfied until the expiration of such period); and (C)
that such Defeasance or Covenant Defeasance shall not result in the breach or
violation of, or constitute a default under, any other agreement or instrument
under which Yorkshire Finance is bound. To exercise any such option, Yorkshire
Finance is required to deliver to the Trustee (x) an opinion of independent
counsel of recognized standing to the effect that (i) the Holders will not
recognize income, gain or loss for US federal income tax purposes as a result
of such deposit, and will be subject to US federal income tax on the same
amounts, in the same manner and at the same times as would have been the case
absent such deposit, which in the case of Defeasance must be based on a change
in law or a published ruling by the US Internal Revenue Service and (ii) the
deposit shall not result in Yorkshire Finance being deemed an "investment
company" required to be registered under the Investment Company Act of 1940,
as amended, and (y) an Officer's Certificate as to compliance with all
conditions precedent provided for in the Indenture relating to the
satisfaction and discharge of the Senior Notes of such series.
If Yorkshire Finance shall wish to deposit or cause to be deposited money or
US Government obligations to pay or discharge the principal of, premium, if
any, and interest (including any Additional Amounts then known) on the
outstanding Senior Notes of a series to and including a Redemption Date on
which all of the outstanding Senior Notes of such series are to be redeemed,
such Redemption Date shall be irrevocably designated by a Board Resolution
delivered to the Trustee on or prior to the date of deposit of such money or
US Government Obligations, and such Board Resolution shall be accompanied by
an irrevocable Request that the Trustee give notice of such redemption in the
name and at the expense of Yorkshire Finance not less than 30 nor more than 60
days prior to such Redemption Date in accordance with the Indenture.
If the Trustee or the Paying Agent is unable to apply any moneys deposited
in trust to effect a Defeasance or Covenant Defeasance by reason of any order
or judgment of any court or governmental authority enjoining, restraining or
otherwise prohibiting such application, then any obligations from which
Yorkshire Finance had been discharged or released shall be revived and
reinstated as though no such deposit of moneys in trust had occurred, until
such time as the Trustee or Paying Agent is permitted so to apply all of such
moneys deposited in trust.
"US Government Obligations" means direct obligations of the US for the
payment of which its full faith and credit is pledged, or obligations of a
person controlled or supervised by and acting as an agency or instrumentality
of the US and the payment of which is unconditionally guaranteed by the US,
and shall also include a depository receipt issued by a bank or trust company
as custodian with respect to any such US Government Obligation or a specific
payment of interest on or principal of any such US Government Obligation held
by such custodian for the account of a holder of a depository receipt;
provided that (except as required by law) such custodian is not authorized to
make any deduction from the amount payable to the holder of such depository
receipt from any amount received by the custodian in respect of the US
Government obligation or the specific payment of interest on or principal of
the US Government Obligation evidenced by such depository receipt.
MODIFICATION OR WAIVER OF CERTAIN COVENANTS
Yorkshire Finance or Yorkshire Group may omit in any particular instance to
comply with any term, provision or condition set forth in the Indenture with
respect to the Debt Securities of any series if before the
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time for such compliance the Holders of at least a majority in aggregate
principal amount of the outstanding Debt Securities of such series shall, by
Act of such Holders, either modify the covenant or waive such compliance in
such instance or generally waive compliance with such term, provision or
condition, provided that no such modification shall without the consent of
each Holder of the Debt Securities of such series (a) change the stated
maturity upon which the principal of and premium, if any, or the interest on
any Debt Securities is due and payable, (b) reduce the principal amount
thereof and premium, if any, or the rate of interest thereon, (c) change any
obligation of Yorkshire Finance or Yorkshire Group to pay Additional Amounts
with respect to any Debt Securities, (d) change any place of payment or the
currency in which any Debt Securities or any premium or the interest thereon
is payable, (e) impair the right to institute suit for the enforcement of any
such payment on or after the stated maturity thereof (or, in the case of
redemption, on or after the Redemption Date) or (f) reduce the percentage in
principal amount of the outstanding Debt Securities of any series, the consent
of whose Holders is required for any waiver of compliance with certain
provisions of the Indenture or certain defaults thereunder and their
consequences provided for in the Indenture. The Debt Securities owned by
Yorkshire Finance or Yorkshire Group or any of its Affiliates shall be deemed
not to be outstanding for, among other purposes, consenting to any such
modification.
GOVERNING LAW; SUBMISSION TO JURISDICTION
The Indenture, the Senior Notes and the Guarantee will be governed by, and
construed in accordance with, the laws of the State of New York.
Any legal suit, action or proceeding against Yorkshire Finance, Yorkshire
Group or their respective properties, assets or revenues with respect to their
respective obligations, liabilities or any other matter arising out of or in
connection with the Indenture, a Senior Note or the Guarantee may be brought
in the Supreme Court of New York, New York County or in the United States
District Court for the Southern District of New York and any appellate court
from either thereof. Yorkshire Finance and Yorkshire Group have submitted to
the non-exclusive jurisdiction of such courts for the purposes of any such
proceeding and have irrevocably waived, to the fullest extent that they may
effectively do so, any objection to the laying of venue of any such proceeding
in any such court and the defense of an inconvenient form.
DESCRIPTION OF ORIGINAL SECURITIES
The terms of the Original Securities are identical in all material respects
to the Exchange Securities, except that (i) the Original Securities have not
been registered under the Securities Act, are subject to certain restrictions
on transfer and are entitled to certain rights under the applicable
Registration Rights Agreement (which rights will terminate upon consummation
of the Exchange Offer, except under limited circumstances) and (ii) the
Exchange Senior Notes will not provide for any increase in the interest rate
thereon. The Registration Rights Agreement provides that, in the event that a
registration statement relating to the Exchange Offer has not been filed by
July 24, 1998 and been declared effective by August 23, 1998, or, in certain
limited circumstances, in the event a shelf registration statement (the "Shelf
Registration Statement") with respect to the resale of the Original Senior
Notes is not declared effective by the time required by the Registration
Rights Agreement, then interest will accrue (in addition to the stated
interest rate on the Original Senior Notes) at the rate of 0.25% per annum on
the principal amount of the Original Senior Notes for the period from the
occurrence of such event until such time as such required Exchange Offer is
consummated or any required Shelf Registration Statement is effective. The
Exchange Senior Notes are not, and upon consummation of the Exchange Offer the
Original Senior Notes will not be, entitled to any such additional interest.
Accordingly, holders of Original Senior Notes should review the information
set forth under "Risk Factors--Certain Consequences of a Failure to Exchange
Original Senior Notes" and "Description of Exchange Senior Notes."
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CERTAIN INCOME TAX CONSIDERATIONS
THIS SUMMARY IS OF A GENERAL NATURE AND IS INCLUDED HEREIN SOLELY FOR
INFORMATIONAL PURPOSES. IT IS NOT INTENDED TO BE, NOR SHOULD IT BE CONSTRUED
TO BE, LEGAL OR TAX ADVICE. NO REPRESENTATION WITH RESPECT TO THE CONSEQUENCES
TO ANY PARTICULAR PURCHASER OF A SENIOR NOTE IS MADE. PROSPECTIVE PURCHASERS
SHOULD CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THEIR PARTICULAR
CIRCUMSTANCES AND THE EFFECTS OF STATE, LOCAL OR FOREIGN LAWS, INCLUDING UK
TAX LAWS TO WHICH THEY MAY BE SUBJECT.
UK INCOME TAX CONSIDERATIONS
The following is a general summary of the anticipated UK tax consequences of
the purchase, ownership and disposal of the Senior Notes. It does not purport
to be a comprehensive description of all the tax considerations that may be
relevant to a prospective holder of the Senior Notes.
The statements regarding UK tax laws and practices set out below, including
the statements regarding the UK/US double taxation convention relating to
income and capital gains (the "Tax Treaty") are based on those laws as in
force and as applied in practice as at the date of this Prospectus are subject
to changes therein (possibly with retrospective affect).
This summary relates only to the position of persons who are the absolute
beneficial owners of their Senior Notes and does not address the tax
consequences to (i) investors that do not hold their Senior Notes as capital
assets, or (ii) special classes of investors such as dealers in securities.
References below to "Qualifying Companies" are to companies within the
charge to UK corporation tax (other than authorized unit trusts), and
references to "Relevant Noteholders" are to holders of Senior Notes who are
individuals, trustees or companies not within the charge to UK corporation
tax.
For the purposes of the following discussion, a US holder means a person who
is the beneficial owner of Senior Notes who is a resident of the US and not a
resident of the UK for the purposes of the Tax Treaty, does not hold the
Senior Notes in connection with a permanent establishment or fixed base in the
UK and is otherwise fully eligible for the benefit of the "interest" article
in the Tax Treaty.
Prospective investors are advised to consult their tax advisers as to the UK
or other tax consequences of the purchase, ownership or disposal of Senior
Notes, including the effect of any local tax laws.
Payments of Interest on the Senior Notes
Payments of interest on the Global Senior Notes may be made, provided that
such Senior Notes continue to be (i) in bearer form and (ii) listed on a
"recognized stock exchange" within the meaning of Section 841 Income and
Corporation Taxes Act 1988 (the Luxembourg Stock Exchange is a "recognized
stock exchange" for these purposes), without withholding or deduction for or
on account of UK income tax where:
(1) the payment of interest is made by or through an overseas paying
agent, or
(2) the payment is made by or through a person who is in the UK but:
(i) the person who is the beneficial owner of the Senior Notes and is
beneficially entitled to the interest is not resident in the UK; or
(ii) the Senior Notes are held in a "recognized clearing system" as
defined in section 841A Income and Corporation Taxes Act 1988
(Euroclear, DTC and Cedel Bank have each been designated as a
"recognized clearing system" for this purpose)
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and, in either case, a declaration to that effect in the required form has
been given to the person by or through whom the payment is made (or the Inland
Revenue has issued a notice to that effect to the person by whom or through
whom the payment is made) provided that the Inland Revenue has not issued a
direction that it considers that neither of the conditions in clause (i) or
(ii) are satisfied.
In all other cases, interest will be paid under deduction of income tax at
the lower rate (currently 20 percent) subject to any direction to the contrary
from the Inland Revenue in respect of such relief as may be available pursuant
to the provisions of an applicable double taxation treaty.
Where a person in the UK acts as a collecting agent, i.e., either:
(i) acts as custodian of the Senior Notes and receives interest on the
Senior Notes, or directs that interest on the Senior Notes be paid to
another person, or consents to such payment; or
(ii) collects or secures payment of or arranges to collect or secure
payment of, or receives interest on, the Senior Notes for a Noteholder
(except by means of clearing a cheque or arranging for the clearing of a
cheque);
the collecting agent will be required to withhold on account of UK income tax
at the lower rate unless:
(a) the person who is the beneficial owner of the Senior Notes and
beneficially entitled to the interest is not resident in the UK and a
declaration to that effect in the required form has been given to the
collecting agent, or the Inland Revenue has issued a notice to the
collecting agent; or
(b) the relevant Senior Notes are held in a "recognizing clearing system"
and the collecting agent pays or accounts for the interest directly or
indirectly to the clearing system or to a depositary for the clearing
system and (in the latter case) a declaration to that effect in the
required form has been given by the depositary; or
(c) one of certain other exceptions to the obligation to withhold
applies;
and, in each case, conditions imposed by regulations may need to be satisfied
for the exception to the withholding obligation to be available.
In all other cases, and in particular where the Senior Notes are represented
by Definitive Registered Senior Notes, interest will be paid under deduction
of UK income tax at the lower rate (currently 20 percent) subject to any
direction to the contrary from the Inland Revenue in respect of such relief as
may be available pursuant to the provisions of any applicable double taxation
treaty.
Where interest has been paid under deduction of UK income tax, Noteholders
who are not resident in the UK may be able to recover all or part of the tax
deducted if there is an appropriate provision in an applicable double taxation
treaty. A US holder will normally be eligible to recover in full any UK tax
withheld from payments of interest to which such US holder is beneficially
entitled by making a claim under the Tax Treaty on the appropriate form.
Alternatively such a claim may be made by such a holder in advance of a
payment of interest. If the claim is accepted by the Inland Revenue, it may
authorize subsequent payments to that US holder to be made without deduction
of UK withholding tax. Claims for repayment must be made within six years of
the end of the UK year of assessment to which the interest relates and must be
accompanied by the original statement provided by Yorkshire Finance when the
interest payment was made showing the amount of UK income tax deducted.
The provisions relating to Additional Amounts would not apply if the Inland
Revenue sought to assess directly the person entitled to the relevant interest
to UK tax.
Interest on the Senior Notes has a UK source and accordingly may be
chargeable to UK tax by direct assessment. Where the interest is paid without
withholding or deduction, the interest will not generally be assessed to UK
tax in the hands of holders of the Senior Notes who are not resident in the UK
for tax purposes,
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<PAGE>
except where such persons carry on a trade, profession or vocation in the UK
through a UK branch or agency in connection with which the interest is
received or to which the Senior Notes are attributable, in which case (subject
to exemptions for interest received by certain categories of agent) tax may be
levied on the UK branch or agency.
Disposal (Including Redemption) of the Senior Notes
Qualifying Companies
Qualifying Companies will be subject to corporation tax on income on all
profits and gains arising from Senior Notes broadly in accordance with their
statutory accounting treatment. Such holders will generally be charged in each
accounting period by reference to interest and any profit or loss which in
accordance with the holder's authorized accounting method, is applicable to
that period. Qualifying Companies will also be required to bring in profits
and losses on the Senior Notes arising from currency fluctuations in
accordance with the exchange gains and losses provisions in the Finance Act
1993 which should generally mirror this accounting treatment.
Relevant Noteholders
The Senior Notes will not be "qualifying corporate bonds" for the purposes
of the UK taxation of capital gains. Accordingly, a disposal of a Senior Note
by a Relevant Noteholder resident or ordinarily resident for tax purposes in
the UK or who carries on a trade, profession or vocation in the UK through a
branch or agency to which the Senior Note is attributable may give rise to
chargeable gain or allowable loss for the purposes of taxation of capital
gains.
A transfer of a Senior Note by a Relevant Noteholder resident or ordinarily
resident for tax purposes in the UK or who carries on a trade in the UK
through a branch or agency to which the Senior Note is attributable may give
rise to a charge to tax on income in respect of an amount representing
interest on the Senior Note which has accrued since the preceding interest
payment date.
Exchange of Original Senior Notes
The exchange of Original Senior Notes for Exchange Senior Notes described
under "The Exchange Offer" may constitute a disposal of Original Senior Notes
for Qualifying Companies and Relevant Noteholders who are within the charge to
UK capital gains tax.
With respect to Qualifying Companies, because exchange gains and losses are
broadly taxed in accordance with their statutory accounting treatment, the
exchange of Original Senior Notes for Exchange Senior Notes should not give
rise to any greater or earlier charge to tax than if no exchange were to take
place. With respect to Relevant Noteholders, any such disposal is in any case
unlikely to give rise to an immediate charge to capital gains tax on the basis
that the exchange of Original Senior Notes for Exchange Senior Notes should
constitute a "conversion of securities" within the meaning of Section 132 of
Taxation of Chargeable Gains Act 1992. The point is, however, not entirely
clear, and Relevant Noteholders should seek their own advice as to the UK tax
consequences of the exchange of Original Senior Notes for Exchange Senior
Notes.
General
It should be noted that to calculate any profit arising on a disposal of a
Senior Note, for the purposes of the taxation of capital gains, sterling
values and dollar amounts are compared at acquisition and disposal.
Accordingly, a taxable profit may arise on disposal by Relevant Noteholders
even where the amount obtained is less than, or equal to, the amount in
dollars paid to acquire the Senior Note.
Stamp Duty
No UK stamp duty or stamp duty reserve tax will be payable on the issue or
transfer by delivery or redemption of the Senior Notes.
Section 105 of the UK Finance Act 1997 imposes a charge to stamp duty
reserve tax on an agreement to transfer certain bearer securities made in
specified circumstances at the rate of 0.5 percent of the amount or value
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<PAGE>
of the consideration. Section 103 should not apply to an agreement to transfer
the Senior Notes because, inter alia, Yorkshire Finance is not incorporated in
the United Kingdom, provided that no register of the Senior Notes is kept in
the UK.
US FEDERAL INCOME TAX CONSIDERATIONS
The following summary describes the material US federal income tax
consequences of the acquisition, ownership and disposition of the Senior Notes
by purchasers who are US citizens or residents, corporations, partnerships or
other entities created or organized in or under the laws of the US or any
state thereof, an estate, the income of which is subject to US federal income
taxation regardless of its source or a trust, the administration of which is
subject to the primary supervision of a US court and for which one or more US
persons have the authority to control all substantial decisions, in each case
that are resident in the US and not resident in the UK for purposes of the Tax
Treaty ("US Holders") and that hold their beneficial interests in the Senior
Notes as capital assets. This discussion represents the opinion of Dewey
Ballantine LLP, counsel to Yorkshire Finance, so far as it relates to matters
of law or legal conclusions and is based upon the provisions of the US
Internal Revenue Code of 1986, as amended (the "Code"), US Treasury
regulations promulgated thereunder, rulings and judicial decisions now in
effect, all of which are subject to change, possibly with retroactive effect.
The summary does not discuss all aspects of US federal income taxation that
may be relevant to particular investors in light of their particular
investment circumstances, nor does it discuss any aspects of state, local or
foreign tax laws or any estate or gift tax considerations. The summary does
not deal with persons other than US Holders or with certain classes of US
persons subject to special treatment under the US federal income tax laws (for
example, dealers in securities, banks, life insurance companies or tax exempt
organizations). In addition, because the tax consequences may differ depending
on individual circumstances, each prospective purchaser of the Senior Notes is
strongly urged to consult his own tax advisor with respect to his particular
tax situation.
Payments of Interest
Except as set forth below, interest on the Senior Notes generally will be
taxable to a US Holder as ordinary income from foreign sources at the time it
is received or accrued in accordance with the US Holder's method of accounting
for US federal income tax purposes. In addition, if any Additional Amounts are
paid, such payment, as well as the amount of Gross-Up Taxes in respect of
which such payment is made, will be taxable as ordinary income in accordance
with such US Holder's method of accounting. Thus, in the event Additional
Amounts are paid, a US Holder will be required to report income in an amount
greater than the cash it receives in respect of payments on its Senior Notes.
However, a US Holder, subject to certain limitations, may be eligible to
claim, as a credit or deduction for purposes of computing its US federal
income tax liability, UK taxes withheld. For that purpose, interest income and
Additional Amounts will generally be treated as foreign source income and, in
general, "passive income" or, if the income were subject to a foreign
withholding tax of 5 percent or more, "high withholding tax interest" (or, in
the case of certain US Holders, "financial services income"). The rules
relating to foreign tax credits are extremely complex, and US Holders should
consult with their own tax advisors with regard to the availability of a
foreign tax credit and the application of the foreign tax credit rules to
their particular situation. In the case of a US Holder other than a
corporation, the interest income, in general, also will constitute "investment
income" for purposes of determining the deduction allowable for investment
interest expense. Yorkshire Finance is obligated to pay liquidated damages in
the form of additional interest on the Senior Notes in certain circumstances
described under "Description of Original Securities". Yorkshire Finance
believes that any such payment should be treated as subject to an "incidental
contingency" for purposes of the original issue discount rules because the
amount of such payment, if required to be made, is expected to be
insignificant relative to the total expected amount of the remaining payments
on the Senior Notes. Accordingly, Yorkshire Finance believes that the Senior
Notes will not be issued with original issue discount and any such amounts
should be taxable to holders as payments of interest.
Payments under the Guarantee
Under US federal income tax law, any payment made by Yorkshire Group under
the Guarantee will generally be treated as a payment by Yorkshire Finance.
Consequently, the descriptions herein of US federal
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<PAGE>
income tax consequences for payments to US Holders in respect of the Senior
Notes will apply to equivalent payments in respect of the Guarantee.
Sale or Other Taxable Disposition of the Senior Notes
A US Holder's tax basis in the Senior Notes, in general, will be the US
Holder's cost therefor. A US Holder will recognize gain or loss on the sale,
exchange, redemption or other taxable disposition of the Senior Notes, equal
to the difference (if any) between the amount realized upon the sale,
exchange, redemption or other taxable disposition (converted into US dollars
if any foreign currency is received) and the US Holder's adjusted tax basis in
the Senior Notes. Such gain or loss will be capital gain or loss and will be
long term capital gain or loss if, at the time of sale, exchange, redemption
or other taxable disposition, the Senior Notes have been held for more than
one year. Under recently enacted legislation, the maximum net capital gain tax
rate for individual taxpayers has been lowered from 28% to 20% for a capital
asset held more than 18 months, and remains at 28% for a capital asset held
for more than one year but not more than 18 months. The maximum net capital
gain tax rate for corporate taxpayers remains at 35%. The deductibility of
capital losses is subject to limitations. Any gain recognized upon a sale,
exchange, redemption or other taxable disposition of a Senior Note by a US
Holder generally will be treated as US source income. If the US dollar is not
the functional currency of the US Holder, such holder may recognize ordinary
gain or loss due to currency exchange fluctuation.
Exchange of Original Senior Notes
The exchange of Original Senior Notes for Exchange Senior Notes described
under "The Exchange Offer" should not be a taxable event to US Holders for US
federal income tax purposes. The exchange of Original Senior Notes for
Exchange Senior Notes pursuant to the Exchange Offer should not be treated as
an "exchange" for US federal income tax purposes because the Exchange Senior
Notes should not be considered to differ materially in kind or extent from the
Original Senior Notes and because the exchange will occur by operation of the
terms of the Senior Notes. If, however, the exchange of Original Senior Notes
for Exchange Senior Notes were treated as an exchange for US federal income
tax purposes, such exchange should constitute a tax free recapitalization for
US federal income tax purposes. Accordingly, no gain or loss should be
recognized by a US Holder upon receipt of an Exchange Senior Note, the
Exchange Senior Notes should have the same issue price as the Original Senior
Notes and a US Holder should have the same adjusted tax basis and holding
period in the Exchange Senior Notes as the US Holder had in the Original
Senior Notes immediately before such exchange.
Backup Withholding and Information Reporting
Under the Code, a US Holder may be subject to certain information reporting
requirements and, under certain circumstances, to US backup withholding at a
31% rate with respect to payments by Yorkshire Finance or any of its paying
agents of principal of, interest on or the gross proceeds of dispositions of,
the Senior Notes. Backup withholding applies only if the US Holder fails to
furnish a correct social security or other taxpayer identification number to
Yorkshire Finance, fails to report interest income in full or fails to certify
to Yorkshire Finance that such US Holder has provided a correct taxpayer
identification number and that such US Holder is not subject to withholding.
In addition, certain penalties may be imposed by the US Internal Revenue
Service (the "IRS") on a US Holder who is required to supply information but
fails to do so, or does so in an improper manner.
The backup withholding tax is not an additional tax and may be credited
against a US Holder's regular US federal income tax liability or refunded by
the IRS where applicable.
The payment of proceeds from the disposition of Senior Notes to or through
the United States office of a broker will be subject to information reporting
and backup withholding unless the owner establishes an exemption. Special
rules may apply with respect to the payment of the proceeds from the
disposition of Senior Notes to or through foreign offices of certain brokers.
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<PAGE>
Recently adopted United States Treasury regulations, which generally are
effective for payments made after December 31, 1998, subject to certain
transition rules, modify in certain respects the backup withholding and
information reporting rules. In general, the new regulations do not
significantly alter the substantive requirements of these rules, but unify
current procedures and forms and clarify reliance standards. Prospective
investors are urged to consult their own tax advisors regarding the new
regulations.
CAYMAN ISLANDS TAXATION
Yorkshire Finance has been advised that, under existing Cayman Islands laws:
(i) payments in respect of the Senior Notes will not be subject to
taxation in the Cayman Islands and no withholding will be required on such
payments to any holder of Senior Notes and gains derived from the sale of
Senior Notes will not be subject to Cayman Islands income or corporation
tax. The Cayman Islands currently has no income tax or taxation in the
nature of a withholding tax, corporate or capital tax and no estate duty,
inheritance tax or gift tax; and
(ii) the holder of any Senior Note in bearer form (or the legal personal
representative of such holder) whose Note is brought into the Cayman
Islands in original form may be liable to pay stamp duty imposed under the
laws of the Cayman Islands in respect of such Senior Note (currently CI
$250 (US $305) per Senior Note, unless duty of CI $500 is paid in respect
of the series of such Senior Notes). Definitive Registered Senior Notes and
any Global Senior Notes representing the Senior Notes which are evidence of
entitlement only and title to which passes by entry in the relevant
register, will not be subject to Cayman Islands stamp duty. Any instrument
transferring title to any Definitive Registered Senior Note may be subject
to Cayman Islands stamp duty of CI $100 if brought to or executed in the
Cayman Islands.
Yorkshire Finance has been incorporated under the laws of the Cayman Islands
as an exempted company, and, as such, has obtained an undertaking dated
September 9, 1997 from the Governor-in-Council of the Cayman Islands that, for
a period of twenty years from the date of the undertaking, no law enacted in
the Cayman Islands imposing any tax to be levied on profits, income, gains or
appreciations shall apply to Yorkshire Finance or its operations and, in
addition, that no tax to be levied on profits, income, gains or appreciations
or which is in the nature of estate duty or inheritance tax shall be payable
by Yorkshire Finance on or in respect of the shares, debentures or other
obligations of Yorkshire Finance or by way of the withholding in whole or in
part of any relevant payment (as defined in Section 6(3) of the Tax
Concessions Law (1995 Revisions)).
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PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Senior Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Senior Notes. This
Prospectus, as it may be amended or supplemented from time to time, may be
used by a broker-dealer during the period referred to below in connection with
resales of Exchange Senior Notes received in exchange of Original Senior Notes
where such Original Senior Notes were acquired by such broker-dealer for its
own account as a result of market-making activities or other trading
activities. Yorkshire Group and Yorkshire Finance have agreed that, for a
period not exceeding 180 days after the Expiration Date, they will make this
Prospectus, as amended or supplemented, available to any broker-dealer for use
in connection with any such resale. In addition, until November , 1998, all
dealers effecting transaction in the Exchange Senior Notes may be required to
deliver a prospectus.
Yorkshire Group and Yorkshire Finance will not receive any proceeds from any
sale of Exchange Senior Notes offered hereby. Exchange Senior Notes received
by broker-dealers for their own accounts pursuant to the Exchange offer may be
sold from time to time in one or more transactions, in the over-the-counter
market, in negotiated transactions, through the writing of options on the
Exchange Senior Notes or a combination of such methods of resale, at market
prices prevailing at the time of resale, at prices related to such prevailing
market prices or at negotiated prices. Any such resale may be made directly to
purchasers or to or through brokers or dealers who may receive compensation in
the form of commissions or concessions from any such broker-dealer and/or the
purchasers of any such Exchange Senior Notes. Any broker-dealer that resells
Exchange Senior Notes that were received by it for its own account pursuant to
the Exchange Offer and any broker or dealer that participates in a
distribution of such Exchange Senior Notes may be deemed to be an
"underwriter" within the meaning of the Securities Act and any profit on any
such resale of Exchange Senior Notes and any commissions or concessions
received by any such persons may be deemed to be underwriting compensation
under the Securities Act. The Letter of Transmittal states that by
acknowledging that it will deliver and by delivering a prospectus, a broker-
dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act.
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ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
imposes certain requirements and restrictions on those pension and other
employee benefits plans to which it applies and on those persons who are
fiduciaries with respect to such plans. In accordance with ERISA's fiduciary
standards, before purchasing the Senior Notes, a fiduciary should determine
whether such an investment is permitted under the documents and instruments
governing the plan and is appropriate for the plan in view of its overall
investment policy and the composition of its portfolio. Section 406 of ERISA
and Section 4975 of the Code prohibit certain transactions involving the
assets of certain plans subject thereto and persons who are "parties in
interest," within the meaning of ERISA, or "disqualified persons," within the
meaning of the Code. Due to the complexity of these rules and the penalties
imposed upon persons involved in prohibited transactions, it is particularly
important that a fiduciary investing assets of an ERISA plan consult with
counsel regarding the consequences under ERISA of the acquisition and holding
of Senior Notes, including the availability of any administrative exemptions
from the prohibited transaction rules.
LEGAL OPINIONS
Certain matters relating to New York law and US Federal law, including US
Federal income tax considerations, will be passed upon for Yorkshire Group and
Yorkshire Finance by Dewey Ballantine LLP, New York, New York. Certain matters
relating to English law will be passed upon for Yorkshire Group and Yorkshire
Finance by Allen & Overy, London, England. Certain matters with respect to the
laws of the Cayman Islands will be passed upon for Yorkshire Finance by Maples
and Calder, Grand Cayman, Cayman Islands. Dewey Ballantine LLP may rely,
without independent investigation, upon Allen & Overy with respect to matters
relating to English law and upon Maples and Calder with respect to matters
relating to Cayman Islands law.
EXPERTS
The consolidated balance sheets of Yorkshire Electricity Group plc as of
March 31, 1997 and 1996, the consolidated statements of income, changes in
stockholders' equity and cash flows for each of the three years in the period
ended March 31, 1997 and the consolidated balance sheet of Yorkshire Power
Group Limited and its subsidiaries as of April 1, 1997 and the related
financial statement schedule included in the Prospectus have been audited by
Deloitte & Touche, independent chartered accountants, as stated in their
reports, which have been included in reliance upon the reports of such firm
given upon their authority as experts in accounting and auditing. The
consolidated balance sheet of Yorkshire Power Group Limited and its
subsidiaries as of March 31, 1998, and the related consolidated statements of
income, changes in shareholders' equity and cash flows for the year ended
March 31, 1998 and the related financial statement schedule included in this
Prospectus have been audited by Deloitte & Touche LLP, independent auditors,
as stated in their reports, which have been included in reliance upon the
reports of such firm given upon their authority as experts in accounting and
auditing.
LUXEMBOURG STOCK EXCHANGE AND OTHER INFORMATION
LISTING
A notice relating to the issue (Notice Legale) as well as the Memorandum and
Articles of Association of Yorkshire Finance and the Articles of Association
of Yorkshire Group will be lodged with the Chief Registrar of the District
Court of Luxembourg (Greffier en chef du Tribunal d'Arrondissement de et a
Luxembourg) where such documents may be examined and copies obtained.
EUROCLEAR AND CEDEL
The Senior Notes have been accepted for clearance through Cedel Bank and
Euroclear. The Common Code number for the 2003 Senior Notes is . The
Common Code number for the 2008 Senior Notes is . With respect to the
2003 Senior Notes, the ISIN is . With respect to the 2008 Senior Notes,
the ISIN is .
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AUTHORIZATION
The issue of the Senior Notes was authorized by a resolution of the Board of
Directors of Yorkshire Finance passed on February 11, 1998. The giving of the
Guarantee was authorized by a resolution of the Board of Directors of
Yorkshire Group passed on December 2, 1997.
SIGNIFICANT OR MATERIAL CHANGE
Except as disclosed herein, there has been no significant change in the
financial or trading position of (1) Yorkshire Finance since its
incorporation, (2) Yorkshire Group since March 31, 1998 and (3) Yorkshire and
its consolidated subsidiaries (the "Yorkshire Electricity Group") since March
31, 1997 (being the date of the last published consolidated accounts of the
Yorkshire Electricity Group) and, since such dates, except as disclosed herein
there has been no material adverse change in the financial position or
prospects of Yorkshire Finance, Yorkshire Group or the Yorkshire Electricity
Group.
LITIGATION
Except as disclosed herein, neither Yorkshire Finance nor Yorkshire Group is
involved in any litigation or arbitration proceedings which are material in
the context of the issue of the Exchange Senior Notes nor, so far as Yorkshire
Finance or Yorkshire Group is aware, is any such litigation or arbitration
pending or threatened.
AUDITORS
Yorkshire Finance has not published any financial statements since its date
of incorporation.
Yorkshire Group produced audited financial statements on March 31, 1998.
The financial information in respect of Yorkshire and its subsidiaries for
each of the four years ended March 31, 1998 contained in this document do not
constitute statutory accounts within the meaning of Section 240 of the
Companies Act 1985 (the "Companies Act"). Statutory accounts for each of the
five years in the five year period ended March 31, 1998 have been delivered to
the Registrar of Companies in England and Wales upon which Deloitte & Touche
(with respect to each of the four years ended March 31, 1997) and Deloitte &
Touche LLP (with respect to the year ended March 31, 1998) gave an unqualified
report, without any statement under Section 237(2) or (3) of the Companies
Act.
DOCUMENTS AVAILABLE
Copies of the following documents may be inspected at (and, in the case of
the financial statements referred to in clause (iii) below, obtained from) the
offices of the Paying Agent in Luxembourg during usual business hours on any
weekday (Saturdays and public holidays excepted) so long as any of the Senior
Notes remain outstanding:
(i) the Memorandum and Articles of Association of Yorkshire Finance;
(ii) the Memorandum and Articles of Association of Yorkshire Group;
(iii) the latest consolidated financial statements of Yorkshire Group are
available and certain interim financial statements of the Yorkshire
Group are available and are expected to be available on a quarterly
basis; financial statements of Yorkshire Finance are not prepared;
and
(iv) each of the Indenture and the First and Second Supplemental
Indenture (which contain the forms of the Senior Notes), the Deposit
Agreement, the Registration Rights Agreement and the Letter of
Representations.
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INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
YORKSHIRE ELECTRICITY GROUP PLC AND SUBSIDIARIES
Independent Auditors' Report............................................. F-2
Consolidated Statements of Income........................................ F-3
Consolidated Balance Sheets.............................................. F-4
Consolidated Statements of Changes in Shareholders' Equity............... F-6
Consolidated Statements of Cash Flows.................................... F-7
Notes to the Consolidated Financial Statements........................... F-8
YORKSHIRE POWER GROUP LIMITED AND SUBSIDIARIES
Independent Auditors' Report............................................. F-20
Consolidated Balance Sheet............................................... F-21
Notes to the Consolidated Balance Sheet.................................. F-23
YORKSHIRE POWER GROUP LIMITED AND SUBSIDIARIES
Independent Auditors' Report............................................. F-32
Consolidated Statement of Income......................................... F-33
Consolidated Balance Sheets.............................................. F-34
Consolidated Statement of Changes in Shareholders' Equity................ F-36
Consolidated Statements of Cash Flows.................................... F-37
Notes to the Consolidated Financial Statements........................... F-38
</TABLE>
F-1
<PAGE>
YORKSHIRE ELECTRICITY GROUP PLC AND SUBSIDIARIES
INDEPENDENT AUDITORS' REPORT
To the Shareholder and Board of Directors
of Yorkshire Electricity Group plc
We have audited the accompanying consolidated balance sheets of Yorkshire
Electricity Group plc and its subsidiaries (the "Company") as of March 31,
1997 and 1996, and the related consolidated statements of income, changes in
shareholders' equity and cash flows for each of the three years in the period
ended March 31, 1997 (all expressed in pounds sterling). 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 States of America. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Yorkshire Electricity Group
plc and its subsidiaries as of March 31, 1997 and 1996, and the results of
their operations and their cash flows for each of the three years in the
period ended March 31, 1997 in conformity with generally accepted accounting
principles in the United States of America.
Deloitte & Touche
Leeds
United Kingdom
July 15, 1997
(December 31, 1997 as to Note 14)
F-2
<PAGE>
YORKSHIRE ELECTRICITY GROUP PLC AND SUBSIDIARIES
(PREDECESSOR COMPANY)
CONSOLIDATED STATEMENTS OF INCOME
(IN MILLIONS)
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
--------------------------
1997 1996 1995
-------- -------- --------
(Pounds) (Pounds) (Pounds)
<S> <C> <C> <C>
OPERATING REVENUES.................................. 1,331 1,431 1,464
COST OF SALES....................................... 932 1,013 1,025
GROSS MARGIN........................................ 399 418 439
OPERATING EXPENSES
Maintenance......................................... 76 77 64
Depreciation........................................ 50 42 41
Provision for uneconomic gas and electricity
contracts.......................................... 78 -- --
Selling, general and administrative................. 93 85 111
Systems development costs (Note 9).................. 50 -- --
Restructuring charges............................... -- -- 8
----- ----- -----
Income from operations.............................. 52 214 215
----- ----- -----
OTHER INCOME (EXPENSE)
National Grid transaction (Note 12):
Realized gain on sale of National Grid Group plc.. 1 215 --
Realized gain on sale of PSB Holdings Limited..... 6 56 --
Special dividend.................................. -- 118 --
Customer discounts awarded........................ -- (85) --
Administrative costs.............................. -- (4) --
Dividend income..................................... 2 21 18
Equity in loss of associates........................ (4) (6) (19)
Gain on sale of associate........................... 15 -- --
Loss on sale of subsidiary.......................... -- (2) --
Compensation payment-Stockholm Stadhus AB........... -- -- 17
----- ----- -----
Total other income, net............................. 20 313 16
----- ----- -----
Interest expense.................................... (55) (46) (23)
Interest income..................................... 22 26 11
----- ----- -----
Net interest expense................................ (33) (20) (12)
----- ----- -----
INCOME BEFORE INCOME TAXES.......................... 39 507 219
PROVISION FOR INCOME TAXES.......................... 13 114 78
----- ----- -----
NET INCOME.......................................... 26 393 141
===== ===== =====
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
YORKSHIRE ELECTRICITY GROUP PLC AND SUBSIDIARIES
(PREDECESSOR COMPANY)
CONSOLIDATED BALANCE SHEETS
(IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
MARCH 31,
-----------------
1997 1996
ASSETS -------- --------
(Pounds) (Pounds)
<S> <C> <C>
FIXED ASSETS
Property, plant and equipment, net of accumulated
depreciation of (Pounds)500 and (Pounds)458................. 765 735
Construction work in progress................................ 31 34
----- -----
Total fixed assets......................................... 796 769
----- -----
CURRENT ASSETS
Cash and cash equivalents.................................... 221 252
Investments.................................................. 29 37
Customer receivables, less provision for uncollectible
accounts of (Pounds)6 and (Pounds)7......................... 90 89
Unbilled revenue............................................. 84 99
Other receivables............................................ 21 26
Other........................................................ 19 14
----- -----
Total current assets....................................... 464 517
----- -----
OTHER ASSETS
Investments, long-term....................................... 109 103
Long-term receivables........................................ -- 15
Prepaid pension asset........................................ 6 4
----- -----
Total other assets......................................... 115 122
----- -----
Total assets............................................... 1,375 1,408
===== =====
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
YORKSHIRE ELECTRICITY GROUP PLC AND SUBSIDIARIES
(PREDECESSOR COMPANY)
CONSOLIDATED BALANCE SHEETS
(IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
MARCH 31,
-----------------
1997 1996
-------- --------
(Pounds) (Pounds)
<S> <C> <C>
SHAREHOLDERS' EQUITY AND LIABILITIES
SHAREHOLDERS' EQUITY
Share capital, 68 2/11 pence par value common shares,
220,000,000 shares, authorized, 159,131,326 in 1997 and
158,555,100 in 1996 issued and outstanding.................. 108 108
Additional paid-in capital................................... 92 89
Unrealized gain on available-for-sale investments............ 13 14
Retained earnings............................................ 146 188
----- -----
Total shareholders' equity................................. 359 399
----- -----
LONG-TERM DEBT............................................... 419 424
OTHER NON-CURRENT LIABILITIES
Deferred income taxes........................................ 136 158
Provision for uneconomic gas and electricity contracts....... 78 --
Other........................................................ 15 23
----- -----
Total other non-current liabilities........................ 229 181
----- -----
CURRENT LIABILITIES
Current portion of long-term debt............................ 5 5
Short-term debt.............................................. 82 85
Accounts payable............................................. 15 17
Electricity purchases payable................................ 64 75
Payments received in advance................................. 14 55
Accrued liabilities and deferred income...................... 69 52
Income taxes payable......................................... 51 45
Other current liabilities.................................... 68 70
----- -----
Total current liabilities.................................. 368 404
----- -----
Total liabilities.......................................... 1,016 1,009
----- -----
COMMITMENTS AND CONTINGENCIES (NOTE 4)
Total shareholders' equity and liabilities................. 1,375 1,408
===== =====
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
YORKSHIRE ELECTRICITY GROUP PLC AND SUBSIDIARIES
(PREDECESSOR COMPANY)
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED MARCH 31, 1997, 1996 AND 1995
(IN MILLIONS, EXCEPT SHARES AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
UNREALIZED
GAIN ON
SHARE CAPITAL ADDITIONAL AVAILABLE
--------------------- PAID-IN RETAINED FOR SALE
SHARES AMOUNT CAPITAL EARNINGS INVESTMENTS TOTAL
----------- -------- ---------- -------- ----------- --------
(Pounds) (Pounds) (Pounds) (Pounds) (Pounds)
<S> <C> <C> <C> <C> <C> <C>
Balance, April 1, 1994.. 207,865,920 104 74 434 -- 612
Common shares issued.... 1,141,446 -- 3 -- -- 3
Reduction in shares from
reverse shares
split(1)............... (25,109,191) -- -- -- -- --
Net income.............. -- -- -- 141 -- 141
Dividends declared...... -- -- -- (239) -- (239)
----------- --- --- ---- ---- ----
Balance, March 31, 1995. 183,898,175 104 77 336 -- 517
Common shares issued.... 5,537,644 4 12 -- -- 16
Reduction in shares from
reverse shares
split(2)............... (30,880,719) -- -- -- -- --
Revaluation of NGG
shares to fair market
value.................. -- -- -- -- 233 233
Realization of gain on
distribution of NGG
shares................. -- -- -- -- (215) (215)
Deferred tax on
revaluation of NGG
shares................. -- -- -- -- (4) (4)
Revaluation of PSB
shares to fair market
value.................. -- -- -- -- 56 56
Realization of gain on
sale of PSB............ -- -- -- -- (56) (56)
Net income.............. -- -- -- 393 -- 393
NGG special dividend.... -- -- -- (298) -- (298)
Dividends declared...... -- -- -- (243) -- (243)
----------- --- --- ---- ---- ----
Balance, March 31, 1996. 158,555,100 108 89 188 14 399
Common shares issued.... 576,226 -- 3 -- -- 3
Gain on sale of NGG
shares................. -- -- -- -- (1) (1)
Revaluation of PSB
shares to fair market
value.................. -- -- -- -- 6 6
Realization of gain on
sale of PSB............ -- -- -- -- (6) (6)
Net income.............. -- -- -- 26 -- 26
Dividends declared...... -- -- -- (68) -- (68)
----------- --- --- ---- ---- ----
Balance, March 31, 1997. 159,131,326 108 92 146 13 359
=========== === === ==== ==== ====
</TABLE>
(1) In January 1995 the share capital was consolidated on the basis of 22 new
56 9/11 pence ordinary shares for every 25 existing 50 pence ordinary
shares.
(2) In January 1996 the share capital was consolidated on the basis of 5 new 68
2/11 pence ordinary shares for every 6 existing 56 9/11 pence shares.
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
YORKSHIRE ELECTRICITY GROUP PLC AND SUBSIDIARIES
(PREDECESSOR COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MARCH 31, 1997, 1996 AND 1995
(IN MILLIONS)
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
--------------------------
1997 1996 1995
-------- -------- --------
(Pounds) (Pounds) (Pounds)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income......................................... 26 393 141
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation....................................... 50 42 41
Write off of capitalized system costs.............. 22 -- --
Deferred income taxes.............................. (24) 23 23
Gain on disposal of investments.................... (7) (271) --
Equity in loss of associates....................... 4 6 19
Gain on sale of associate.......................... (15) -- --
Changes in assets and liabilities:
Receivables........................................ 14 21 (44)
Provision for uneconomic gas and electricity
contracts......................................... 78 -- --
Electricity purchases.............................. (11) 15 6
Payments received in advance....................... (41) 25 (26)
Other.............................................. -- (32) 41
---- ---- ----
Net cash provided by operating activities.......... 96 222 201
---- ---- ----
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures............................... (103) (101) (89)
Proceeds from sale of fixed assets................. 29 33 3
Proceeds from sale of subsidiary................... -- 33 --
Purchases of associates............................ -- -- (11)
Proceeds from sale of associate.................... 26 -- --
Loans (advanced to) repaid by associate............ (3) 2 (24)
Purchases of long-term investments................. (18) (25) (30)
Proceeds from sale of PSB.......................... 10 53 --
Sales (purchases) of short-term investments........ 8 (3) 50
---- ---- ----
Net cash used in investing activities.............. (51) (8) (101)
---- ---- ----
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt........... -- 163 196
Proceeds from issuance of common stock............. 3 11 3
Repayments of long-term debt....................... (5) (47) (17)
Net change in short-term debt...................... (3) 2 (10)
Dividends paid..................................... (71) (243) (239)
---- ---- ----
Net cash used in financing activities.............. (76) (114) (67)
---- ---- ----
(Decrease) increase in cash and cash equivalents... (31) 100 33
Beginning of period cash and cash equivalents...... 252 152 119
---- ---- ----
End of period cash and cash equivalents............ 221 252 152
==== ==== ====
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest............................. 42 46 19
==== ==== ====
Cash paid for income taxes......................... 30 98 23
==== ==== ====
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE>
YORKSHIRE ELECTRICITY GROUP PLC AND SUBSIDIARIES
(PREDECESSOR COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
GENERAL
Yorkshire Electricity Group plc ("YEG" or the "Company") is one of the
twelve regional electricity companies ("RECs") in England and Wales licensed
to supply, distribute, and to a limited extent, generate electricity. The RECs
were created as a result of the privatization of the UK electricity industry
in 1990 after the state owned low voltage distribution networks were allocated
to the then existing twelve regional boards. The Company's main business, the
distribution and supply of electricity to customers in its franchise area (the
"Franchise Area") in the North of England, is regulated under the terms of a
Public Electricity Supply License ("PES License") by the Office of Electricity
Regulation ("OFFER").
The Company operates primarily in its Franchise Area in Northern England.
The Franchise Area covers approximately 10,000 square kilometers, encompassing
parts of the counties of West Yorkshire, Humberside, South Yorkshire,
Derbyshire, Nottinghamshire, Lincolnshire and Lancashire. The Franchise Area
has a resident population of approximately 4.4 million.
The Company purchases power primarily from the wholesale trading market for
electricity in England and Wales (the "Pool"). The Pool monitors supply and
demand between generators and suppliers, sets prices for generation and
provides for centralized settlement of accounts due between generators and
suppliers.
BASIS OF PRESENTATION
The consolidated financial statements of the Company are presented in pounds
sterling ((Pounds)) and in conformity with accounting principles generally
accepted in the United States of America. The Company is not subject to rate
regulation but rather, is subject to price cap regulation and, therefore, the
provisions of Statement of Financial Accounting Standards No. 71, "Accounting
for the Effects of Certain Types of Regulation" do not apply.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its wholly-owned and majority-owned subsidiaries and have been prepared
from records maintained by the Company in the UK. Significant intercompany
items are eliminated in consolidation.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
UNBILLED REVENUE
The Company records revenue net of value added tax ("VAT") and accrues
revenues for service provided but unbilled at the end of each reporting
period.
RECOVERY OF REGULATED INCOME
Charges for distribution of electricity and for supply to customers with a
maximum demand under 100 kW are subject to a price control formula set out in
the Company's PES License which allows a maximum charge per unit of
electricity. Differences in the charges, or in the purchase cost of
electricity, can result in the under or overrecovery of revenues in a
particular period.
F-8
<PAGE>
YORKSHIRE ELECTRICITY GROUP PLC AND SUBSIDIARIES
(PREDECESSOR COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Where there is an overrecovery of supply or distribution business revenues
against the regulated maximum allowable amount, revenues are deferred in an
amount equivalent to the overrecorded amount. The deferred amount is deducted
from operating revenues and included in other current liabilities.
FINANCIAL INSTRUMENTS
The Company enters into contracts for differences ("CFDs") primarily to
hedge its supply business against the price risk of electricity purchases from
the Pool. Use of these CFDs is carried out within the framework of the
Company's purchasing strategy and hedging guidelines. CFDs are accounted for
as hedges and consequently, gains and losses are deferred and recognized over
the same period as the item hedged. The Company recognizes gains (losses) on
CFD's when settlement is made, which is generally monthly. Gains (losses) on
CFD's are recognized as a decrease (increase) to cost of sales based upon the
difference between fixed prices in the CFD compared to variable prices paid to
the Pool for the period. Gains (losses) based upon the difference between
fixed prices in the CFD compared to variable prices paid to the Pool for
future electricity purchases are not recognized until the period of such
settlements.
The Company enters into interest rate swaps as a part of its overall risk
management strategy and does not hold or issue material amounts of derivative
financial instruments for trading purposes. The Company accounts for its
interest rate swaps in accordance with Statement of Financial Accounting
Standards No. 80, "Accounting for Futures Contracts" and various Emerging
Issues Task Force pronouncements. If the interest rate swaps were to be sold
or terminated, any gain or loss would be deferred and amortized over the
remaining life of the debt instrument being hedged by the interest rate swap.
If the debt instrument being hedged by the interest rate swap were to be
extinguished, any gain or loss attributable to the swap would be recognized in
the period of the transaction. The Company considers the carrying amounts of
financial instruments classified as current assets and current liabilities to
be a reasonable estimate of their fair value because of the short maturity of
these instruments.
CASH AND CASH EQUIVALENTS
The Company considers all short-term investments with an original maturity
of three months or less to be cash equivalents.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated at original cost, which includes
materials, labor and appropriate overhead costs, and the estimated cost of
borrowed funds used during construction. The cost of maintenance, repairs and
replacement of minor items of property is charged to maintenance expense.
The Company records book depreciation expense on a straight-line basis,
except for distribution network assets which are charged at 3% for 20 years
and 2% for the remaining 20 years. Assets are depreciated using the following
estimated useful lives:
<TABLE>
<CAPTION>
YEARS
--------
<S> <C>
Distribution network................................................ 40
Generation.......................................................... 20
Buildings........................................................... Up to 60
Fixtures and equipment.............................................. Up to 10
Vehicles and mobile plant........................................... Up to 10
</TABLE>
INVESTMENTS
The Company accounts for investments in debt and equity securities in
accordance with Statement of Financial Accounting Standards No. 115,
"Investments in Certain Debt and Equity Securities" ("SFAS 115").
F-9
<PAGE>
YORKSHIRE ELECTRICITY GROUP PLC AND SUBSIDIARIES
(PREDECESSOR COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company's investments are classified as available-for-sale under SFAS 115.
Securities whose fair market values are readily determinable are reported at
fair value. Securities whose fair market values are not readily determinable
are recorded at the lower of cost or net realizable value.
INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes". This
standard requires that deferred income taxes be recorded for temporary
differences between the financial statement basis and the tax basis of assets
and liabilities and loss carryforwards and that deferred tax balances be based
on enacted tax laws at rates that are expected to be in effect when the
temporary differences reverse.
2. RETIREMENT BENEFITS
PENSION PLANS
The Company operates two schemes, one based on defined contributions and a
second based on defined benefits.
DEFINED CONTRIBUTION
The defined contribution plan was established on December 1, 1991. From
April 1, 1995 new employees are only eligible to join this plan. The assets of
the defined contribution plan are held and administered by an independent
trustee. The cost recognized for this plan was less than (Pounds)1 million for
each of the three fiscal years ended March 31, 1997.
DEFINED BENEFITS
The Company participates in the Electricity Supply Pension Scheme, which
provides pension and other related defined benefits, based on final
pensionable pay, to substantially all employees throughout the electricity
supply industry in the UK.
The Company uses the projected unit credit actuarial method for accounting
purposes. Amounts funded to the pension are primarily invested in equity and
fixed income securities.
Statement of Financial Accounting Standards No. 87 "Employers' Accounting
For Pensions" ("SFAS 87") was effective for fiscal years beginning after
December 15, 1988. The provisions of SFAS No. 87 were initially adopted by the
Company on April 1, 1992. The amount of the unrecognized net transition
obligation on April 1, 1992 was (Pounds)51 million.
F-10
<PAGE>
YORKSHIRE ELECTRICITY GROUP PLC AND SUBSIDIARIES
(PREDECESSOR COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following table sets forth the plan's funded status and amounts
recognized in the Company's consolidated balance sheet (in millions):
<TABLE>
<CAPTION>
MARCH 31,
-----------------
1997 1996
-------- --------
(Pounds) (Pounds)
<S> <C> <C>
Accumulated benefit obligation:
Vested benefits.......................................... 590 570
Nonvested benefits....................................... 35 40
---- ----
625 610
---- ----
Fair value of plan assets.................................. 725 666
Projected benefit obligation............................... (664) (648)
---- ----
Assets in excess of projected benefit obligation........... 61 18
Unrecognized net transition obligation..................... 37 40
Unrecognized prior service cost............................ 10 10
Other unrecognized net gain................................ (102) (64)
---- ----
Prepaid pension asset...................................... 6 4
==== ====
</TABLE>
The weighted average rates assumed in the actuarial calculations as of the
following dates were:
<TABLE>
<CAPTION>
MARCH 31,
--------------------------
1997 1996 1995
-------- -------- --------
% % %
<S> <C> <C> <C>
Discount rate........... 8.0 8.5 7.5
Annual salary rate
increase............... 6.0 6.5 5.5
Long-term rate of return
on plan assets......... 9.0 9.0 9.0
The components of the plan's net periodic pension cost during the periods are
shown below (in millions):
<CAPTION>
MARCH 31,
--------------------------
1997 1996 1995
-------- -------- --------
(Pounds) (Pounds) (Pounds)
<S> <C> <C> <C>
Service cost (benefits
earned during the
period)................ 10 9 11
Interest cost on
projected benefit
obligation............. 52 49 45
Actual return on plan
assets................. (89) (113) 1
Net amortization and
deferral............... 33 65 (52)
--- ---- ---
Net periodic pension
cost................... 6 10 5
=== ==== ===
</TABLE>
3. REGULATORY MATTERS
The distribution business of the Company is regulated under its PES License,
pursuant to which revenue of the distribution business is controlled by the
Distribution Price Control Formula (the "DPCF"). The DPCF determines the
maximum average price per unit of electricity (expressed in kilowatt hours)
that the Company can charge. The DPCF is usually set for a five-year period,
subject to more frequent adjustments as determined necessary by the Director
General of Electricity Supply (the "Regulator"). At each review, the Regulator
can adjust the value of certain elements in the DPCF. The Company's allowed
distribution revenues were reduced by a 14% below inflation reduction and a
13% below inflation reduction on April 1, 1995 and 1996, respectively,
following a review by the Regulator. On April 1, 1997, the Company's allowed
distribution revenues were decreased by an additional 3% below inflation
reduction and there will be further annual 3% below inflation reductions on
April 1, 1998 and 1999.
F-11
<PAGE>
YORKSHIRE ELECTRICITY GROUP PLC AND SUBSIDIARIES
(PREDECESSOR COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company's supply business is also regulated by the Regulator, and prices
are established based upon the Supply Price Control Formula which is similar
to the DPCF; however, it currently allows full pass through for all properly
incurred costs.
The non-franchise supply market, which typically includes larger commercial
and industrial customers was opened to competition for all customers with
usage above 1MW upon privatization of the industry in 1990. The non-franchise
supply markets of 100 kW or more were opened to full competition in April
1994.
Currently, the Company, under its PES License, has the exclusive right to
supply residential and small commercial and industrial customers within its
Franchise Area. However, it is anticipated that the supply market will become
fully competitive over a several month period beginning September 1998.
4. COMMITMENTS AND CONTINGENCIES
ELECTRICITY AND GAS PURCHASE AGREEMENTS
The Company and its subsidiaries have entered into contracts for purchases
of electricity and gas for a period of up to 2009. A provision of (Pounds)78
million has been made for the net present value of expected future payments in
excess of anticipated recoverable amounts, reflecting management's current
expectations of market prices for electricity following the opening of the
competitive market for franchise supply customers and future gas prices. The
actual net costs are highly sensitive to movements in future prices. The
Company's provision includes amounts in respect of contracts with a non
wholly-owned subsidiary.
The Company has additional contracts with unaffiliated parties relating to
the purchase of gas which expire by October 2005, the terms of which are
immaterial with respect to quantity and price, both annually and in the
aggregate.
LEGAL PROCEEDINGS
The Company is a party to legal proceedings arising in the ordinary course
of business which are not material, either individually or in the aggregate,
nor is it currently aware of any threatened material legal proceedings.
OPERATING LEASES
The Company has commitments under operating leases with various terms and
expiration dates. At March 31, 1997 estimated minimum rental commitments for
noncancelable operating leases were (Pounds)2 million and (Pounds)1 million
for the fiscal years ending 1998 and 1999, respectively. Rental expenses
incurred for operating leases were (Pounds)4 million, (Pounds)5 million, and
(Pounds)8 million during fiscal years 1997, 1996 and 1995, respectively.
LABOR SUBJECT TO COLLECTIVE BARGAINING AGREEMENTS
The majority of the Company's employees are subject to one of three
collective bargaining agreements. Such agreements are ongoing in nature, and
the Company's employees' participation level is consistent with that of the
electric utility industry in the UK.
5. SEGMENT REPORTING
The Company is primarily engaged in two electric industry segments;
distribution, which involves the transmission of electricity across its
network to its customers, and supply, which involves bulk purchase of
electricity from the Pool for delivery to the distribution networks. Included
in "Other" are insignificant operating
F-12
<PAGE>
YORKSHIRE ELECTRICITY GROUP PLC AND SUBSIDIARIES
(PREDECESSOR COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
subsidiaries of the Company as well as various corporate activities, and non-
allocated corporate assets. Intersegment sales primarily represent sales from
distribution to supply for use of the distribution networks. A summary of
information about the Company's operations by segments follows (in millions):
<TABLE>
<CAPTION>
MARCH 31, 1997
--------------------------------------------------------
DISTRIBUTION SUPPLY OTHER ELIMINATIONS CONSOLIDATED
------------ -------- -------- ------------ ------------
(Pounds) (Pounds) (Pounds) (Pounds) (Pounds)
<S> <C> <C> <C> <C> <C>
Operating revenues...... 308 1,178 172 (327) 1,331
Operating income (loss). 127 (132) 10 47 52
Depreciation............ 30 1 19 -- 50
Total assets employed at
period end............. 643 178 554 -- 1,375
Capital expenditures.... 87 8 31 -- 126
<CAPTION>
MARCH 31, 1996
--------------------------------------------------------
DISTRIBUTION SUPPLY OTHER ELIMINATIONS CONSOLIDATED
------------ -------- -------- ------------ ------------
(Pounds) (Pounds) (Pounds) (Pounds) (Pounds)
<S> <C> <C> <C> <C> <C>
Operating revenues...... 334 1,309 163 (375) 1,431
Operating income........ 164 30 20 -- 214
Depreciation............ 28 1 13 -- 42
Total assets employed at
period end............. 589 212 607 -- 1,408
Capital expenditures.... 70 8 13 -- 91
<CAPTION>
MARCH 31, 1995
--------------------------------------------------------
DISTRIBUTION SUPPLY OTHER ELIMINATIONS CONSOLIDATED
------------ -------- -------- ------------ ------------
(Pounds) (Pounds) (Pounds) (Pounds) (Pounds)
<S> <C> <C> <C> <C> <C>
Operating revenues...... 362 1,343 162 (403) 1,464
Operating income........ 176 23 16 -- 215
Depreciation............ 25 1 15 -- 41
Total assets employed at
period end............. 556 198 613 -- 1,367
Capital expenditures.... 55 11 25 -- 91
</TABLE>
6. INCOME TAXES
The Company's income tax expense consists of the following (in millions):
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
--------------------------
1997 1996 1995
-------- -------- --------
(Pounds) (Pounds) (Pounds)
<S> <C> <C> <C>
Current........................................... 37 91 55
Deferred.......................................... (24) 23 23
--- --- ---
Total............................................. 13 114 78
=== === ===
</TABLE>
F-13
<PAGE>
YORKSHIRE ELECTRICITY GROUP PLC AND SUBSIDIARIES
(PREDECESSOR COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following is a reconciliation of the difference between the amount of
income taxes computed by multiplying book income before income taxes by the
statutory rate, and the amount of income taxes reported (in millions):
<TABLE>
<CAPTION>
YEAR ENDED
MARCH 31,
--------------------------
1997 1996 1995
-------- -------- --------
(Pounds) (Pounds) (Pounds)
<S> <C> <C> <C>
Pre-tax income....................................... 39 507 219
--- --- ---
Income taxes computed at statutory rate.............. 13 167 72
National Grid transactions:
Gain on sale of PSB excluded from taxable income... (2) (19) --
Effect of difference between statutory rate (33%)
and rate on dividends received (20%).............. -- (21) (3)
Permanent differences................................ 6 (11) 8
Other................................................ (4) (2) 1
--- --- ---
Total income tax expense............................. 13 114 78
=== === ===
</TABLE>
The tax effect of temporary differences between the carrying amounts of
assets and liabilities in the consolidated balance sheets and their respective
tax bases, which give rise to deferred tax assets and liabilities are as
follows (in millions):
<TABLE>
<CAPTION>
MARCH 31,
-----------------
1997 1996
-------- --------
(Pounds) (Pounds)
<S> <C> <C>
Deferred tax liabilities:
Property related temporary differences................... 172 164
Provision for uneconomic gas and electricity contracts... (26) --
Other.................................................... (6) --
--- ---
Net deferred tax liability................................. 140 164
Portion included in current liabilities.................... (4) (6)
--- ---
Long-term deferred tax liability........................... 136 158
=== ===
</TABLE>
The tax years since fiscal year 1993 are currently under review by the
Inland Revenue in the UK. In the opinion of management, the final settlement
of open years will not have a material effect on the financial position or
results of operations.
7. FINANCIAL INSTRUMENTS
The Company utilizes contracts for differences ("CFDs") to mitigate its
exposure to volatility in the prices of electricity purchased through the
Pool. Such contracts allow the Company to effectively convert the majority of
its anticipated Pool purchases from market prices to fixed prices. CFDs are in
place to hedge a portion of electricity purchases on approximately 30,662 GWh
through the year 2009. Accordingly, the gains and losses on such contracts are
deferred and recognized as electricity is purchased. Management's estimate of
the fair value of CFDs outstanding at March 31, 1997 is a net liability of
(Pounds)22 million. This estimate is based on management's projections of
future prices of electricity. The net liability will be recovered through
electricity costs passed through to franchise customers during the fiscal year
ended March 31, 1998.
F-14
<PAGE>
YORKSHIRE ELECTRICITY GROUP PLC AND SUBSIDIARIES
(PREDECESSOR COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company is exposed to losses in the event of non-performance by
counterparties to its CFDs. To manage this credit risk, the Company selects
counterparties based on their credit ratings, limits its exposure to any one
counterparty under defined guidelines, and monitors the market position of the
programs and its relative market position with each counterparty.
As part of its risk management policy, the Company enters into interest rate
swap agreements under which counterparties have agreed to pay amounts to the
Company equal to variable interest obligations in consideration of amounts
payable by the Company equivalent to fixed rates of interest. If the
counterparty to the interest rate swap was to default on contractual payments,
the Company could be exposed to increased costs related to replacing the
original agreement. At March 31, 1996, the Company was party to interest rate
swap agreements with a notional value of (Pounds)89 million which were at
fixed interest rates varying between 6.64% and 10.98%. During the fiscal year
ended March 31, 1997, the Company terminated these agreements at a cost of
(Pounds)7 million.
The estimated fair value of the Company's financial instruments are as
follows (in millions):
<TABLE>
<CAPTION>
MARCH 31, 1997 MARCH 31, 1996
----------------- -----------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- -------- -------- --------
(Pounds) (Pounds) (Pounds) (Pounds)
<S> <C> <C> <C> <C>
Long-term debt........................... 424 438 429 421
Interest rate swap agreements............ -- -- -- (9)
</TABLE>
The fair value of long-term debt is estimated based on quoted market prices
for the same or similar issues or the current rates offered to the Company for
debt of the same maturities. The fair values of interest rate swap agreements
are estimated by obtaining quotes from brokers.
8. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, at cost, consisted of the following (in
millions):
<TABLE>
<CAPTION>
MARCH 31,
-----------------
1997 1996
-------- --------
(Pounds) (Pounds)
<S> <C> <C>
Distribution network....................................... 1,163 1,073
Generation................................................. 132 128
Non-network land and buildings............................. 72 93
Other...................................................... 154 128
Consumer contributions..................................... (256) (229)
----- -----
1,265 1,193
Accumulated depreciation................................... (500) (458)
----- -----
Property, plant and equipment, net......................... 765 735
===== =====
</TABLE>
Arrangements have been put in place to entitle the British Government to a
proportion of any property gain (above certain thresholds) accruing as a
result of disposals, or events treated as disposals for clawback purposes,
occurring after March 31, 1990 in relation to land in which the Company had an
interest at that date (and, in certain circumstances, land in which the
Company acquires an interest thereafter from other members of the electricity
industry) and any buildings on that land. These arrangements will last until
March 31, 2000.
F-15
<PAGE>
YORKSHIRE ELECTRICITY GROUP PLC AND SUBSIDIARIES
(PREDECESSOR COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
A provision for clawback in respect of property disposals is made only to
the extent that it is probable that a liability will be incurred.
9. SYSTEMS DEVELOPMENT COSTS
During the fiscal year ended March 31, 1997, a (Pounds)50 million charge to
earnings was recorded for costs incurred related to information systems
development costs pertaining to the opening up of the competitive electricity
market in 1998. It is management's opinion that, at this stage in the
development of the future commercial and regulatory environment, it would not
be prudent to capitalize these costs.
10. LONG-TERM DEBT
Long-term debt consisted of the following (in millions):
<TABLE>
<CAPTION>
MARCH 31,
-----------------
1997 1996
-------- --------
(Pounds) (Pounds)
<S> <C> <C>
8.625% Eurobonds, due 2005................................. 149 149
9.25% Eurobonds, due 2020.................................. 197 197
European Investment Bank:
7.52% credit facility, due 1999-2002..................... 15 15
6.55% credit facility, due 1997-2000..................... 15 15
8.05% amortizing term loan, due 2009..................... 48 50
Unsecured loan stock, LIBOR minus .5%, due 2007............ -- 3
--- ---
Total...................................................... 424 429
Less current maturities.................................... (5) (5)
--- ---
Long-term debt, net of current maturities.................. 419 424
=== ===
</TABLE>
Long-term debt outstanding at March 31, 1997 is payable as follows (in
millions):
<TABLE>
<CAPTION>
(Pounds)
--------
<S> <C>
For the fiscal years ended March 31
1998.............................................................. 5
1999.............................................................. 6
2000.............................................................. 11
2001.............................................................. 12
2002.............................................................. 7
Thereafter........................................................ 383
---
Total........................................................... 424
===
</TABLE>
11. SHORT-TERM DEBT
Short-term debt consisted of the following (in millions):
<TABLE>
<CAPTION>
MARCH 31,
-----------------
1997 1996
-------- --------
(Pounds) (Pounds)
<S> <C> <C>
Commercial paper........................................... 81 77
Bank loans and overdrafts.................................. 1 8
--- ---
Total...................................................... 82 85
=== ===
Year-end weighted average interest rate.................... 6.2% 6.1%
</TABLE>
F-16
<PAGE>
YORKSHIRE ELECTRICITY GROUP PLC AND SUBSIDIARIES
(PREDECESSOR COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
At March 31, 1997 and 1996 unused committed bank facilities were available
to the Company in the amount of (Pounds)250 million. Commitment fees of
approximately 1/10 of 1% of the unused committed bank facilities are required
to maintain the facilities which have expiration dates between 2000 and 2002.
In addition, the Company has commercial paper programs (denominated in US
dollars) which provide for the issuance of up to $550 million in commercial
paper with short-term maturities (up to 364 days) issued at a discount to face
value.
12. DISTRIBUTION OF NATIONAL GRID INVESTMENT
At April 1, 1995, the Company's investment in the issued share capital of
National Grid Group plc ("NGG"), formerly National Grid Holdings plc, was
recorded at (Pounds)72 million, the estimated fair value at privatization.
During December 1995 the following transactions relating to the Company's NGG
investment occurred:
a) Special dividends of (Pounds)118 million (pre-tax) were paid by NGG to
the Company and recognized in other income. The Company reinvested
(Pounds)16 million of this dividend in additional NGG shares.
b) NGG became listed on the London Stock Exchange and therefore, the
Company revalued its investment in NGG to its fair market value of
(Pounds)321 million.
c) The Company distributed, in kind, approximately 90% of its NGG shares
to its shareholders and recognized a gain of (Pounds)210 million within
other income.
d) A (Pounds)50 discount to each of the Company's residential customers
was provided. The net effect of the customer discount in the amount of
(Pounds)85 million has been recorded as other expense during the year ended
March 31, 1996.
In November 1995, NGG also distributed to the RECs its ownership shares in
PSB Holdings Limited ("PSB") based on their respective ownership percentages
of NGG. The PSB shares were revalued at their estimated market value of
(Pounds)56 million. In December 1995 this investment was sold and a gain on
sale of (Pounds)56 million was recognized. In the year to March 31, 1997
further consideration of (Pounds)6 million was received.
In order that holders of options in the Company's shares were not
disadvantaged by the NGG transactions, the Company's Directors established a
new employee share trust. The Company contributed (Pounds)9 million to the
trust which was used to purchase NGG shares from the Company. This
contribution was recorded as a dividend. A corresponding gain of (Pounds)5
million was recognized upon distribution of NGG shares from the trust to
option holders during the year ended March 31, 1996.
13. EMPLOYEE OPTION AND SHARE PLANS
The Company operates various employee option and share plans. During the
fiscal year 1995, an Executive Long Term Share Incentive Scheme for certain
eligible Executive Directors was introduced. Under the scheme amounts (as
determined by the earnings per share and market value growth of YEG) were paid
to a trust to be utilized to purchase Company shares. After the final
determination of the amounts in the first cycle of 1998, the shares were to
have been released to participants. Amounts transferred were expensed. 54,025
shares and 23,951 shares were held in trust at March 31, 1997 and 1996,
respectively.
On July 1, 1996 a trust related to the Company's Profit Sharing Scheme
purchased 243,356 ordinary shares of the Company for (Pounds)1,769,198 or
(Pounds)7.27 per share. 64 shares were allocated to each eligible employee.
The net cost of acquiring the shares and maintaining the trust was borne by
the Company.
F-17
<PAGE>
YORKSHIRE ELECTRICITY GROUP PLC AND SUBSIDIARIES
(PREDECESSOR COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
In connection with the acquisition (note 14), all shares held in the above
trusts were transferred to employees in accordance with the provisions of the
schemes.
The Company had two option plans, the Executive Share Option Scheme and the
Savings-Related Share Option Scheme. The Executive Share Option Scheme
provides for the granting of stock options to purchase ordinary shares to
certain key executives of the Company at the discretion of the Renumeration
Committee of the Company. The options vest three years from the date of grant
and expire ten years after the date of grant. Options to purchase ordinary
shares of the Company have been granted to employees under the Savings-Related
Share Option Schemes adopted in 1996 and 1997. The options vest five years
from date of grant and expire five and a half years after the date of grant.
The following table summarizes the transactions of the share option scheme
for the three year period ended March 31, 1997:
<TABLE>
<CAPTION>
WEIGHTED
NUMBER AVERAGE
OF EXERCISE
SHARES PRICE
--------- --------
(Pounds)
<S> <C> <C>
Unexercised options outstanding-March 31, 1994............ 7,853,647 2.26
Granted................................................... 45,636 7.82
Exercised................................................. 1,141,446 2.58
Forfeited................................................. 313,686 1.75
--------- ----
Unexercised options outstanding-March 31, 1995............ 6,444,151 2.26
Granted................................................... 1,650,259 5.58
Exercised................................................. 5,536,659 1.99
Forfeited................................................. 105,934 1.75
--------- ----
Unexercised options outstanding-March 31, 1996............ 2,451,817 5.13
Granted................................................... 1,059,218 5.97
Exercised................................................. 576,226 4.05
Forfeited................................................. 118,865 4.01
Expired................................................... 642 1.75
--------- ----
Unexercised options outstanding-March 31, 1997............ 2,815,302 5.72
========= ====
Exercisable options-March 31, 1997........................ 129,781 4.78
========= ====
Exercisable options-March 31, 1996........................ 590,379 4.64
========= ====
</TABLE>
In connection with the acquisition, holders of any outstanding options were
given the opportunity to exercise their options and sell their shares to
Yorkshire Holdings plc at a price of (Pounds)9.27 per share. If the holders of
the options did not exercise their options, such options were cash cancelled
and the holders were paid (Pounds)9.27 per share less the option's exercise
price.
The Company accounts for its share-based compensation schemes in accordance
with Accounting Principles Board Opinion No. 25, " Accounting for Stock Issued
to Employees". Compensation expense of (Pounds)1 million was recognized in
1997, 1996 and 1995. Because of the change in control of the Company and the
immaterial impact on net income of applying the fair value method, the
disclosures required by Statement of Financial Accounting Standard No. 123,
"Accounting for Stock-Based Compensation", have not been presented.
F-18
<PAGE>
YORKSHIRE ELECTRICITY GROUP PLC AND SUBSIDIARIES
(PREDECESSOR COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
14. SUBSEQUENT EVENTS
On February 24, 1997 the Boards of American Electric Power Company, Inc.
("AEP") and Public Service Company of Colorado ("PS Colorado") announced the
terms of a cash offer for Yorkshire Electricity Group plc to be made by
Yorkshire Holdings plc, a subsidiary of Yorkshire Power Group Limited. The
offer was declared wholly unconditional on April 1, 1997. On April 16, 1997
notices were issued by Yorkshire Holdings plc in accordance with section 429
of the Companies Act 1985 to acquire all those Yorkshire Electricity Group plc
shares outstanding at the end of the requisite notice period.
Yorkshire Holdings plc completed its purchase of the shares of YEG during
April and May 1997 through payment of cash consideration of (Pounds)1.457
billion and the issuance of loan notes to former YEG shareholders in the
amount of (Pounds)22 million.
WINDFALL TAX
On July 2, 1997 the British Government announced a "windfall tax" to be
applied at that date to companies privatized by flotation and regulated by
relevant privatization statutes. A decrease in the UK statutory income tax
rate from 33% to 31% was also included in the legislation. The Company will
record a charge to income of (Pounds)134 million for the windfall tax and an
income tax benefit as a result of the change in the UK statutory income tax
rate of approximately (Pounds)12 million during the quarter ending September
30, 1997. The windfall tax is not deductible for UK income tax purposes and is
payable in two equal installments on or before December 1, 1997 and 1998.
BUSINESS RESTRUCTURING
On December 4, 1997 a planned business restructuring was announced. The
restructuring will result in the Company's main divisions (electricity
distribution and energy supply) becoming self sufficient businesses within the
group structure. A separate ownership structure will be pursued for the
generation business. As a result of the restructuring approximately 160
positions will no longer be required. The estimated cost of this restructuring
is (Pounds)10 million.
IONICA
Following a profits warning issued by Ionica Group plc ("Ionica") in
November 1997, the fair value of the Company's investment in Ionica decreased
from (Pounds)54 million at April 1, 1997 to (Pounds)30 million at December 31,
1997. The reduction is not regarded by management as a permanent diminution in
value.
15. UNAUDITED QUARTERLY FINANCIAL INFORMATION
QUARTERLY PERIODS ENDED 1996/97
<TABLE>
<CAPTION>
JUNE 30 SEPTEMBER 30 DECEMBER 31 MARCH 31
------- ------------ ----------- --------
(IN (Pounds) MILLION)
<S> <C> <C> <C> <C>
Operating revenues.................... 307 298 369 357
Operating income (loss)............... 46 49 25 (68)
Net income (loss)..................... 25 28 24 (51)
</TABLE>
F-19
<PAGE>
YORKSHIRE POWER GROUP LIMITED AND SUBSIDIARIES
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Directors
of Yorkshire Power Group Limited
We have audited the accompanying consolidated balance sheet of Yorkshire
Power Group Limited and its subsidiaries (the "Company") as of April 1, 1997
(expressed in pounds sterling). This financial statement is the responsibility
of the Company's management. Our responsibility is to express an opinion on
this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards in the United States of America. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
consolidated balance sheet is free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the consolidated balance sheet. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall consolidated balance sheet presentation. We
believe that our audit of the consolidated balance sheet provides a reasonable
basis for our opinion.
In our opinion, such consolidated balance sheet presents fairly, in all
material respects, the consolidated financial position of Yorkshire Power
Group Limited and its subsidiaries as of April 1, 1997 in conformity with
generally accepted accounting principles in the United States of America.
Deloitte & Touche
Leeds
United Kingdom
July 15, 1997
(December 31, 1997 as to Note 13)
F-20
<PAGE>
YORKSHIRE POWER GROUP LIMITED AND SUBSIDIARIES
(SUCCESSOR COMPANY)
APRIL 1, 1997
CONSOLIDATED BALANCE SHEET
(IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
(Pounds)
--------
<S> <C>
ASSETS
FIXED ASSETS
Property, plant and equipment.......................................... 908
Construction work in progress.......................................... 31
-----
Total fixed assets................................................... 939
-----
OTHER ASSETS
Goodwill (Note 11)..................................................... 994
Investments, long-term................................................. 133
Other non-current assets............................................... 61
-----
Total other assets................................................... 1,188
-----
CURRENT ASSETS
Cash and cash equivalents.............................................. 221
Investments............................................................ 29
Customer receivables, less provision for uncollectibles of (Pounds)6... 90
Unbilled revenue....................................................... 84
Other.................................................................. 40
-----
Total current assets................................................. 464
-----
Total assets......................................................... 2,591
=====
</TABLE>
The accompanying notes are an integral part of this consolidated balance sheet.
F-21
<PAGE>
YORKSHIRE POWER GROUP LIMITED AND SUBSIDIARIES
(SUCCESSOR COMPANY)
APRIL 1, 1997
CONSOLIDATED BALANCE SHEET
(IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
(Pounds)
--------
<S> <C>
SHAREHOLDERS' EQUITY AND LIABILITIES
SHAREHOLDERS' EQUITY (NOTE 11)
Share capital, (Pounds)1 par value common shares, 436,000,100 shares
authorized, 2 issued and outstanding................................. --
Share capital subscribed but not yet issued........................... --
Retained earnings..................................................... --
-----
Total shareholders' equity.......................................... --
-----
LONG-TERM DEBT........................................................ 433
OTHER NON-CURRENT LIABILITIES
Deferred income taxes................................................. 204
Provision for electricity and gas contracts........................... 78
Other................................................................. 13
-----
Total other non-current liabilities................................. 295
-----
CURRENT LIABILITIES
Current portion of long-term debt..................................... 5
Short-term debt....................................................... 82
Accounts payable...................................................... 15
Electricity purchases payable......................................... 64
Payments received in advance.......................................... 14
Accrued liabilities and deferred income............................... 69
Income taxes payable.................................................. 51
Accrued liability to purchase Yorkshire Electricity Group plc (Note
11).................................................................. 1,496
Other current liabilities............................................. 67
-----
Total current liabilities........................................... 1,863
-----
Total liabilities................................................... 2,591
-----
COMMITMENTS AND CONTINGENCIES (NOTE 4)
Total shareholders' equity and liabilities.......................... 2,591
=====
</TABLE>
The accompanying notes are an integral part of this consolidated balance sheet.
F-22
<PAGE>
YORKSHIRE POWER GROUP LIMITED AND SUBSIDIARIES
(SUCCESSOR COMPANY)
APRIL 1, 1997
NOTES TO THE CONSOLIDATED BALANCE SHEET
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
GENERAL
Yorkshire Power Group Limited ("YPG" or the "Company") is a joint venture
formed by subsidiaries of American Electric Power Company, Inc. and Public
Service Company of Colorado for the purpose of acquiring the entire issued
share capital of Yorkshire Electricity Group plc ("YEG"). The acquisition of
YEG was made effective as of April 1, 1997 by Yorkshire Holdings plc, a
wholly-owned subsidiary of YPG.
YEG is one of the twelve regional electricity companies ("RECs") in England
and Wales licensed to supply, distribute, and to a limited extent, generate
electricity. The RECs were created as a result of the privatization of the UK
electricity industry in 1990 after the state owned low voltage distribution
networks were allocated to the then existing twelve regional boards. YEG's
main business, the distribution and supply of electricity to customers in its
franchise area (the "Franchise Area"), is regulated under the terms of YEG's
Public Electricity Supply License ("PES License") by the Office of Electricity
Regulation ("OFFER").
YEG operates primarily in its Franchise Area in Northern England. YEG's
Franchise Area covers approximately 10,000 square kilometers, encompassing
parts of the counties of West Yorkshire, Humberside, South Yorkshire,
Derbyshire, Nottinghamshire, Lincolnshire and Lancashire. The Franchise Area
has a resident population of approximately 4.4 million.
The Company purchases power primarily from the wholesale trading market for
electricity in England and Wales (the "Pool"). The Pool monitors supply and
demand between generators and suppliers, sets prices for generation and
provides for centralized settlement of accounts due between generators and
suppliers.
BASIS OF PRESENTATION
On February 24, 1997, the joint venture partners of the Company announced
the terms of a cash tender offer for Yorkshire Electricity Group plc to be
made by Yorkshire Holdings plc, a subsidiary of the Company. The offer was
declared wholly unconditional on April 1, 1997. On April 16, 1997 notices were
issued by Yorkshire Holdings plc in accordance with section 429 of the
Companies Act 1985 to acquire all YEG shares outstanding at the end of the
requisite notice period.
The acquisition was accounted for using the purchase method of accounting in
accordance with Accounting Principles Board Opinion No. 16, "Accounting for
Business Combinations" ("APB 16"). The purchase price of YEG has been
allocated to the underlying assets and liabilities based on preliminary
estimated fair values at the acquisition date (April 1, 1997). The final
purchase price allocation report has not yet been completed; however, the
Company does not anticipate any material changes based on currently available
information.
The consolidated balance sheet of the Company is presented in pounds
sterling ((Pounds)) and in conformity with accounting principles generally
accepted in the United States of America. The Company is not subject to rate
regulation but rather, is subject to price cap regulation and, therefore, the
provisions of Statement of Financial Accounting Standards No. 71, "Accounting
for the Effects of Certain Types of Regulation" ("SFAS 71") do not apply.
PRINCIPLES OF CONSOLIDATION
The consolidated balance sheet includes the accounts of the Company and its
wholly-owned and majority-owned subsidiaries and has been prepared from
records maintained by the Company in the UK. Significant intercompany items
are eliminated in consolidation.
F-23
<PAGE>
YORKSHIRE POWER GROUP LIMITED AND SUBSIDIARIES
(SUCCESSOR COMPANY)
APRIL 1, 1997
NOTES TO THE CONSOLIDATED BALANCE SHEET--(CONTINUED)
USE OF ESTIMATES
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements. Actual results could differ from those estimates.
UNBILLED REVENUE
The Company records revenue net of value added tax ("VAT") and accrues
revenues for service provided but unbilled at the end of each reporting
period.
RECOVERY OF REGULATED INCOME
Charges for distribution of electricity and for supply to customers with a
maximum demand under 100kW are subject to a price control formula set out in
YEG's PES license which allows a maximum charge per unit of electricity.
Differences in the charges, or in the purchase cost of electricity, can result
in the under or over recovery of revenues in a particular period.
Where there is an overrecovery of supply or distribution business revenues
against the regulated maximum allowable amount, revenues are deferred in an
amount equivalent to the overrecorded amount and included in other current
liabilities.
FINANCIAL INSTRUMENTS
YEG enters into contracts for differences ("CFDs") primarily to hedge its
supply business against the price risk of electricity purchases from the Pool.
Use of these CFDs is carried out within the framework of YEG's purchasing
strategy and hedging guidelines. CFDs are accounted for as hedges and
consequently, gains and losses are deferred and recognized over the same
period as the item hedged. The Company recognizes gains (losses) on CFD's when
settlement is made, which is generally monthly. Gains (losses) on CFD's are
recognized as a decrease (increase) to cost of sales based upon the difference
between fixed prices in the CFD compared to variable prices paid to the Pool
for the period. Gains (losses) based upon the difference between fixed prices
in the CFD compared to variable prices paid to the Pool for future electricity
purchases are not recognized until the period of such settlements.
The Company enters into interest rate swaps as a part of its overall risk
management strategy and does not hold or issue material amounts of derivative
financial instruments for trading purposes. The Company accounts for its
interest rate swaps in accordance with Statement of Financial Accounting
Standards No. 80, "Accounting for Futures Contracts" and various Emerging
Issues Task Force pronouncements. If the interest rate swaps were to be sold
or terminated, any gain or loss would be deferred and amortized over the
remaining life of the debt instrument being hedged by the interest rate swap.
If the debt instrument being hedged by the interest rate swaps were to be
extinguished, any gain or loss attributable to the swap would be recognized in
the period of the transaction.
The Company considers the carrying amounts of financial instruments
classified as current assets and liabilities to be a reasonable estimate of
their fair value because of the short maturity of these instruments.
CASH AND CASH EQUIVALENTS
The Company considers all short-term investments with an original maturity
of three months or less to be cash equivalents.
F-24
<PAGE>
YORKSHIRE POWER GROUP LIMITED AND SUBSIDIARIES
(SUCCESSOR COMPANY)
APRIL 1, 1997
NOTES TO THE CONSOLIDATED BALANCE SHEET--(CONTINUED)
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is recorded at fair market value as adjusted
at the acquisition date in accordance with APB 16. Items capitalized
subsequent to the acquisition will be recorded at original cost, which
includes materials, labor and appropriate overhead costs, and the estimated
cost of borrowed funds used during construction.
The Company's policy is to record depreciation on a straight-line basis,
except for distribution network assets which are charged at 3% for 20 years
and 2% for the remaining 20 years. Assets are depreciated using the following
estimated useful lives:
<TABLE>
<CAPTION>
YEARS
--------
<S> <C>
Distribution network................................................ 40
Generation.......................................................... 20
Buildings........................................................... Up to 60
Fixtures and equipment.............................................. Up to 10
Vehicles and mobile plant........................................... Up to 10
</TABLE>
GOODWILL
The Company's policy is to amortize costs in excess of fair value of net
assets of the business acquired using the straight-line method over a period
of 40 years. Recoverability (evaluated on the basis of undiscounted operating
cash flow analysis) is reviewed annually or sooner if events or changes in
circumstances indicate that the carrying amount may exceed fair value, in
accordance with the provisions of Statement of Financial Accounting Standards
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-
Lived Assets to be Disposed Of". Goodwill shown in the accompanying
consolidated balance sheet relates to the acquisition of YEG (Note 11).
INVESTMENTS
The Company accounts for investments in debt and equity securities in
accordance with Statement of Financial Accounting Standards No. 115,
"Investments in Certain Debt and Equity Securities" ("SFAS 115"). The
Company's investments are classified as available-for-sale under SFAS 115.
Securities whose fair market values are readily determinable are reported at
fair value. Securities whose fair market values are not readily determinable
are recorded at the lower of cost or net realizable value.
INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes". This
standard requires that deferred income taxes be recorded for temporary
differences between the financial statement basis and the tax basis of assets
and liabilities and loss carryforwards and that deferred tax balances be based
on enacted tax laws at rates that are expected to be in effect when the
temporary differences reverse.
2. RETIREMENT BENEFITS
PENSION PLANS
The Company operates two schemes, one based on defined contributions and a
second based on defined benefits.
F-25
<PAGE>
YORKSHIRE POWER GROUP LIMITED AND SUBSIDIARIES
(SUCCESSOR COMPANY)
APRIL 1, 1997
NOTES TO THE CONSOLIDATED BALANCE SHEET--(CONTINUED)
DEFINED CONTRIBUTION
The defined contribution plan was established on December 1, 1991. From
April 1, 1995 new employees are only eligible to join this plan. The assets of
the defined contribution plan are held and administered by an independent
trustee.
DEFINED BENEFITS
The Company participates in the Electricity Supply Pension Scheme, which
provides pension and other related defined benefits, based on final
pensionable pay, to substantially all employees throughout the electricity
supply industry in the UK.
The Company uses the projected unit credit actuarial method for accounting
purposes. Amounts funded to the pension are primarily invested in equity and
fixed income securities.
The following table sets forth the plan's funded status and amounts
recognized in the Company's balance sheet at April 1, 1997 (in millions):
<TABLE>
<CAPTION>
(Pounds)
--------
<S> <C>
ACTUARIAL PRESENT VALUE OF BENEFIT OBLIGATION:
Accumulated benefit obligation, including vested benefits of
(Pounds)590........................................................ 625
====
Fair value of plan assets........................................... 725
Projected benefit obligation for service rendered to date........... (664)
----
Prepaid pension asset............................................... 61
====
</TABLE>
The weighted average discount rate, expected rate of increase in future
compensation, and the expected long-term rate of return on plan assets used to
determine the plan's funded status were, 8.0%, 6.0% and 9.0%, respectively.
3. REGULATORY MATTERS
The distribution business of YEG is regulated under its PES License,
pursuant to which revenue of the distribution business is controlled by the
Distribution Price Control Formula ("DPCF"). The DPCF determines the maximum
average price per unit of electricity (expressed in kilowatt hours) that YEG
can charge. The DPCF is usually set for a five-year period, subject to more
frequent adjustments as determined necessary by the Director General of
Electricity Supply (the "Regulator"). At each review, the Regulator can adjust
the value of certain elements in the DPCF. YEG's allowed distribution revenues
were reduced by a 14% below inflation reduction and a 13% below inflation
reduction on April 1, 1995 and 1996, respectively, following a review by the
Regulator. On April 1, 1997, YEG's allowed distribution revenues were
decreased by an additional 3% below inflation reduction, and there will be
further annual 3% below inflation reductions on April 1, 1998 and 1999.
The supply business of YEG is also regulated by the Regulator, and prices
are established based upon the Supply Price Control Formula which is similar
to the DPCF; however, it currently allows full pass through for all properly
incurred costs.
The non-franchise supply market, which typically includes larger commercial
and industrial customers was opened to competition for all customers with
usage above 1 MW upon privatization of the industry in 1990. The non-franchise
supply markets of 100 kW or more were opened to full competition in April
1994.
F-26
<PAGE>
YORKSHIRE POWER GROUP LIMITED AND SUBSIDIARIES
(SUCCESSOR COMPANY)
APRIL 1, 1997
NOTES TO THE CONSOLIDATED BALANCE SHEET--(CONTINUED)
Currently, YEG, under its PES License has the exclusive right to supply
residential and small commercial and industrial customers within its Franchise
Area. However, it is anticipated that the supply market will become fully
competitive over a several month period beginning September 1998.
4. COMMITMENTS AND CONTINGENCIES
ELECTRICITY AND GAS PURCHASE AGREEMENTS
The Company and its subsidiaries have entered into contracts for purchases
of electricity and gas for a period of up to 2009. A provision of (Pounds)78
million has been made for the net present value of expected future payments in
excess of anticipated recoverable amounts, reflecting management's current
expectations of market prices for electricity following the opening of the
competitive market to franchise supply customers and future gas prices. The
actual net costs are highly sensitive to movements in future prices. The
Company's provision includes amounts in respect of contracts with a non
wholly-owned subsidiary.
The Company has additional contracts with unaffiliated parties relating to
the purchase of gas which expire by October 2005, the terms of which are
immaterial with respect to quantity and price, both annually and in the
aggregate.
LEGAL PROCEEDINGS
The Company is a party to legal proceedings arising in the ordinary course
of business which are not material, either individually or in the aggregate,
nor is it currently aware of any threatened material legal proceedings.
OPERATING LEASES
The Company has commitments under operating leases with various terms and
expiration dates. At April 1, 1997 estimated minimum rental commitments for
noncancelable operating leases were (Pounds)2 million and (Pounds)1 million
for the fiscal years ending March 31, 1998 and 1999, respectively.
LABOR SUBJECT TO COLLECTIVE BARGAINING AGREEMENTS
A majority of the Company's employees are subject to one of three collective
bargaining agreements. Such agreements are ongoing in nature, and the
Company's employees participation level is consistent with that of the
electric utility industry in the UK.
5. SEGMENT REPORTING
The Company is primarily engaged in two electric industry segments;
distribution, which involves the transmission of electricity across its
network to its customers, and supply, which involves bulk purchase of
electricity from the Pool for delivery to the distribution networks. Included
in "Other" are insignificant operating subsidiaries of the Company as well as
various corporate activities, and non-allocated corporate assets. The
Company's assets in these individual segments as of April 1, 1997 are as
follows (in millions):
<TABLE>
<CAPTION>
(Pounds)
--------
<S> <C>
Distribution........................................................ 1,802
Supply.............................................................. 187
Other............................................................... 602
-----
Total............................................................... 2,591
=====
</TABLE>
F-27
<PAGE>
YORKSHIRE POWER GROUP LIMITED AND SUBSIDIARIES
(SUCCESSOR COMPANY)
APRIL 1, 1997
NOTES TO THE CONSOLIDATED BALANCE SHEET--(CONTINUED)
6. INCOME TAXES
The tax effect of temporary differences between the carrying amounts of
assets and liabilities in the consolidated balance sheet and their respective
tax bases, which give rise to deferred tax assets and liabilities, at April 1,
1997 are as follows (in millions):
<TABLE>
<CAPTION>
(Pounds)
--------
<S> <C>
Deferred tax liabilities:
Property related temporary differences............................ 217
Pension........................................................... 20
Provision for electricity and gas contracts....................... (26)
Other............................................................. (3)
---
Net deferred tax liability.......................................... 208
Portion included in current liabilities............................. (4)
---
Long-term deferred tax liability.................................... 204
===
</TABLE>
The tax years since 1993 are currently under review by the Inland Revenue in
the UK. In the opinion of management, the final settlement of open years will
not have a material effect on financial position.
7. FINANCIAL INSTRUMENTS
YEG utilizes contracts for differences ("CFDs") to mitigate its exposure to
volatility in the prices of electricity purchased through the Pool. Such
contracts allow YEG to effectively convert the majority of its anticipated
Pool purchases from market prices to fixed prices. CFDs are in place to hedge
a portion of electricity purchases on approximately 30,662 GWh through the
year 2009. Accordingly, the gains and losses on such contracts are deferred
and recognized as electricity is purchased. Management's estimate of the fair
value of CFD's outstanding at March 31, 1997 is a net liability of (Pounds)22
million. This estimate is based on management's projections of future prices
of electricity. The net liability will be recovered through electricity costs
passed through to franchise customers during the fiscal year ended March 31,
1998.
YEG is exposed to losses in the event of non-performance by counterparties
to its CFDs. To manage this credit risk, YEG selects counterparties based on
their credit ratings, limits its exposure to any one counterparty under
defined guidelines, and monitors the market position of the programs and its
relative market position with each counterparty.
8. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at April 1, 1997 consisted of the following
(in millions):
<TABLE>
<CAPTION>
(Pounds)
--------
<S> <C>
Distribution network................................................ 882
Generation.......................................................... 112
Non-network land and buildings...................................... 57
Other............................................................... 57
Consumer contributions.............................................. (200)
----
Total............................................................... 908
====
</TABLE>
Arrangements have been put in place to entitle the British Government to a
proportion of any property gain (above certain thresholds) accruing as a
result of disposals, or events treated as disposals for clawback purposes,
F-28
<PAGE>
YORKSHIRE POWER GROUP LIMITED AND SUBSIDIARIES
(SUCCESSOR COMPANY)
APRIL 1, 1997
NOTES TO THE CONSOLIDATED BALANCE SHEET--(CONTINUED)
occurring after March 31, 1990 in relation to land in which YEG had an
interest at that date (and, in certain circumstances, land in which YEG
acquires an interest thereafter from other members of the electricity
industry) and any buildings on that land. These arrangements will last until
March 31, 2000.
A provision for clawback in respect of property disposals is made only to
the extent that it is probable that a liability will be incurred.
9. LONG-TERM DEBT
Long-term debt at April 1, 1997 consisted of the following (in millions):
<TABLE>
<CAPTION>
(Pounds)
--------
<S> <C>
8.625% Eurobonds, due 2005.......................................... 152
9.25% Eurobonds, due 2020........................................... 208
European Investment Bank:
7.52% credit facility, due 1999-2002.............................. 15
6.55% credit facility, due 1997-2000.............................. 15
8.05% amortizing term loan, due 2009.............................. 48
---
Total............................................................... 438
Less current maturities............................................. (5)
---
Long-term debt, net of current maturities........................... 433
===
</TABLE>
Long-term debt outstanding at April 1, 1997 is payable as follows (in
millions):
<TABLE>
<CAPTION>
(Pounds)
--------
<S> <C>
For the fiscal years ending March 31
1998.............................................................. 5
1999.............................................................. 6
2000.............................................................. 11
2001.............................................................. 12
2002.............................................................. 7
Thereafter........................................................ 397
---
Total............................................................... 438
===
</TABLE>
10. SHORT-TERM DEBT
Short-term debt at April 1, 1997 consisted of the following (in millions):
<TABLE>
<CAPTION>
(Pounds)
--------
<S> <C>
Commercial paper.................................................... 81
Bank loans and overdrafts........................................... 1
---
Total............................................................... 82
===
</TABLE>
The weighted average interest rate on short-term debt instruments was 6.2%
at April 1, 1997.
F-29
<PAGE>
YORKSHIRE POWER GROUP LIMITED AND SUBSIDIARIES
(SUCCESSOR COMPANY)
APRIL 1, 1997
NOTES TO THE CONSOLIDATED BALANCE SHEET--(CONTINUED)
At April 1, 1997 unused committed bank facilities were available to YEG in
the amount of (Pounds)250 million. Commitment fees of approximately 1/10 of 1%
of the unused committed bank facilities are required to maintain the
facilities which have expiration dates between 2000 and 2002. In addition, YEG
has commercial paper programs (denominated in US dollars) which provide for
the issuance of up to $550 million in commercial paper with short-term
maturities (up to 364 days) issued at a discount to face value.
11. ACQUISITION
On February 24, 1997 the joint venture partners of the Company announced the
terms of a cash offer for YEG to be made by Yorkshire Holdings plc, a
subsidiary of the Company. The offer was declared wholly unconditional on
April 1, 1997. On April 16, 1997 notices were issued by Yorkshire Holdings plc
in accordance with section 429 of the Companies Act 1985 to acquire all those
YEG shares outstanding at the end of the requisite notice period.
Yorkshire Holdings plc completed its purchase of the shares of YEG during
April and May 1997 through payment of cash consideration of (Pounds)1.457
billion and the issuance of loan notes to former YEG shareholders in the
amount of (Pounds)22 million.
The acquisition was financed by cash contributions of (Pounds)220 million
from each of the joint venture partners, against which shares in the Company
were subsequently allotted, and borrowings under a (Pounds)1.140 billion term
loan and revolving facility agreement. The term loan and revolving facility
agreement provided for a revolving credit facility of (Pounds)50 million and a
term loan facility in the aggregate amount of (Pounds)1.090 billion.
Effective July 31, 1997 the term loan and revolving credit facility
agreement was replaced with a (Pounds)1.085 billion credit facility. This
credit facility consists of two parts which are Facility A (term loan
facility) for (Pounds)1.034 billion and Facility B (revolving credit facility)
for (Pounds)50 million. Facility A is repayable on July 30, 1998. The interest
rates on the facilities are based on LIBOR plus a margin which ranges from
0.125% to 0.5% dependent on the time elapsed since the Facility became
available, plus a defined margin which is based on a bank cost of funds. The
Facilities contain certain restrictive covenants which include a maximum
consolidated net debt to capitalization ratio and minimum earnings to interest
ratio. The Company intends to partly repay Facility A, in 1998, through issue,
by subsidiaries of the Company, of bonds and preferred securities, the
proceeds of which will be loaned to the Company.
The acquisition was accounted for using the purchase method of accounting in
accordance with APB 16. The purchase price of YEG has been allocated to the
underlying assets and liabilities based on preliminary estimated fair values
at the acquisition date. The final purchase price allocation report has not
yet been completed; however, the Company does not anticipate any material
changes based on currently available information. The acquisition cost
exceeded the fair market value of net assets acquired, including (Pounds)17
million of acquisition related costs, by (Pounds)994 million and is considered
goodwill.
The net purchase price of (Pounds)1.496 billion was allocated as follows at
April 1, 1997 (in millions):
<TABLE>
<CAPTION>
(Pounds)
--------
<S> <C>
Property, plant and equipment....................................... 939
Prepaid pension asset............................................... 61
Current assets...................................................... 464
Investments......................................................... 133
Goodwill............................................................ 994
Current liabilities................................................. (367)
Other liabilities................................................... (728)
-----
Purchase price...................................................... 1,496
=====
</TABLE>
F-30
<PAGE>
YORKSHIRE POWER GROUP LIMITED AND SUBSIDIARIES
(SUCCESSOR COMPANY)
APRIL 1, 1997
NOTES TO THE CONSOLIDATED BALANCE SHEET--(CONTINUED)
12. EMPLOYEE OPTION AND SHARE PLANS
Prior to the acquisition of YEG by the Company, employees of YEG were
eligible to participate in the 1997 and 1996 Savings-Related Share Option
Schemes, Executive Share Option Scheme, Profit Sharing Scheme, and/or the Long
Term Incentive Scheme. In connection with the acquisition, employees were
given the opportunity to exercise their options granted under the Savings-
Related Share Option Schemes and the Executive Share Option Scheme and sell
their shares to Yorkshire Holdings plc at a price of (Pounds)9.27 per share.
If the holders of the options did not exercise their options, such options
were cash cancelled and the holders were paid (Pounds)9.27 per share less the
option's exercise price. There were 2,815,302 options outstanding, which were
all exercised or cash cancelled subsequent to April 1, 1997.
Prior to April 1, 1997, the following shares of stock were held in trust on
behalf of employees:
<TABLE>
<CAPTION>
SHARES
-------
<S> <C>
Profit Sharing Scheme................................................ 236,525
Long-Term Incentive Scheme........................................... 54,025
</TABLE>
In connection with the acquisition, all shares of YEG issued under the
Profit Sharing Scheme, Long-Term Incentive Scheme, as well as the NGG shares
held in trust for the benefit of certain option holders, were transferred to
employees in accordance with vesting rights as previously established and the
related schemes and trusts were terminated.
13. SUBSEQUENT EVENTS
On July 2, 1997 the British Government announced a "windfall tax" to be
applied at that date to companies privatized by flotation and regulated by
relevant privatization statutes. A decrease in the UK statutory income tax
rate, from 33% to 31% was also included in the legislation. The Company will
record a charge to income of (Pounds)134 million for the windfall tax and an
income tax benefit as a result of the change in the UK statutory income tax
rate of approximately (Pounds)12 million during the quarter ending September
30, 1997. The windfall tax is not deductible for UK income tax purposes and is
payable in two equal installments on or before December 1, 1997 and 1998.
On December 4, 1997 a planned business restructuring was announced. The
restructuring will result in the Company's main divisions (electricity
distribution and energy supply) becoming self-sufficient businesses within the
group structure. A separate ownership structure will be pursued for the
generation business. As a result of the restructuring approximately 160
positions will no longer be required. The estimated cost of this restructuring
is (Pounds)10 million.
Following a profits warning issued by Ionica Group plc ("Ionica") in
November 1997, the fair value of the Company's investment in Ionica decreased
from (Pounds)54 million at April 1, 1997 to (Pounds)30 million at December 31,
1997. The reduction is not regarded by management as a permanent diminution in
value.
F-31
<PAGE>
YORKSHIRE POWER GROUP LIMITED AND SUBSIDIARIES
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Directors
of Yorkshire Power Group Limited
We have audited the accompanying consolidated balance sheet of Yorkshire
Power Group Limited and its subsidiaries (the "Company") as of March 31, 1998,
and the related consolidated statements of income, changes in shareholders'
equity and cash flows for the year ended March 31, 1998 (all expressed in
pounds sterling). 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 audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Yorkshire Power Group Limited
and its subsidiaries as of March 31, 1998, and the results of their operations
and their cash flows for the Fiscal Year 1998 in conformity with generally
accepted accounting principles.
Our audit also comprehended the translation of the pounds sterling amounts
into US dollar amounts and, in our opinion, such translation has been made in
conformity with the basis stated in Note 1. The translation of the financial
statement amounts into US dollars has been made solely for the convenience of
readers in the United States of America.
Deloitte & Touche LLP
Columbus, Ohio
June 10, 1998
F-32
<PAGE>
YORKSHIRE POWER GROUP LIMITED AND SUBSIDIARIES
(SUCCESSOR COMPANY)
CONSOLIDATED STATEMENT OF INCOME
(IN MILLIONS, EXCEPT SHARES AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED
MARCH 31,1998
---------------------
(Pounds) $
(SEE NOTE 1)
<S> <C> <C>
OPERATING REVENUES........................................ 1,285 2,154
COST OF SALES............................................. 882 1,479
GROSS MARGIN.............................................. 403 675
OPERATING EXPENSES
Maintenance............................................... 64 107
Depreciation and amortization............................. 78 131
Selling, general and administrative....................... 90 150
Restructuring charges..................................... 10 17
----- -----
Income from operations.................................... 161 270
----- -----
OTHER INCOME EXPENSE
Loss on investment in Ionica.............................. (41) (69)
Other income, net......................................... 2 3
----- -----
(39) (66)
----- -----
NET INTEREST EXPENSE
Interest expense.......................................... (121) (203)
Interest income........................................... 15 25
----- -----
Net interest expense...................................... (106) (178)
----- -----
INCOME BEFORE INCOME TAXES................................ 16 26
PROVISION FOR INCOME TAXES................................ (1) (2)
----- -----
INCOME BEFORE EXTRAORDINARY ITEM.......................... 17 28
Extraordinary loss--UK windfall tax....................... (134) (225)
----- -----
NET LOSS.................................................. (117) (197)
===== =====
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-33
<PAGE>
YORKSHIRE POWER GROUP LIMITED AND SUBSIDIARIES
(SUCCESSOR COMPANY)
CONSOLIDATED BALANCE SHEETS
(IN MILLIONS, EXCEPT SHARES AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
MARCH 31, 1998
---------------------
(Pounds) $
(SEE NOTE 1)
<S> <C> <C>
ASSETS
FIXED ASSETS
Property, plant and equipment, net of accumulated
depreciation of (Pounds)53, ($89)....................... 992 1,663
Construction work in progress............................ 68 114
----- -----
Total fixed assets..................................... 1,060 1,777
----- -----
CURRENT ASSETS
Cash and cash equivalents................................ 35 59
Investments.............................................. 41 69
Accounts receivable, less provision for uncollectibles of
(Pounds)6, ($10)........................................ 62 104
Unbilled revenue......................................... 78 130
Other.................................................... 50 84
----- -----
Total current assets................................... 266 446
----- -----
OTHER ASSETS
Goodwill, net of accumulated amortization of (Pounds)25,
($42)................................................... 969 1,625
Investments, long-term................................... 73 121
Prepaid pension asset.................................... 75 126
Other non-current assets................................. 19 31
----- -----
Total other assets..................................... 1,136 1,903
----- -----
Total assets........................................... 2,462 4,126
===== =====
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-34
<PAGE>
YORKSHIRE POWER GROUP LIMITED AND SUBSIDIARIES
(SUCCESSOR COMPANY)
CONSOLIDATED BALANCE SHEETS
(IN MILLIONS, EXCEPT SHARES AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
MARCH 31, 1998
---------------------
(Pounds) $
(SEE NOTE 1)
<S> <C> <C>
SHAREHOLDERS' EQUITY AND LIABILITIES
SHAREHOLDERS' EQUITY
Share capital, (Pounds)1 par value common shares,
440,000,100 authorized, 440,000,002 issued and
outstanding............................................. 440 738
Retained deficit......................................... (117) (197)
----- -----
Total shareholders' equity 323 541
----- -----
LONG-TERM DEBT........................................... 1,026 1,720
SHORT-TERM DEBT REFINANCED JUNE 1998..................... 164 275
OTHER NON-CURRENT LIABILITIES
Deferred income taxes.................................... 208 348
Provision for uneconomic electricity and gas contracts... 84 141
Other.................................................... 15 26
----- -----
Total other non-current liabilities.................... 307 515
----- -----
CURRENT LIABILITIES
Current portion of long-term debt........................ 5 8
Short-term debt.......................................... 319 534
Accounts payable......................................... 82 137
Accrued liabilities and deferred income.................. 63 106
Income taxes payable..................................... 40 67
Windfall tax payable..................................... 67 112
Accrued liability to purchase Yorkshire Electricity Group
plc..................................................... -- --
Other current liabilities................................ 66 111
----- -----
Total current liabilities.............................. 642 1,075
----- -----
Total liabilities...................................... 2,139 3,585
----- -----
COMMITMENTS AND CONTINGENCIES (NOTE 5)
Total shareholders' equity and liabilities............. 2,462 4,126
===== =====
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-35
<PAGE>
YORKSHIRE POWER GROUP LIMITED AND SUBSIDIARIES
(SUCCESSOR COMPANY)
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEAR ENDED MARCH 31, 1998
(IN MILLIONS, EXCEPT SHARES AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SHARE CAPITAL
-------------------- RETAINED
SHARES AMOUNT DEFICIT TOTAL
----------- -------- -------- --------
(Pounds) (Pounds) (Pounds)
<S> <C> <C> <C> <C>
Balance, April 1, 1997................... 2 -- -- --
Issuance of ordinary shares.............. 440,000,000 440 -- 440
Net loss................................. -- -- (117) (117)
----------- --- ---- ----
Balance, March 31, 1998.................. 440,000,002 440 (117) 323
=========== === ==== ====
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-36
<PAGE>
YORKSHIRE POWER GROUP LIMITED AND SUBSIDIARIES
(SUCCESSOR COMPANY)
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR YEAR ENDED MARCH 31, 1998
(IN MILLIONS)
<TABLE>
<CAPTION>
YEAR ENDED
MARCH 31, 1998
---------------
(Pounds) $
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................... (117) (197)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation................................................ 53 89
Amortization................................................ 25 42
Gain on sale of fixed assets................................ (3) (5)
Loss on investment in Ionica................................ 41 69
Deferred income taxes....................................... 4 6
CHANGES IN ASSETS AND LIABILITIES:
Receivables and unbilled revenue............................ 34 57
Prepaid pension asset....................................... (14) (23)
Provisions for uneconomic electricity and gas contracts..... 6 10
Accounts payable............................................ 3 5
Windfall tax payable........................................ 67 112
Other current assets........................................ (10) (17)
Other....................................................... (27) (45)
------ ------
Net cash provided by operating activities................... 62 103
------ ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures........................................ (191) (320)
Proceeds from sale of property, plant and equipment......... 20 34
Purchase of Yorkshire Electricity Group plc................. (1,474) (2,471)
Other....................................................... 6 10
------ ------
Net cash used in investing activities....................... (1,639) (2,747)
------ ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt.................... 593 994
Proceeds from issuance of common stock...................... 440 738
Payments to terminate interest rate swap agreements (14) (24)
Repayments of long-term debt................................ (5) (8)
Net change in short-term debt............................... 377 632
------ ------
Net cash provided by financing activities................... 1,391 2,332
------ ------
Decrease in cash and cash equivalents....................... (186) (312)
Beginning of year cash and cash equivalents................. 221 371
------ ------
End of year cash and cash equivalents....................... 35 59
====== ======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest...................................... 132 221
====== ======
Cash paid for income taxes.................................. 77 129
====== ======
</TABLE>
Supplemental schedule of non-cash investing and financing activities The
Company issued (Pounds)22 million ($37 million) of loan notes during the year
to former shareholders of Yorkshire Electricity Group plc ("YEG") (see notes
12 & 13).
The accompanying notes are an integral part of these consolidated financial
statements.
F-37
<PAGE>
YORKSHIRE POWER GROUP LIMITED AND SUBSIDIARIES
(SUCCESSOR COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
GENERAL
Yorkshire Power Group Limited ("YPG" or the "Company") is a joint venture
formed by subsidiaries of American Electric Power Company, Inc. and Public
Service Company of Colorado for the purpose of acquiring the entire issued
share capital of Yorkshire Electricity Group plc ("YEG"). The acquisition of
YEG was made effective as of April 1, 1997 by Yorkshire Holdings plc, a
wholly-owned subsidiary of YPG.
YEG is one of the twelve regional electricity companies ("RECs") in England
and Wales licensed to supply, distribute, and to a limited extent, generate
electricity. The RECs were created as a result of the privatization of the UK
electricity industry in 1990 after the state owned low voltage distribution
networks were allocated to the then existing twelve regional boards. YEG's
main business, the distribution and supply of electricity to customers in its
franchise area (the "Franchise Area"), is regulated under the terms of YEG's
Public Electricity Supply License ("PES License") by the Office of Electricity
Regulation ("OFFER"). YEG operates primarily in its Franchise Area in Northern
England. YEG's Franchise Area covers approximately 10,000 square kilometers,
encompassing parts of the counties of West Yorkshire, Humberside, South
Yorkshire, Derbyshire, Nottinghamshire, Lincolnshire and Lancashire. The
Franchise Area has a resident population of approximately 4.4 million.
The Company purchases power primarily from the wholesale trading market for
electricity in England and Wales (the "Pool"). The Pool monitors supply and
demand between generators and suppliers, sets prices for generation and
provides for centralized settlement of accounts due between generators and
suppliers.
BASIS OF PRESENTATION
On February 24, 1997, the joint venture partners of the Company announced
the terms of a cash tender offer for Yorkshire Electricity Group plc to be
made by Yorkshire Holdings plc, a subsidiary of the Company. The offer was
declared wholly unconditional on April 1, 1997. On April 16, 1997 notices were
issued by Yorkshire Holdings plc in accordance with section 429 of the
Companies Act 1985 to acquire all YEG shares outstanding at the end of the
requisite notice period.
The acquisition was accounted for using the purchase method of accounting in
accordance with Accounting Principles Board Opinion No. 16, "Accounting for
Business Combinations" ("APB 16"). The purchase price of YEG has been
allocated to the underlying assets and liabilities based on estimated fair
values at the acquisition date (April 1, 1997).
The Company is not subject to rate regulation but rather, is subject to
price cap regulation and, therefore, the provisions of Statement of Financial
Accounting Standards No. 71, "Accounting for the Effects of Certain Types of
Regulation" ("SFAS 71") do not apply.
The consolidated financial statements of the Company are presented in pounds
sterling ((Pounds)) and in conformity with accounting principles generally
accepted in the United States of America.
The consolidated balance sheet, income statement, statement of cashflows and
certain information in the notes to the consolidated financial statements are
presented in pounds sterling ((Pounds)) and in US dollars ($) solely for the
convenience of the reader, at the exchange rate of (Pounds)1 = $1.6765, the
Noon Buying Rate in New York City for cable transfers in pounds sterling as
certified for customs purposes by the Federal Reserve Bank of New York on
March 31, 1998. This presentation has not been translated in accordance with
Statement of Financial
F-38
<PAGE>
YORKSHIRE POWER GROUP LIMITED AND SUBSIDIARIES
(SUCCESSOR COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Accounting Standards No. 52, "Foreign Currency Translation." No representation
is made that the pounds sterling amounts have been, could have been, or could
be converted into US dollars at that or any other rate of exchange.
The following table sets out, for the periods indicated, certain information
concerning the exchange rates between UK pounds sterling and US dollars based
on the Noon Buying Rates:
<TABLE>
<CAPTION>
PERIOD
FISCAL YEAR END AVERAGE(1) HIGH LOW
----------- ------ --------- ---- ----
($ PER (Pounds)1.00)
<S> <C> <C> <C> <C>
1994............................................. 1.49 1.50 1.59 1.46
1995............................................. 1.62 1.56 1.65 1.49
1996............................................. 1.53 1.56 1.62 1.50
1997............................................. 1.65 1.60 1.71 1.50
1998............................................. 1.68 1.65 1.70 1.58
</TABLE>
- --------
(1) The average of the Noon Buying Rates in effect on the last business day of
each month during the relevant period. On June 10, 1998, the Noon Buying
Rate was $1.6277 = (Pounds)1.
PRINCIPLES OF CONSOLIDATION
The consolidated balance sheet includes the accounts of the Company and its
wholly-owned and majority-owned subsidiaries and has been prepared from
records maintained by the Company in the UK. Significant intercompany items
are eliminated in consolidation.
USE OF ESTIMATES
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements. Actual results could differ from those estimates.
UNBILLED REVENUE
The Company records revenue net of value added tax ("VAT") and accrues
revenues for service provided but unbilled at the end of each reporting
period.
RECOVERY OF REGULATED INCOME
Charges for distribution and supply of electricity are subject to a price
control formula set out in the Company's PES license which allows a maximum
charge per unit of electricity. Differences in the charges, or in the purchase
cost of electricity, can result in the under or overrecovery of revenues in a
particular period. Where there is an overrecovery of supply or distribution
business revenues against the regulated maximum allowable amount, revenues are
deferred in an amount equivalent to the overrecorded amount and included in
other current liabilities.
FINANCIAL INSTRUMENTS
YEG enters into contracts for differences ("CFDs") primarily to hedge its
supply business against the price risk of electricity purchases from the Pool.
Use of these CFDs is carried out within the framework of YEG's purchasing
strategy and hedging guidelines. CFDs are accounted for as hedges and
consequently, gains and
F-39
<PAGE>
YORKSHIRE POWER GROUP LIMITED AND SUBSIDIARIES
(SUCCESSOR COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
losses are deferred and recognized over the same period as the item hedged.
YEG recognizes gains (losses) on CFDs when settlement is made, which is
generally monthly. Gains (losses) on CFDs are recognized as a decrease
(increase) to cost of sales based upon the difference between fixed prices in
the CFD compared to variable prices paid to the Pool for the period. Gains
(losses) based upon the difference between fixed prices in the CFD compared to
variable prices paid to the Pool for future electricity purchases are not
recognized until the period of such settlements.
The Company enters into interest rate and cross currency swaps as a part of
its overall risk management strategy and does not hold or issue material
amounts of derivative financial instruments for trading purposes. The Company
accounts for these derivative financial instruments in accordance with
Statements of Financial Accounting Standards No. 80, "Accounting for Futures
Contracts" and various Emerging Issues Task Force pronouncements. If the
interest rate and cross currency swaps were to be sold or terminated, any gain
or loss would be deferred and amortized over the remaining life of the debt
instrument being hedged by the swaps. If the debt instrument being hedged by
the swaps were to be extinguished, any gain or loss attributable to the swap
would be recognized in the period of the transaction.
The Company considers the carrying amounts of financial instruments
classified as current assets and liabilities to be a reasonable estimate of
their fair value because of the short maturity of these instruments.
CASH AND CASH EQUIVALENTS
The Company considers all short-term investments with an original maturity
of three months or less to be cash equivalents.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is recorded at fair market value as adjusted
at the acquisition date in accordance with APB 16. Items capitalized
subsequent to the acquisition are recorded at original cost, which includes
materials, labor and appropriate overhead costs, and the estimated cost of
borrowed funds used during construction. During the year the Group changed its
estimates in respect of identifying the element of costs to be capitalized
within the distribution network. This change in estimate increased the amount
capitalized by (Pounds)15m. The Company's policy is to record depreciation on
a straight-line basis, except for distribution network assets which are
charged at 3% for 20 years and 2% for the remaining 20 years. Assets are
depreciated using the following estimated useful lives:
<TABLE>
<CAPTION>
YEARS
--------
<S> <C>
Distribution network................................................ 40
Generation.......................................................... 20
Buildings........................................................... Up to 60
Fixtures and equipment.............................................. Up to 10
Vehicles and mobile plant........................................... Up to 10
</TABLE>
GOODWILL
The Company's policy is to amortize costs in excess of fair value of net
assets of the business acquired using the straight-line method over a period
of 40 years. Recoverability (evaluated on the basis of undiscounted operating
cash flow analysis) is reviewed annually commencing March 31, 1999 or sooner
if events or changes in circumstances indicate that the carrying amount may
exceed fair value, in accordance with the provisions of Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets
F-40
<PAGE>
YORKSHIRE POWER GROUP LIMITED AND SUBSIDIARIES
(SUCCESSOR COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
and for Long-Lived Assets to be Disposed Of". Goodwill shown in the
accompanying consolidated balance sheet relates to the acquisition of YEG
(Note 14).
INVESTMENTS
The Company accounts for investments in debt and equity securities in
accordance with Statement of Financial Accounting Standards No. 115,
"Investments in Certain Debt and Equity Securities" ("SFAS 115"). The
Company's investments are classified as available-for-sale under SFAS 115.
Securities whose fair market values are readily determinable are reported at
fair value. Securities whose fair market values are not readily determinable
are recorded at the lower of cost or net realizable value.
INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes". This
standard requires that deferred income taxes be recorded for temporary
differences between the financial statement basis and the tax basis of assets
and liabilities and loss carryforwards and that deferred tax balances be based
on enacted tax laws at rates that are expected to be in effect when the
temporary differences reverse.
2. EXTRAORDINARY LOSS
In July 1997, the British Government announced a "windfall tax" to be
applied at that date to companies privatized by flotation and regulated by
relevant privatization statutes. The Company recorded an extraordinary loss of
(Pounds)134 million ($225 million) for this tax. The windfall tax is not
deductible for UK corporation tax purposes. Half of the tax was paid on
December 1, 1997 with the final installment due on or before December 1, 1998.
3. RETIREMENT BENEFITS
PENSION PLANS
The Company operates two plans, one based on defined contributions and a
second based on defined benefits.
DEFINED CONTRIBUTION
The defined contribution plan was established on December 1, 1991. From
April 1, 1995 new employees are only eligible to join this plan. The assets of
the defined contribution plan are held and administered by an independent
trustee. The cost recognized for this plan for the Fiscal Year 1998 was less
than (Pounds)1 million.
DEFINED BENEFIT
The Company participates in the Electricity Supply Pension Scheme, which
provides pension and other related defined benefits, based on final
pensionable pay, to substantially all employees throughout the electricity
supply industry in the UK.
The Company uses the projected unit credit actuarial method for accounting
purposes. Amounts funded to the pension are primarily invested in equity and
fixed income securities.
F-41
<PAGE>
YORKSHIRE POWER GROUP LIMITED AND SUBSIDIARIES
(SUCCESSOR COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following table sets forth the plan's funded status and amounts
recognized in the Company's consolidated balance sheet (in millions):
<TABLE>
<CAPTION>
MARCH 31, 1998
---------------
(Pounds) $
<S> <C> <C>
Actuarial present value of benefit obligation:
Accumulated benefit obligation:
Vested benefits........................................... 690 1,157
Non-vested benefits....................................... 25 42
---- ------
715 1,199
---- ------
Fair value of plan assets................................... 855 1,433
Projected benefit obligation for service rendered to date... (740) (1,240)
---- ------
Assets in excess of projected benefit obligation............ 115 193
Other unrecognized net gain................................. (40) (67)
---- ------
Prepaid pension asset....................................... 75 126
==== ======
</TABLE>
The weighted average rates assumed in the actuarial calculations were:
<TABLE>
<CAPTION>
MARCH 31,
1998
---------
%
<S> <C>
Discount rate...................................................... 6.0
Annual salary rate increase........................................ 5.25
Long-term rate of return on plan assets............................ 8.75
</TABLE>
The components of the plan's net periodic pension cost during the period is
shown below (in millions):
<TABLE>
<CAPTION>
YEAR ENDED
MARCH 31,
1998
-------------
(Pounds) $
<S> <C> <C>
Service cost (benefits earned during the period).............. 9 15
Interest cost on projected benefit obligation................. 50 84
Actual return on plan assets.................................. (150) (252)
Net amortization and deferral................................. 84 141
---- ----
Net periodic pension credit................................... (7) (12)
==== ====
</TABLE>
4. REGULATORY MATTERS
The distribution business of the Company is regulated under its PES license,
pursuant to which revenue of the distribution business is controlled by the
Distribution Price Control Formula ("DPCF"). The DPCF determines the maximum
average price per unit of electricity (expressed in pence per kilowatt hour)
that YEG can charge. The DPCF is usually set for a five-year period, subject
to more frequent adjustments as determined necessary by the Director General
of Electricity Supply (the "Regulator"). At each review, the Regulator can
adjust the value of certain elements in the DPCF. YEG's allowed distribution
revenues were reduced by a 14% below inflation reduction and a 13% below
inflation reduction on April 1, 1995 and 1996, respectively, following a
review by the Regulator. On April 1, 1997 and April 1, 1998, YEG's allowed
distribution revenues were decreased by an additional 3% below inflation
reduction, and there will be a further 3% below inflation reduction on April
1, 1999.
F-42
<PAGE>
YORKSHIRE POWER GROUP LIMITED AND SUBSIDIARIES
(SUCCESSOR COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company's supply business is also regulated by the Regulator. Until
March 31, 1998 prices were established based upon the Supply Price Control
Formula which was similar to the DPCF. New Price controls took effect from
April 1,1998. These new controls apply to the supply to all residential and
small business customers within the Yorkshire Franchise Area whose annual
consumption is under 12,000 kWh. They will apply until an adequate level of
competition is established and at least until March 31, 2000. The new controls
(when taken together with the reduction in the Fossil Fuel Levy which became
effective on April 1, 1998) have resulted in the implementation of small
reductions effective April 1, 1998 in the tariffs for the Company's
residential and small business customers compared to the corresponding tariffs
in effect at August 1997. These new controls also require an additional 3%
below inflation reduction effective April 1, 1999 and they have discontinued
the automatic pass-through of costs to residential and small business
customers, consisting primarily of purchased power costs. The Fossil Fuel Levy
is a levy instituted to reimburse generators and RECs for the extra costs
involved in obtaining a specified portion of generation from non-fossil fuel
plants.
Within the Franchise Area, the Company has an exclusive right to supply
electricity to Franchise Supply Customers. This exclusive right will continue
until September 1998 when the supply market for these customers is currently
scheduled to become competitive over a six month phase-in period. To
facilitate competition the distribution business has incurred significant
additional costs to develop "data management service" systems. The Regulator
has made proposals, which the Company has accepted, whereby (Pounds)23 million
of these costs shall be recovered over a 5 year period ending March 31, 2003.
The supply of electricity to Non-Franchise Supply Customers is currently
open to competition and YEG is able to competitively bid or negotiate to
supply electricity to such customers.
5. COMMITMENTS AND CONTINGENCIES
ELECTRICITY AND GAS PURCHASE AGREEMENTS
The Company and its subsidiaries have entered into contracts for purchases
of electricity and gas for a period of up to 2009. At March 31, 1998 a
provision of (Pounds)84 million ($141 million) has been made for the estimated
net present value of expected future payments in excess of anticipated
recoverable amounts, reflecting management's current expectations of market
prices for electricity following the opening of the competitive market to
Franchise Supply Customers and future gas prices.
The Company has additional contracts with unaffiliated parties relating to
the purchase of gas which expire by October 2005, the terms of which are
immaterial with respect to quantity and price, both annually and in the
aggregate.
LEGAL PROCEEDINGS
The Company is a party to legal proceedings arising in the ordinary course
of business which are not material, either individually or in the aggregate,
nor is it currently aware of any threatened material legal proceedings.
OPERATING LEASES
The Company has commitments under operating leases with various terms and
expiration dates. At March 31, 1998 estimated minimum rental commitments for
noncancelable operating leases were (Pounds)3 million ($5 million) for the
fiscal year ending March 31, 1999. Rental expenses incurred for operating
leases in the Fiscal Year 1998 were (Pounds)3 million ($5 million).
F-43
<PAGE>
YORKSHIRE POWER GROUP LIMITED AND SUBSIDIARIES
(SUCCESSOR COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Labor subject to Collective Bargaining Agreements A majority of the
Company's employees are subject to one of three collective bargaining
agreements. Such agreements are ongoing in nature, and the Company's employees
participation level is consistent with that of the electric utility industry
in the UK.
6. SEGMENT REPORTING
The Company is primarily engaged in two electric industry segments;
distribution, which involves the transmission of electricity across its
network to its customers, and supply, which involves bulk purchase of
electricity from the Pool for delivery to the distribution networks. Included
in "Other" are insignificant operating subsidiaries of the Company as well as
various corporate activities, and non-allocated corporate assets. Intersegment
sales primarily represent sales from distribution to supply for use of the
distribution networks. A summary of information about the Company's operations
by segments follows (in millions):
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, 1998
------------------------------------------------------------------------
DISTRIBUTION SUPPLY OTHER ELIMINATIONS CONSOLIDATED
-------------- -------------- ------------ ------------- --------------
(Pounds) $ (Pounds) $ (Pounds) $ (Pounds) $ (Pounds) $
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Operating revenues...... 305 511 1,118 1,874 203 340 (341) (571) 1,285 2,154
Operating income........ 115 193 25 42 24 40 (3) (5) 161 270
Depreciation and
amortization........... 63 106 2 3 13 22 -- -- 78 131
Total assets employed at
period end............. 1,903 3,190 157 263 402 673 -- -- 2,462 4,126
Capital expenditures.... 121 203 9 15 61 102 -- -- 191 320
</TABLE>
7. LOSS ON INVESTMENT IN IONICA
Yorkshire Group's investment in Ionica was initially included in its
consolidated balance sheet at its fair value at acquisition on April 1, 1997
of (Pounds)54 million plus a subsequent additional investment of (Pounds)1
million.
Management has written down the book value of the investment to their
estimate of fair value by charging an unrealized loss of (Pounds)41 million
($69 million) to the income statement during the year. The reduction in fair
value of the investment was recognized by management as "other than temporary"
following announcement by Ionica on May 22, 1998 that Ionica had been
unsuccessful in negotiating release of credit lines from existing providers of
bank finance and had been advised to obtain further equity investment prior to
seeking further bank funding. Management expects to take an additional charge
of (Pounds)6 million ($10 million) before taxes in the first quarter of Fiscal
Year 1999.
8. INCOME TAXES
The Company's income tax expense consists of the following (in millions):
<TABLE>
<CAPTION>
YEAR ENDED
MARCH 31,
1998
------------
(Pounds) $
<S> <C> <C>
Current......................................................... (5) (8)
Deferred........................................................ 4 6
--- ---
Total (1) (2)
=== ===
</TABLE>
F-44
<PAGE>
YORKSHIRE POWER GROUP LIMITED AND SUBSIDIARIES
(SUCCESSOR COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following is a reconciliation of the difference between the amount of
income taxes computed by multiplying book income before income taxes by the
statutory rate, and the amount of income taxes reported (in millions):
<TABLE>
<CAPTION>
YEAR ENDED
MARCH 31,
1998
------------
(Pounds) $
<S> <C> <C>
Income before taxes and extraordinary loss 16 26
Income taxes computed at statutory rate (31%).................. 5 8
Effect of change in tax rate on deferred taxes................. (12) (20)
Permanent differences.......................................... 10 17
Other.......................................................... (4) (7)
--- ---
Total income tax............................................. (1) (2)
=== ===
</TABLE>
The tax effect of temporary differences between the carrying amounts of
assets and liabilities in the consolidated balance sheet and their respective
tax bases, which give rise to deferred tax assets and liabilities, are as
follows (in millions):
<TABLE>
<CAPTION>
MARCH 31,
1998
------------
(Pounds) $
<S> <C> <C>
Deferred tax liabilities:
Property related temporary differences....................... 230 386
Pension...................................................... 22 37
Provision for electricity and gas contracts.................. (26) (44)
Other........................................................ (18) (31)
--- ---
Net deferred tax liability..................................... 208 348
Portion included in current liabilities........................ -- --
--- ---
Long-term deferred tax liability............................... 208 348
=== ===
</TABLE>
The tax years since 1993 are currently under review by the Inland Revenue in
the UK. In the opinion of management, the settlement of open years will not
have a material adverse effect on results of operations, financial position or
cash flows of the Company.
9. FINANCIAL INSTRUMENTS
YEG utilizes CFDs to mitigate its exposure to volatility in the prices of
electricity purchased through the Pool. Such contracts allow YEG to
effectively convert the majority of its anticipated Pool purchases from market
prices to fixed prices. CFDs are in place to hedge a portion of electricity
purchases on approximately 20,010 GWh through the year 2009. Accordingly, the
gains and losses on such contracts are deferred and recognized as electricity
is purchased. Management's estimate of the fair value of CFDs outstanding at
March 31, 1998 is a net liability of (Pounds)6 million ($10 million). This
estimate is based on management's projections of future prices of electricity.
The net liability will be recovered from franchise customers during Fiscal
Year 1999.
The Company is exposed to losses in the event of non-performance by
counterparties to its CFDs. To manage this credit risk, the Company selects
counterparties based on their credit ratings, limits its exposure to any one
counterparty under defined guidelines, and monitors the market position of the
programs and its relative
F-45
<PAGE>
YORKSHIRE POWER GROUP LIMITED AND SUBSIDIARIES
(SUCCESSOR COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
market position with each counterparty. As part of its risk management policy,
the Company enters into interest rate swap agreements under which
counterparties have agreed to pay amounts to the Company equal to variable
interest obligations in consideration of amounts payable by the Company
equivalent to fixed rates of interest. If the counterparty to the interest
rate swap was to default on contractual payments, the Company could be exposed
to increased costs related to replacing the original agreement. At March 31,
1998, the Company was party to interest rate swap agreements with a notional
value of (Pounds)150 million which were at fixed interest rates varying
between 7.275% and 7.335%. In February 1998, the Company issued $350 million
aggregate principal amount of 6.154% Senior Notes due 2003 and $300 million
aggregate principal amount of 6.496% Senior Notes due 2008. Upon issuance of
these notes, to hedge the currency exposure related to having sterling cash
flows and dollar interest payments, cross currency swaps were taken out,
maturing in 2003 and 2008. At March 31, 1998 the Company was party to cross
currency swap agreements with a notional value of (Pounds)400 million.
The estimated fair value of the Company's financial instruments are as
follows (in millions):
<TABLE>
<CAPTION>
MARCH 31, 1998
--------------------------------
CARRYING AMOUNT FAIR VALUE
--------------- ---------------
(Pounds) $ (Pounds) $
<S> <C> <C> <C> <C>
Long-term debt............................. (1,031) (1,728) (1,074) (1,801)
Cross currency swap agreements............. -- -- (38) (64)
Interest rate swap agreements.............. -- -- (11) (18)
</TABLE>
The fair value of long-term debt is estimated based on quoted market prices
for the same or similar issues or the current rates offered to the Company for
debt of the same remaining maturities. The fair values of interest rate and
cross currency swap agreements are estimated by obtaining quotes from brokers.
10. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following (in millions):
<TABLE>
<CAPTION>
MARCH 31, 1998
--------------
(Pounds) $
<S> <C> <C>
Distribution network......................................... 1,009 1,691
Generation................................................... 115 193
Non-network land and buildings............................... 38 64
Other........................................................ 112 188
Consumer contributions....................................... (229) (384)
----- -----
1,045 1,752
Accumulated depreciation..................................... (53) (89)
----- -----
Property, plant and equipment, net........................... 992 1,663
===== =====
</TABLE>
Arrangements have been put in place to entitle the British Government to a
proportion of any property gain (above certain thresholds) accruing as a
result of disposals, or events treated as disposals for these purposes,
occurring after March 31, 1990 in relation to land in which the Company had an
interest at that date (and, in certain circumstances, land in which the
Company acquires an interest thereafter from other members of the electricity
industry) and any buildings on that land. These arrangements will last until
March 31, 2000.
F-46
<PAGE>
YORKSHIRE POWER GROUP LIMITED AND SUBSIDIARIES
(SUCCESSOR COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
11. LONG-TERM DEBT
Long-term debt consisted of the following (in millions):
<TABLE>
<CAPTION>
MARCH 31, 1998
--------------
(Pounds) $
<S> <C> <C>
7.25% Guaranteed Eurobonds, due 2028......................... 197 330
8.625% Eurobonds, due 2005................................... 152 255
9.25% Eurobonds, due 2020.................................... 208 349
6.154% Senior Notes, due 2003................................ 215 360
6.496% Senior Notes, due 2008................................ 185 310
European Investment Bank:
7.52% credit facility, due 1999-2002....................... 15 25
6.55% credit facility, due 1997-2000....................... 13 22
8.05% amortizing term loan, due 2009....................... 46 77
----- -----
Total........................................................ 1,031 1,728
Less current maturities...................................... (5) (8)
----- -----
Long-term debt , net of current maturities................... 1,026 1,720
===== =====
</TABLE>
Long-term debt outstanding at March 31, 1998 is payable as follows (in
millions):
<TABLE>
<CAPTION>
(Pounds) $
<S> <C> <C>
For the Fiscal Years
1999.......................................................... 5 8
2000.......................................................... 11 18
2001.......................................................... 12 20
2002.......................................................... 7 12
2003.......................................................... 223 374
Thereafter.................................................... 773 1,296
----- -----
Total....................................................... 1,031 1,728
===== =====
</TABLE>
12. SHORT-TERM DEBT REFINANCED JUNE 1998
Yorkshire Capital Trust I, (the "Trust"), is a statutory business trust
created for the sole purpose of issuing trust securities and investing the
proceeds in an equivalent amount of Junior Subordinated Deferrable Interest
Debentures, Series A due 2038 issued by Yorkshire Power Finance Limited (YPF),
a subsidiary of YPG. On June 9, 1998 the Trust issued 11,000,000 8.08% Trust
Securities at the liquidation amount of $25 per Trust Security. The Trust
invested the $275 million proceeds in an equivalent amount of 8.08% Junior
Subordinated Deferrable Interest Debentures, Series A due 2038 of YPF, which
in turn, loaned the net proceeds to YPG. Substantially all of the Trust's
assets will consist of the Junior Subordinated Deferrable Interest Debentures.
YPG considers that the mechanisms and obligations relating to the Trust
Securities issued for its benefit, taken together, constitute a full and
unconditional guarantee by it of the Trust's payment obligations with respect
to the Trust Securities.
The issue raised net proceeds of (Pounds)162 million which will be used for
the repayment of short term debt.
F-47
<PAGE>
YORKSHIRE POWER GROUP LIMITED AND SUBSIDIARIES
(SUCCESSOR COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
13. SHORT-TERM DEBT
Short-term debt consisted of the following (in millions):
<TABLE>
<CAPTION>
MARCH 31,
1998
------------
(Pounds) $
<S> <C> <C>
Commercial paper................................................ -- --
Term loan and revolving credit facility......................... 303 508
Loan notes...................................................... 16 26
--- ---
Total......................................................... 319 534
=== ===
</TABLE>
At March 31, 1998 the weighted average interest rate was 7.9%.
The term loan and revolving credit facility agreement is a (Pounds)1.085
billion ($1.819 billion) credit facility. This credit facility consists of two
parts which are Facility A (term loan facility) for (Pounds)1.035 billion
($1.735 billion) and Facility B (revolving credit facility) for (Pounds)50
million ($84 million), both repayable on July 30, 1998. The interest rates on
the facilities are based on LIBOR plus a margin which ranges from 0.125% to
0.5% dependent on the time elapsed since the Facility became available, plus a
defined margin which is based on a bank cost of funds. The Facilities contain
certain restrictive covenants which include a maximum consolidated net debt to
capitalization ratio and minimum earnings to interest ratio.
The acquisition of YEG was financed in part by the issuance of (Pounds)22
million ($37 million) of loan notes to former YEG shareholders. These notes
are redeemable at the option of the holder, on March 31, 1998 and thereafter
on each March 31 prior to March 31, 2002. (Pounds)6 million of notes were
redeemed at March 31, 1998. Any loan notes outstanding at March 31, 2002 shall
be repaid in full at that date. The interest rate on the notes is 1% below the
rate at which National Westminster Bank plc is offering six month sterling
deposits of (Pounds)5 million in the London inter-bank market. At March 31,
1998, the interest rate was 6.6%.
At March 31, 1998 unused committed bank facilities were available to the
Company in the amount of (Pounds)275 million ($461 million). Commitment fees
of approximately 1/10 of 1% of the unused committed bank facilities are
required to maintain the facilities which have expiration dates between 2000
and 2002. In addition, the Company has commercial paper programs (denominated
in US dollars) which provide for the issuance of up to $550 million in
commercial paper with short-term maturities (up to 364 days) issued at a
discount to face value.
14. ACQUISITION
On February 24, 1997 the joint venture partners of the Company announced the
terms of a cash offer for YEG to be made by Yorkshire Holdings plc, a
subsidiary of the Company. The offer was declared wholly unconditional on
April 1, 1997. On April 16, 1997 notices were issued by Yorkshire Holdings plc
in accordance with section 429 of the Companies Act 1985 to acquire all those
YEG shares outstanding at the end of the requisite notice period.
Yorkshire Holdings plc completed its purchase of the shares of YEG during
April and May 1997 through payment of cash consideration of (Pounds)1.457
billion ($2.442 billion) and the issuance of loan notes to former YEG
shareholders in the amount of (Pounds)22 million ($37 million).
The acquisition was financed by cash contributions of (Pounds)220 million
($369 million) from each of the joint venture partners, against which shares
in the Company were subsequently allotted, and short term borrowings.
F-48
<PAGE>
YORKSHIRE POWER GROUP LIMITED AND SUBSIDIARIES
(SUCCESSOR COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The purchase price of YEG has been allocated to the underlying assets and
liabilities based on fair values at the acquisition date. The acquisition cost
exceeded the fair market value of net assets acquired, including (Pounds)17
million ($29 million) of acquisition related costs, by (Pounds)994 million
($1.666 billion) and is considered goodwill.
The net purchase price of (Pounds)1.496 billion ($2.508 billion) was
allocated as follows at April 1, 1997 (in millions):
<TABLE>
<CAPTION>
(Pounds) $
<S> <C> <C>
Property, plant and equipment............................... 939 1,574
Prepaid pension asset....................................... 61 102
Current assets.............................................. 464 778
Investments................................................. 133 223
Goodwill.................................................... 994 1,666
Current liabilities......................................... (367) (615)
Other liabilities........................................... (728) (1,220)
Purchase price.............................................. 1,496 2,508
</TABLE>
The unaudited pro forma consolidated historical result is based upon the
consolidated statements of income of YEG, as if YEG had been acquired at the
beginning of Fiscal Year 1997, and estimated to be (in millions):
<TABLE>
<CAPTION>
YEAR ENDED MARCH
31, 1997
-----------------
PRO
ACTUAL FORMA
-------- --------
(Pounds) (Pounds)
<S> <C> <C>
Operating revenues......................................... 1,331 1,331
Net income................................................. 26 15
</TABLE>
The pro forma results include amortization of goodwill, additional
depreciation expense and interest expense on debt issued to finance the
company, as well as the reversal of certain provisions made by YEG which would
have been accounted for as fair value adjustments at the date of acquisition.
The pro forma result is not necessarily indicative of what actually would have
occurred if the acquisition had been completed as of the beginning of the
fiscal year, nor is it necessarily indicative of future consolidated results.
15. EMPLOYEE OPTION AND SHARE PLANS
Prior to the acquisition of YEG by the Company, employees of YEG were
eligible to participate in the 1997 and 1996 Savings-Related Share Option
Schemes, Executive Share Option Scheme, Profit Sharing Scheme and/or the Long
Term Incentive Scheme. In connection with the acquisition, employees were
given the opportunity to exercise their options granted under the Savings-
Related Share Option Schemes and the Executive Share Option Scheme and sell
their shares to Yorkshire Holdings plc at a price of (Pounds)9.27 ($15.54) per
share. If the holders of the options did not exercise their options, such
options were cash canceled, that is the holders were paid (Pounds)9.27
($15.54) per share less the option's exercise price. There were 2,815,302
options outstanding, at April 1, 1997. During the year ended March 31, 1998,
2,675,674 options were cash canceled and 139,628 options were exercised. At
March 31, 1998 there are no outstanding options.
Prior to April 1, 1997, the following shares of YEG's stock were held in
trust on behalf of employees:
<TABLE>
<CAPTION>
SHARES
-------
<S> <C>
Profit Sharing Scheme................................................ 236,525
Long Term Incentive Scheme........................................... 54,025
</TABLE>
F-49
<PAGE>
YORKSHIRE POWER GROUP LIMITED AND SUBSIDIARIES
(SUCCESSOR COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
In connection with the acquisition, all shares of YEG issued under the Long
Term Incentive Scheme, as well as the National Grid Group plc shares held in
trust for the benefit of certain option holders, were transferred to employees
in accordance with vesting rights as previously established and the related
schemes and trusts were terminated.
16. UNAUDITED QUARTERLY FINANCIAL INFORMATION
<TABLE>
<CAPTION>
QUARTERLY PERIODS ENDED
1997/98
-----------------------------
JUNE SEPTEMBER DECEMBER MARCH
30 30 31 31
---- --------- -------- -----
(IN (Pounds) MILLIONS)
<S> <C> <C> <C> <C>
Operating revenues............................. 268 295 347 375
Operating income............................... 32 44 47 38
Net income (loss) before extraordinary item.... 5 21 16 (25)
Net income (loss).............................. 5 (113) 16 (25)
</TABLE>
The quarter ended September 30, 1997 includes an extraordinary loss of
(Pounds)134 million for windfall tax. The quarter ended March 31, 1998
includes an unrealized loss following the reduction in fair value of Yorkshire
Group's investment in Ionica Group plc of $41 million.
F-50
<PAGE>
REGISTERED OFFICE OF YORKSHIRE FINANCE
P. O. Box 309
George Town
Grand Cayman
Cayman Islands
REGISTERED OFFICE OF YORKSHIRE GROUP
Wetherby Road
Scarcroft
Leeds LS14 3HS
TRUSTEE, PAYING AGENT AND TRANSFER AGENT
The Bank of New York
101 Barclay Street
New York, New York 10286
PAYING AGENT AND TRANSFER AGENT
Banque Generale du Luxembourg S.A.
50 Avenue J.F. Kennedy
L-2951 Luxembourg
BOOK-ENTRY DEPOSITARY
The Bank of New York
101 Barclay Street
New York, New York 10286
LEGAL ADVISERS
To Yorkshire Finance To Yorkshire Finance To Yorkshire Finance
as and Yorkshire Group as and Yorkshire Group
to Cayman Islands law to United States law as to English law
Maples and Calder Dewey Ballantine LLP Allen & Overy
Ugland House 1301 Avenue of the One New Change
South Church Street Americas London EC4M 9QQ
Grand Cayman New York, New York
Cayman Islands 10019
AUDITORS
To Yorkshire Finance and Yorkshire Group
Deloitte & Touche Deloitte & Touche LLP
10-12 East Parade 155 East Broad Street
Leeds LS1 2AJ Columbus, Ohio 43215
LISTING AGENT
Banque Generale du Luxembourg S.A.
50 Avenue J.F. Kennedy
L-2951 Luxembourg
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY YORKSHIRE FINANCE OR YORKSHIRE GROUP. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE SE-
NIOR NOTES BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION
IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS
NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER
OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF YORKSHIRE FINANCE OR YORKSHIRE GROUP SINCE
THE DATE HEREOF.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information..................................................... 6
Enforceability of Civil Liabilities....................................... 6
Presentation of Certain Information and Exchange Rates.................... 7
UK Selling Restrictions................................................... 7
Cayman Islands Selling Restrictions....................................... 7
Forward Looking Statements................................................ 8
Summary................................................................... 9
Risk Factors.............................................................. 26
Yorkshire Group and the US Parents........................................ 34
Use of Proceeds........................................................... 36
Capitalization............................................................ 37
Selected Consolidated Financial Data...................................... 38
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 44
Business.................................................................. 56
The Electric Utility Industry in Great Britain............................ 65
Management................................................................ 78
Certain Relationships and Related Transactions............................ 80
Security Ownership........................................................ 80
The Exchange Offer........................................................ 81
Description of the Exchange Senior Notes.................................. 91
Description of the Original Securities.................................... 109
Certain Income Tax Considerations......................................... 110
Plan of Distribution...................................................... 116
ERISA Considerations...................................................... 117
Legal Opinions............................................................ 117
Experts................................................................... 117
Luxembourg Stock Exchange and Other Information........................... 117
Index to Financial Statements............................................. F-1
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
$650,000,000
YORKSHIRE POWER FINANCE LIMITED
$350,000,000
6.154% SERIES B SENIOR NOTES DUE 2003
$300,000,000
6.496% SERIES B SENIOR NOTES DUE 2008
GUARANTEED BY YORKSHIRE
POWER GROUP LIMITED
--------------------
PROSPECTUS
--------------------
JULY , 1998
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Under English law there is a general rule that any provision (whether
contained in a company's articles or in any other arrangement with the
company) exempting an officer of the company from, or indemnifying him
against, any liability for negligence, default, breach of duty or breach of
trust in relation to the company is void (this would include liability for
fraud or dishonesty). As an exception to this rule, a company may indemnify an
officer against a liability incurred by him in defending any proceedings
(whether civil or criminal), in which judgment is given in his favor or in
which he is acquitted. A company may also give an indemnity where, in any
proceedings against a director, the court relieves him from liability for
negligence, default, or breach of duty or breach of trust where he has acted
honestly and reasonably and having regard to all the circumstances, ought
fairly to be excused from liability. An indemnity is permitted where a
director acts within his powers and is not guilty of negligence or other
breach of duty. A company is also permitted to purchase insurance against any
such liability.
Subject to the general rule set out above, the Articles of Association of
Yorkshire Group provide that every director, other officer or auditor of
Yorkshire Group shall be indemnified out of the assets of Yorkshire Group
against any liability incurred by him in the actual or purported execution or
discharge of his duties or the exercise or purported exercise of his powers or
otherwise in relation to or in connection with his duties, powers or office.
This indemnity (i) shall not apply to any liability to the extent that it is
recovered from any other person and (ii) is subject to such officer or auditor
taking all reasonable steps to effect such recovery, so that the indemnity
shall not apply to the extent that an alternative right of recovery is capable
of being enforced.
Pursuant to the Memorandum and Articles of Association of Yorkshire Finance,
the directors and officers for the time being of Yorkshire Finance and any
trustee for the time being acting in relation to any of the affairs of
Yorkshire Finance and their heirs, executors, administrators and personal
representatives respectively shall be indemnified out of the assets of
Yorkshire Finance from and against all actions, proceedings, costs, charges,
losses, damages and expenses which they or any of them shall or may incur or
sustain by reason of any act done or omitted in or about the execution of
their duty in their respective offices or trusts, except such (if any) as they
shall incur or sustain by or through their own wilful neglect or default
respectively and no such director, officer or trustee shall be answerable for
the acts, receipts, neglects or defaults of any other director, officer or
trustee or for joining in any receipt for the sake of conformity or for the
solvency or honesty of any banker or other persons with whom any monies or
effects belonging to Yorkshire Finance may be lodged or deposited for safe
custody or for any insufficiency of any security upon which any monies of
Yorkshire Finance may be invested or for any other loss or damage due to any
such cause as aforesaid or which may happen in or about the execution of his
office or trust unless the same shall happen through the wilful neglect or
default of such director, officer or trustee.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
<TABLE>
<CAPTION>
EXHIBITS
--------
<C> <S>
3.1 Memorandum and Articles of Association of Yorkshire Power Group
Limited (Designated in Registration No. 333-47925 as Exhibit 3.1)
3.2 Certificate of Incorporation of Yorkshire Power Group Limited
(Designated in Registration No. 333-47925 as Exhibit 3.2)
3.3 Memorandum and Articles of Incorporation of Yorkshire Power Finance
Limited (Designated in Registration No. 333-47925 as Exhibit 3.3)
3.4 Certificate of Incorporation of Yorkshire Power Finance Limited
(Designated in Registration No. 333-47925 as Exhibit 3.4)
4.1 Indenture, dated as of February 1, 1998, among Yorkshire Power Group
Limited, Yorkshire Power Finance Limited, Banque Generale du
Luxembourg, as paying agent and transfer agent, and the Indenture
Trustee relating to the Senior Notes (Designated in Yorkshire Power
Group Limited's Annual Report on Form 10-K for the Fiscal Year
Ended March 31, 1998 (File No. 333-47925) (the "1998 Form 10-K") as
Exhibit 4.8)
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBITS
--------
<C> <S>
4.2 First Supplemental Indenture, dated as of February 25, 1998, to
Indenture among Yorkshire Power Group Limited, Yorkshire Power
Finance Limited, Banque Generale du Luxembourg, as paying agent and
transfer agent, and the Indenture Trustee relating to the Senior
Notes due 2003 (Designated in Yorkshire Power Group Limited's 1998
Form 10-K as Exhibit 4.9)
4.3 Second Supplemental Indenture, dated as of February 25, 1998, to
Indenture among Yorkshire Power Group Limited, Yorkshire Power
Finance Limited, Banque Generale du Luxembourg, as paying agent and
transfer agent, and the Indenture Trustee relating to the Senior
Notes due 2008 (Designated in Yorkshire Power Group Limited's 1998
Form 10-K as Exhibit 4.10)
4.4 Forms of Certificate of Senior Notes (included as Exhibits A and B to
Exhibits 4.2 and 4.3)
*4.5 Registration Rights Agreement, dated February 25, 1998, among
Yorkshire Power Group Limited, Yorkshire Power Finance Limited and
the initial purchasers
4.6 Deposit Agreement, dated as of February 1, 1998, between Yorkshire
Power Finance Limited and the Book-Entry Depositary (Designated in
Yorkshire Power Group Limited's 1998 Form 10-K as Exhibit 4.11)
*5.1 Opinion of Dewey Ballantine LLP, US counsel to Yorkshire Power Group
Limited, as to enforceability the Notes Guarantee
*5.2 Opinion of Maples and Calder, Cayman Islands counsel to Yorkshire
Power Finance Limited, as to the validity of the Senior Notes
*8.1 Opinion of Dewey Ballantine LLP, special tax counsel, as to certain
United States federal income tax matters
*8.2 Opinion of Allen & Overy, special tax counsel, as to certain United
Kingdom tax matters
*8.3 Opinion of Maples and Calder, special tax counsel, as to certain
Cayman Islands tax matters
10.1 Yorkshire Electricity Group plc Public Electricity Supply License
dated March 26, 1990 as modified by modifications dated March 30,
1994, March 31, 1995, September 25, 1995, December 11, 1997,
December 30, 1997 and March 31, 1998. (Designated in Registration
No. 333-47925 as Exhibit 10.1)
10.2 Second Tier License to Supply Electricity for England and Wales for
Yorkshire Electricity Group plc dated June 8, 1990. (Designated in
Registration No. 333-47925 as Exhibit 10.2)
10.3 Modifications to Yorkshire Electricity Group plc Second Tier License
to Supply Electricity for England and Wales dated October 24, 1990,
April 22, 1992, March 11, 1994, April 29, 1994 and January 19, 1998.
(Designated in Registration No. 333-47925 as Exhibit 10.3)
10.4 Second Tier License to Supply Electricity for Scotland for Yorkshire
Electricity Group plc dated March 25, 1991. (Designated in
Registration No. 333-47925 as Exhibit 10.4)
10.5 Modifications to Yorkshire Electricity Group plc Second Tier License
to Supply Electricity for Scotland dated June 15, 1992, June 30,
1993, March 11, 1994 and January 20, 1998. (Designated in
Registration No. 333-47925 as Exhibit 10.5)
10.6 Pooling and Settlement Agreement dated March 30, 1990 among Yorkshire
Electricity Group plc, National Grid Company plc and other parties.
(Designated in Registration No. 333-47925 as Exhibit 10.6)
10.7 Master Connection and Use of System Agreement dated as of March 30,
1990 among The National Grid Company plc, and its users (including
Yorkshire Electricity Group plc). (Designated in Registration No.
333-47925 as Exhibit 10.7)
10.8 Master Agreement dated as of October 25, 1995 among The National Grid
Holding plc, The
National Grid Company plc, Yorkshire Electricity Group plc and the
other REC's. (Designated in Registration No. 333-47925 as Exhibit
10.8)
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
(A) EXHIBITS
------------
<C> <S>
10.9 Memorandum of Understanding among The National Grid Group plc,
Yorkshire Electricity Group plc and the other REC's, dated
November 17, 1995. (Designated in Registration No. 333-47925 as
Exhibit 10.9)
10.10 Agreement for (Pounds)1,085,000,000 Credit Facility for Yorkshire
Power Group Limited between Yorkshire Power Group Limited and
Union Bank of Switzerland. (Designated in Registration No. 333-
47925 as Exhibit 10.10)
10.11 Master Registration Agreement, dated as of June 1, 1998, among
Yorkshire Electricity Group plc, Energy Pool Funds
Administration Limited and other parties (Designated in
Yorkshire Power Group Limited's 1998 Form 10-K as Exhibit 10.11)
12.1 Computation of ratios of earnings to fixed charges (Designated in
Yorkshire Power Group Limited's Form 10-K as Exhibit 12.1)
21.1 List of Subsidiaries of Yorkshire Power Group Limited (Designated
in Registration No. 333-47925 as Exhibit 21.1)
*23.1 Consent of Deloitte & Touche
*23.2 Consent of Deloitte & Touche LLP
*23.3 Consent of Dewey Ballantine LLP (included in Exhibit 5.1)
*23.4 Consent of Maples & Calder (included in Exhibit 5.2)
*23.5 Consent of Allen & Overy (included in Exhibit 8.2)
*24.1 Power of Attorney of certain officers and directors of Yorkshire
Power Group Limited
*24.2 Power of Attorney of certain officers and directors of Yorkshire
Power Finance Limited
*25.1 Statement of Eligibility under the 1939 Act of The Bank of New
York, as Indenture Trustee under the Indenture
*99.1 Form of Letter of Transmittal
*99.2 Form of Notice of Guaranteed Delivery
*99.3 Form of Exchange Agent Agreement
</TABLE>
Exhibits listed above which have heretofore been filed with the Commission
and which were designated as noted above are hereby incorporated herein by
reference and made a part hereof with the same effect as if filed herewith.
- --------
Certain of the above exhibits, designated with an asterisk (*), are filed
herewith.
(b) Financial Statement Schedules
The following financial statement schedule is filed as part of this
Registration Statement:
Schedule II--Valuation and Qualifying Accounts.
ITEM 22. UNDERTAKINGS.
The undersigned registrants hereby undertake:
(1) That, insofar as indemnification for liabilities arising under the
Securities Act of 1933, may be permitted to directors, officers and
controlling persons of the registrants pursuant to the foregoing
provisions, or otherwise, the registrants have been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act of 1933 and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrants of
expenses incurred or paid by a director, officer or controlling person of
the registrants in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrants will,
unless in the opinion of their counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by them is against public policy as
expressed in the Securities Act of 1933 and will be governed by the final
adjudication of such issue.
(2) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein,
that was not the subject of and included in the registration statement when
it became effective.
II-3
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THE
REGISTRANT, YORKSHIRE POWER GROUP LIMITED, CERTIFIES THAT IT HAS DULY CAUSED
THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED,
THEREUNTO DULY AUTHORIZED, IN THE CITY OF COLUMBUS, STATE OF OHIO, ON THE 21
DAY OF JULY, 1998.
Yorkshire Power Group Limited
By: Wayne H. Brunetti
CHAIRMAN AND DIRECTOR
/s/ Armando A. Pena
By: _________________________________
ARMANDO A. PENA
ATTORNEY-IN-FACT
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE
Wayne H. Brunetti Chairman and July 21, 1998
Director (Principal
Executive Officer)
Donald M. Clements, Jr. Director July 21, 1998
Armando A. Pena Director, Chief July 21, 1998
Financial Officer
(Principal
Financial Officer
and Principal
Accounting Officer)
Dr. E. Linn Draper, Jr. Director July 21, 1998
Richard C. Kelly Director July 21, 1998
II-4
<PAGE>
SIGNATURE TITLE DATE
Teresa S. Madden Director July 21, 1998
/s/ Armando A. Pena July 21, 1998
- -------------------------------------
ARMANDO A. PENA
ATTORNEY-IN-FACT
/s/ Armando A. Pena Authorized July 21, 1998
- ------------------------------------- Representative in
ARMANDO A. PENA the United States
II-5
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THE
REGISTRANT, YORKSHIRE POWER FINANCE LIMITED, CERTIFIES THAT IT HAS DULY CAUSED
THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED,
HEREUNTO DULY AUTHORIZED, IN THE CITY OF COLUMBUS, STATE OF OHIO, ON THE 21ST
DAY OF JULY, 1998.
Yorkshire Power Finance Limited
By: Graham J. Hall
Director
/s/ Armando A. Pena
By: _________________________________
Armando A. Pena
Attorney-in-Fact
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING DIRECTORS AND OFFICERS
OF YORKSHIRE POWER FINANCE LIMITED IN THE CAPACITIES AND ON THE DATE
INDICATED.
SIGNATURE TITLE DATE
Graham J. Hall Director (Principal July 21, 1998
Executive Officer)
Roger Dickinson Director July 21, 1998
Andrew G. Donnelly Director (Principal July 21, 1998
Financial Officer,
Principal
Accounting Officer)
/s/ Armando A. Pena July 21, 1998
_____________________________________
ARMANDO A. PENA
ATTORNEY-IN-FACT
/s/ Armando A. Pena Authorized July 21, 1998
_____________________________________ Representative in
ARMANDO A. PENA the United States
II-6
<PAGE>
INDEPENDENT AUDITORS' REPORT
To The Shareholders and Board of Directors
of Yorkshire Electricity Group plc and Subsidiaries
We have audited the consolidated financial statements of Yorkshire
Electricity Group plc and its subsidiaries (the "Company") as of March 31,
1997 and 1996, and for each of the three years in the period ended March 31,
1997, and have issued our report thereon dated July 15, 1997 (December 31,
1997 as to Note 14); such report is included elsewhere in this Form S-4. Our
audits also included the financial statement schedule of the Company, listed
in Item 21. This financial statement schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion based on our
audits. In our opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
Deloitte & Touche
Leeds
United Kingdom
July 15, 1997
II-7
<PAGE>
INDEPENDENT AUDITORS' REPORT
To The Shareholders and Board of Directors
of Yorkshire Power Group Limited and Subsidiaries
We have audited the consolidated financial statements of Yorkshire Power Group
Limited and its subsidiaries (the "Company") as of March 31, 1998 and, for the
year ended March 31, 1998, and have issued our report thereon dated June 10,
1998; such report is included elsewhere in this Form S-4. Our audit is also
included the financial statement schedule of the Company, listed in Item 21.
This financial statement schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion based on our audit. In
our opinion, such financial statement schedule, when considered in relation to
the basic consolidated financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.
Deloitte & Touche LLP
Columbus, Ohio
June 10, 1998
II-8
<PAGE>
YORKSHIRE ELECTRICITY GROUP PLC
(PREDECESSOR COMPANY)
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(IN MILLIONS)
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
-------- ------------ --------------------- ---------- --------------
ADDITIONS
---------------------
BALANCE AT CHARGED TO CHARGED TO
BEGINNING OF COSTS AND OTHER BALANCE AT END
DESCRIPTION PERIOD EXPENSES ACCOUNTS DEDUCTIONS OF PERIOD
----------- ------------ ---------- ---------- ---------- --------------
(Pounds) (Pounds) (Pounds) (Pounds) (Pounds)
<S> <C> <C> <C> <C> <C>
DEDUCTED FROM ASSETS:
Accumulated Provision
for Uncollectible
Accounts............. 7 5 6(c) 6
Investment Provision.. 2 2
--- --- --- --- ---
YEAR ENDED MARCH 31,
1997................... 7 7 6 8
=== === === === ===
Accumulated Provision
for Uncollectible
Accounts............. 10 4 7(c) 7
Investment Provision.. 9 (8)(b) 1(d)
--- --- --- --- ---
YEAR ENDED MARCH 31,
1996................... 19 4 (8) 8 7
=== === === === ===
Accumulated Provision
for Uncollectible
Accounts............. 9 9 8(c) 10
Investment Provision.. 17 7 (2)(a) 13(d) 9
--- --- --- --- ---
YEAR ENDED MARCH 31,
1995................... 26 16 (2) 21 19
=== === === === ===
</TABLE>
- --------
(a) Provision reclassified due to repayment of loan by associate
(b) Provision transferred to a liability account for liabilities assumed in
connection with the sale of retailing joint venture
(c) Uncollectible accounts written-off
(d) Write-off investment
<PAGE>
YORKSHIRE POWER GROUP LIMITED
(SUCCESSOR COMPANY)
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(IN MILLIONS)
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
-------- ------------ --------------------- ---------- ----------
ADDITIONS
---------------------
BALANCE AT CHARGED TO CHARGED IN BALANCE AT
BEGINNING OF COSTS AND OTHER END OF
DESCRIPTION PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
----------- ------------ ---------- ---------- ---------- ----------
(Pounds) (Pounds) (Pounds) (Pounds) (Pounds)
<S> <C> <C> <C> <C> <C>
YEAR ENDED MARCH 31,
1998
DEDUCTED FROM ASSETS:
Accumulated Provision
for:
Uncollectible
Accounts............. 6 6 -- 6(a) 6
--- --- --- --- ---
6 6 -- 6 6
=== === === === ===
</TABLE>
- --------
(a) Uncollectible accounts written-off
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
3.1 Memorandum and Articles of Association of Yorkshire Power Group
Limited (Designated in Registration No. 333-47925 as Exhibit 3.1)
3.2 Certificate of Incorporation of Yorkshire Power Group Limited
(Designated in Registration No. 333-47925 as Exhibit 3.2)
3.3 Memorandum and Articles of Incorporation of Yorkshire Power Finance
Limited (Designated in Registration No. 333-47925 as Exhibit 3.3)
3.4 Certificate of Incorporation of Yorkshire Power Finance Limited
(Designated in Registration No. 333-47925 as Exhibit 3.4)
4.1 Indenture, dated as of February 1, 1998, among Yorkshire Power Group
Limited, Yorkshire Power Finance Limited, Banque Generale du
Luxembourg, as paying agent and transfer agent, and the Indenture
Trustee relating to the Senior Notes (Designated in Yorkshire Power
Group Limited's Annual Report on Form 10-K for the Fiscal Year Ended
March 31, 1998 (File No. 333-47925) (the "1998 Form 10-K") as
Exhibit 4.8)
4.2 First Supplemental Indenture, dated as of February 25, 1998, to
Indenture among Yorkshire Power Group Limited, Yorkshire Power
Finance Limited, Banque Generale du Luxembourg, as paying agent and
transfer agent, and the Indenture Trustee relating to the Senior
Notes due 2003 (Designated in Yorkshire Power Group Limited's 1998
Form 10-K as Exhibit 4.9)
4.3 Second Supplemental Indenture, dated as of February 25, 1998, to
Indenture among Yorkshire Power Group Limited, Yorkshire Power
Finance Limited, Banque Generale du Luxembourg, as paying agent and
transfer agent, and the Indenture Trustee relating to the Senior
Notes due 2008 (Designated in Yorkshire Power Group Limited's 1998
Form 10-K as Exhibit 4.10)
4.4 Forms of Certificate of Senior Notes (included as Exhibits A and B to
Exhibits 4.2 and 4.3)
*4.5 Registration Rights Agreement, dated February 25, 1998, among
Yorkshire Power Group Limited, Yorkshire Power Finance Limited and
the initial purchasers
4.6 Deposit Agreement, dated as of February 1, 1998, between Yorkshire
Power Finance Limited and the Book-Entry Depositary (Designated in
Yorkshire Power Group Limited's 1998 Form 10-K as Exhibit 4.11)
*5.1 Opinion of Dewey Ballantine LLP, US counsel to Yorkshire Power Group
Limited, as to enforceability the Notes Guarantee
*5.2 Opinion of Maples and Calder, Cayman Islands counsel to Yorkshire
Power Finance Limited, as to the validity of the Senior Notes
*8.1 Opinion of Dewey Ballantine LLP, special tax counsel, as to certain
United States federal income tax matters
*8.2 Opinion of Allen & Overy, special tax counsel, as to certain United
Kingdom tax matters
*8.3 Opinion of Maples and Calder, special tax counsel, as to certain
Cayman Islands tax matters
10.1 Yorkshire Electricity Group plc Public Electricity Supply License
dated March 26, 1990 as modified by modifications dated March 30,
1994, March 31, 1995, September 25, 1995, December 11, 1997,
December 30, 1997 and March 31, 1998. (Designated in Registration
No. 333-47925 as Exhibit 10.1)
10.2 Second Tier License to Supply Electricity for England and Wales for
Yorkshire Electricity Group plc dated June 8, 1990. (Designated in
Registration No. 333-47925 as Exhibit 10.2)
10.3 Modifications to Yorkshire Electricity Group plc Second Tier License
to Supply Electricity for England and Wales dated October 24, 1990,
April 22, 1992, March 11, 1994, April 29, 1994 and January 19, 1998.
(Designated in Registration No. 333-47925 as Exhibit 10.3)
10.4 Second Tier License to Supply Electricity for Scotland for Yorkshire
Electricity Group plc dated March 25, 1991. (Designated in
Registration No. 333-47925 as Exhibit 10.4)
10.5 Modifications to Yorkshire Electricity Group plc Second Tier License
to Supply Electricity for Scotland dated June 15, 1992, June 30,
1993, March 11, 1994 and January 20, 1998. (Designated in
Registration No. 333-47925 as Exhibit 10.5)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.6 Pooling and Settlement Agreement dated March 30, 1990 among Yorkshire
Electricity Group plc, National Grid Company plc and other parties.
(Designated in Registration No. 333-47925 as Exhibit 10.6)
10.7 Master Connection and Use of System Agreement dated as of March 30,
1990 among The National Grid Company plc, and its users (including
Yorkshire Electricity Group plc). (Designated in Registration No.
333-47925 as Exhibit 10.7)
10.8 Master Agreement dated as of October 25, 1995 among The National Grid
Holding plc, The
National Grid Company plc, Yorkshire Electricity Group plc and the
other REC's. (Designated in Registration No. 333-47925 as Exhibit
10.8)
10.9 Memorandum of Understanding among The National Grid Group plc,
Yorkshire Electricity Group plc and the other REC's, dated November
17, 1995. (Designated in Registration No. 333-47925 as Exhibit 10.9)
10.10 Agreement for (Pounds)1,085,000,000 Credit Facility for Yorkshire
Power Group Limited between Yorkshire Power Group Limited and Union
Bank of Switzerland. (Designated in Registration No. 333-47925 as
Exhibit 10.10)
10.11 Master Registration Agreement, dated as of June 1, 1998, among
Yorkshire Electricity Group plc, Energy Pool Funds Administration
Limited and other parties (Designated in Yorkshire Power Group
Limited's 1998 Form 10-K as Exhibit 10.11)
12.1 Computation of ratios of earnings to fixed charges (Designated in
Yorkshire Power Group Limited's Form 10-K as Exhibit 12.1)
21.1 List of Subsidiaries of Yorkshire Power Group Limited (Designated in
Registration No. 333-47925 as Exhibit 21.1)
*23.1 Consent of Deloitte & Touche
*23.2 Consent of Deloitte & Touche LLP
*23.3 Consent of Dewey Ballantine LLP (included in Exhibit 5.1)
*23.4 Consent of Maples & Calder (included in Exhibit 5.2)
*23.5 Consent of Allen & Overy (included in Exhibit 8.2)
*24.1 Power of Attorney of certain officers and directors of Yorkshire Power
Group Limited
*24.2 Power of Attorney of certain officers and directors of Yorkshire Power
Finance Limited
*25.1 Statement of Eligibility under the 1939 Act of The Bank of New York,
as Indenture Trustee under the Indenture
*99.1 Form of Letter of Transmittal
*99.2 Form of Notice of Guaranteed Delivery
*99.3 Form of Exchange Agent Agreement
</TABLE>
- --------
Certain of the above exhibits, designated with an asterisks (*), are filed
herewith.
<PAGE>
EXHIBIT 4.5
- -------------------------------------------------------------------------------
Registration Rights Agreement
Dated February 25, 1998
among
Yorkshire Power Finance Limited
and
Yorkshire Power Group Limited
and
Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith Incorporated
Salomon Brothers Inc
J.P. Morgan Securities Inc.
Morgan Stanley & Co. Incorporated
UBS Securities LLC
as Initial Purchasers
- -------------------------------------------------------------------------------
<PAGE>
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "Agreement") is made and entered
---------
into this 25th day of February, 1998 among Yorkshire Power Finance Limited, a
company with limited liability incorporated under the laws of the Cayman Islands
(the "Issuer"), Yorkshire Power Group Limited, a private company with limited
------
liability incorporated in England (the "Guarantor"), and Merrill Lynch & Co.,
---------
Merrill Lynch, Pierce, Fenner & Smith Incorporated, Salomon Brothers Inc, J.P.
Morgan Securities Inc., Morgan Stanley & Co. Incorporated and UBS Securities LLC
(collectively, the "Initial Purchasers").
------------------
This Agreement is made pursuant to the Purchase Agreement dated February
19, 1998 among the Issuer, the Guarantor and the Initial Purchasers (the
"Purchase Agreement"), which provides for, among other things, the sale by the
- -------------------
Issuer to the Initial Purchasers of an aggregate of $350,000,000 aggregate
principal amount of the Issuer's 6.154% Series A Senior Notes due 2003 (the
"2003 Notes") and $300,000,000 aggregate principal amount of the Issuer's 6.496%
- -----------
Series A Senior Notes due 2008 (the "2008 Notes" and, together with the 2003
----------
Notes, the "Securities"). The Securities are to be issued by the Issuer pursuant
----------
to the provisions of an Indenture dated as of February 1, 1998, as supplemented
by the First Supplemental Indenture and the Second Supplemental Indenture
thereto each dated as of February 25, 1998, among the Issuer, the Guarantor, The
Bank of New York, as trustee, principal paying agent, registrar and transfer
agent (the "Trustee"), and Banque Generale du Luxembourg S.A., as paying and
-------
transfer agent (the "Paying Agent") (such Indenture, as so supplemented and as
------------
it may be further amended, supplemented or otherwise modified from time to time,
the "Indenture"). The Guarantor will irrevocably and unconditionally guarantee
---------
the due and punctual payment of principal of and premium, if any, and interest
on the Securities and the Exchange Securities (as defined in Section 1 hereof),
when and as the same shall become due and payable, whether at maturity, upon
redemption or otherwise (including any Additional Amounts (as defined in the
Indenture)) (the "Guarantee").
---------
In order to induce the Initial Purchasers to enter into the Purchase
Agreement, the Issuer and the Guarantor have agreed to provide to the Initial
Purchasers and their direct and indirect transferees the registration rights set
forth in this Agreement. The execution and delivery of this Agreement is a
condition to the closing under the Purchase Agreement.
In consideration of the foregoing, the parties hereto agree as follows:
1. Definitions. As used in this Agreement, the following capitalized defined
-----------
terms shall have the following meanings:
"2003 Notes" shall have the meaning set forth in the preamble to this
----------
Agreement.
"2008 Notes" shall have the meaning set forth in the preamble to this
----------
Agreement.
1
<PAGE>
"Additional Interest" shall have the meaning set forth in Section 2(e)
-------------------
hereof.
"Advice" shall have the meaning set forth in the last paragraph of Section
------
3 hereof.
"AICPA" shall have the meaning set forth in Section 3(m) hereof.
-----
"Agreement" shall have the meaning set forth in the preamble to this
---------
Agreement.
"Applicable Period" shall have the meaning set forth in Section 3(t)
-----------------
hereof.
"Business Day" shall mean each day that is not a Saturday, a Sunday or a
------------
day on which banking institutions in New York, New York are authorized or
obligated by law to remain closed.
"Company Counsel" shall have the meaning set forth in Section 4(a) hereof.
---------------
"Depositary" shall mean The Depository Trust Company, or any other
----------
depositary appointed by the Issuer; provided, however, that such depositary must
have an address in New York, New York.
"Effectiveness Period" shall have the meaning set forth in Section 2(b)
--------------------
hereof.
"Event Date" shall have the meaning set forth in Section 2(e) hereof.
----------
"Exchange Act" shall mean the United States Securities Exchange Act of
------------
1934, as amended from time to time.
"Exchange Offer" shall mean the offer by the Issuer to the Holders to
--------------
exchange all of the Registrable Securities for a like principal amount of
Exchange Securities pursuant to Section 2(a) hereof.
"Exchange Offer Registration" shall mean the registration under the
---------------------------
Securities Act effected pursuant to Section 2(a) hereof.
"Exchange Offer Registration Statement" shall mean an exchange offer
-------------------------------------
registration statement of the Issuer and the Guarantor pursuant to the
provisions of Section 2(a) hereof that registers the Exchange Securities and the
Guarantee on Form S-4 (or, if applicable, on another appropriate form), and all
amendments and supplements to such registration statement, including post-
effective amendments, in each case including the Prospectus contained therein,
all exhibits thereto and all material incorporated by reference therein.
"Exchange Period" shall have the meaning set forth in Section 2(a)(ii)(B)
---------------
hereof.
"Exchange Securities" shall mean, collectively, (a) the 6.154% Series B
-------------------
Senior Notes due 2003 and (b) the 6.496% Series B Senior Notes due 2008 issued
by the Issuer under the Indenture containing terms substantially identical to
the Securities (except that
2
<PAGE>
they will not contain terms with respect to transfer restrictions under the
Securities Act and will not provide for any Additional Interest under certain
circumstances as set forth herein).
"Guarantee" shall have the meaning set forth in the preamble to this
---------
Agreement.
"Guarantor" shall have the meaning set forth in the preamble to this
---------
Agreement and also includes the Guarantor's successors and permitted assigns.
"Holder" shall mean the Initial Purchasers, for so long as they own any
------
Registrable Securities, and each of their respective successors, assigns and
direct and indirect transferees who are Holders (as defined in the Indenture) of
Registrable Securities under the Indenture.
"Indenture" shall have the meaning set forth in the preamble to this
---------
Agreement.
"Initial Purchasers" shall have the meaning set forth in the preamble to
------------------
this Agreement.
"Inspectors" shall have the meaning set forth in Section 3(n) hereof.
----------
"Issuer" shall have the meaning set forth in the preamble to this Agreement
------
and also includes the Issuer's successors and permitted assigns.
"Judgment Currency" shall have the meaning set forth in Section 7(m)
-----------------
hereof.
"Majority Holders" shall mean the Holders of a majority of the aggregate
----------------
principal amount of outstanding (as determined under the Indenture) Registrable
Securities.
"NASD" shall mean the National Association of Securities Dealers, Inc.
----
"Paying Agent" shall have the meaning set forth in the preamble to this
------------
Agreement.
"Participating Broker-Dealer" shall have the meaning forth in Section 3(t)
---------------------------
hereof.
"Person" shall mean an individual, partnership, limited liability company,
------
corporation, trust or unincorporated organization, or a government or agency or
political subdivision thereof.
"Prospectus" shall mean the prospectus included in a Registration
----------
Statement, including any preliminary prospectus, and any such prospectus as
amended or supplemented by any prospectus supplement, including a prospectus
supplement with respect to the terms of the offering of any portion of the
Registrable Securities covered by a Shelf Registration Statement, and by all
other amendments and supplements to a prospectus, including post-effective
amendments, and in each case including all material incorporated by reference
therein.
3
<PAGE>
"Purchase Agreement" shall have the meaning set forth in the preamble to
------------------
this Agreement.
"Records" shall have the meaning set forth in Section 3(n) hereof.
-------
"Registrable Securities" shall mean the Securities until (a) a Registration
----------------------
Statement with respect to such Securities for the exchange or resale thereof, as
the case may be, shall have been declared effective under the Securities Act by
the SEC and such Securities shall have been disposed of pursuant to such
Registration Statement, (b) such Securities shall have been sold to the public
pursuant to Rule 144(k) (or any similar provision then in force, but not Rule
144A) under the Securities Act, (c) such Securities shall have ceased to be
outstanding or (d) such Securities have been exchanged for Exchange Securities
upon consummation of the Exchange Offer and are thereafter freely tradeable by
the holder thereof (other than an affiliate of the Issuer or the Guarantor).
"Registration Expenses" shall mean any and all expenses incidental to
---------------------
performance of or compliance by the Issuer and the Guarantor with this
Agreement, including: (a) all registration and filing fees of the SEC and the
NASD, including, if applicable, the fees and expenses of any "qualified
independent underwriter" (and its counsel) that is required to be retained by
any Holder in accordance with the rules and regulations of the NASD, (b) all
fees and expenses incurred in connection with compliance with state securities
or blue sky laws (including reasonable fees and disbursements (not exceeding
$10,000) of counsel for any underwriters or Holders in connection with blue sky
qualification of any of the Exchange Securities or Registrable Securities) and
compliance with the rules of the NASD, (c) all expenses of any Persons in
preparing or assisting in preparing, word processing, printing and distributing
any Registration Statement, any Prospectus, including any amendments or
supplements thereto, and in preparing or assisting in preparing, printing and
distributing any underwriting agreements, securities sales agreements, exchange
agent agreements, dealer manager agreements and other documents relating to the
performance of and compliance with this Agreement, (d) all rating agency fees,
(e) the fees and disbursements of counsel for the Issuer and the Guarantor and
of the independent certified public accountants of the Issuer and the Guarantor,
including the expenses of any "cold comfort" letters required by or incident to
such performance and compliance, (f) the fees and expenses of the Trustee, the
Paying Agent and any exchange agent or custodian, (g) all fees and expenses
incurred in connection with the listing, if any, of any of the Registrable
Securities on any securities exchange or exchanges and (h) any fees and
disbursements of any underwriter customarily required to be paid by issuers or
sellers of securities and the reasonable fees and expenses of any special
experts retained by the Issuer or the Guarantor in connection with any
Registration Statement.
"Registration Statement" shall mean any registration statement of the
----------------------
Issuer and the Guarantor that registers any of the Exchange Securities or the
Registrable Securities and the Guarantee pursuant to the provisions of this
Agreement, including any Exchange Offer Registration Statement and Shelf
Registration Statement, and all amendments and supplements to such registration
statement, including post-effective amendments, in each
4
<PAGE>
case including the Prospectus contained therein, all exhibits thereto and all
material incorporated by reference therein.
"SEC" shall mean the United States Securities and Exchange Commission.
---
"Securities" shall have the meaning set forth in the preamble to this
----------
Agreement.
"Securities Act" shall mean the United States Securities Act of 1933, as
--------------
amended from time to time.
"Shelf Registration" shall mean a registration under the Securities Act
------------------
effected pursuant to Section 2(b) hereof.
"Shelf Registration Event" shall have the meaning set forth in Section 2(b)
------------------------
hereof.
"Shelf Registration Event Date" shall have the meaning set forth in Section
-----------------------------
2(b) hereof.
"Shelf Registration Statement" shall mean a shelf registration statement of
----------------------------
the Issuer and the Guarantor pursuant to the provisions of Section 2(b) hereof
that registers the Registrable Securities and the Guarantee on an appropriate
form pursuant to Rule 415 under the Securities Act, or any similar rule that may
be adopted by the SEC, and all amendments and supplements to such registration
statement, including post-effective amendments, in each case including the
Prospectus contained therein, all exhibits thereto and all material incorporated
by reference therein.
"Time of Purchase" shall mean the Time of Purchase as defined in the
----------------
Purchase Agreement.
"Trust Indenture Act" shall mean the United States Trust Indenture Act of
-------------------
1939, as amended from time to time.
"Trustee" shall have the meaning set forth in the preamble to this
-------
Agreement.
2. Registration Under the Securities Act.
-------------------------------------
(a) Exchange Offer. (i) To the extent not prohibited by any applicable law
--------------
or applicable interpretation of the staff of the SEC, each of the Issuer
and the Guarantor shall, for the benefit of the Holders, at the cost of the
Issuer and the Guarantor, use its reasonable best efforts (A) to cause to
be filed with the SEC within 150 calendar days after the Time of Purchase
the Exchange Offer Registration Statement relating to the Exchange Offer,
(B) to cause the Exchange Offer Registration Statement to be declared
effective under the Securities Act by the SEC within 180 calendar days
after the Time of Purchase and (C) to keep the Exchange Offer Registration
Statement effective until the consummation of the Exchange Offer. Upon the
effectiveness of the Exchange Offer Registration Statement, the Issuer
shall promptly commence the Exchange Offer, it being the objective of the
Exchange Offer to enable each Holder eligible
5
<PAGE>
and electing to exchange Registrable Securities for a like principal amount
of Exchange Securities (assuming that such Holder (1) is not an affiliate
of the Issuer or the Guarantor within the meaning of Rule 405 under the
Securities Act, (2) is not a broker-dealer tendering Registrable Securities
acquired directly from the Issuer or the Guarantor for its own account, (3)
acquires the Exchange Securities in the ordinary course of such Holder's
business and (4) has no arrangements or understandings with any Person to
participate in the Exchange Offer for the purpose of distributing the
Exchange Securities) to transfer such Exchange Securities from and after
their receipt without any limitations or restrictions under the Securities
Act and under state securities or blue sky laws.
(ii) In connection with the Exchange Offer, the Issuer and the
Guarantor shall:
(A) mail to each Holder a copy of the Prospectus forming part of
the Exchange Offer Registration Statement, together with an
appropriate letter of transmittal and related documents;
(B) keep the Exchange Offer open for acceptance for a period of
not less than 20 Business Days after the date notice thereof is mailed
to the Holders (or longer if required by applicable law) (such period
referred to herein as the "Exchange Period");
---------------
(C) utilize the services of the Trustee and the Depositary for
the Exchange Offer;
(D) permit each Holder to (i) withdraw tendered Securities at any
time prior to the close of business, New York time, on the last
Business Day of the Exchange Period, by sending to the institution
specified in the notice, a telegram, telex, facsimile transmission or
letter setting forth the name of such Holder, the principal amount of
Securities delivered for exchange and a statement that such Holder is
withdrawing his election to have such Securities exchanged and (ii)
tender Securities according to customary guaranteed delivery
procedures if such Holder cannot deliver such Securities or complete
procedures relating thereto on a timely basis prior to the close of
business, New York time, on the last Business Day of the Exchange
Period;
(E) notify each Holder that any Security not tendered by such
Holder in the Exchange Offer will remain outstanding and continue to
accrue interest, but will not
6
<PAGE>
retain any rights under this Agreement (except in the case of the
Initial Purchasers and Participating Broker-Dealers as provided
herein); and
(F) otherwise comply in all respects with all applicable laws
relating to the Exchange Offer.
(iii) As soon as practicable after the close of the Exchange Offer,
the Issuer and the Guarantor shall:
(A) accept for exchange all Securities or portions thereof
tendered and not validly withdrawn pursuant to the Exchange Offer;
(B) deliver, or cause to be delivered, to the Trustee for
cancellation all Securities or portions thereof so accepted for
exchange by the Issuer and the Guarantor; and
(C) issue, and cause the Trustee under the Indenture to promptly
authenticate and deliver to each Holder, a new Exchange Security equal
in principal amount to the principal amount of the Securities
surrendered by such Holder.
(iv) Interest on each Exchange Security will accrue from the last
interest payment date on which semi-annual interest was paid on the
Securities tendered in exchange therefor or, if no semi-annual interest has
been paid on the Securities, from the date of original issue of the
Securities. To the extent not prohibited by any law or applicable
interpretation of the staff of the SEC, each of the Issuer and the
Guarantor shall use its reasonable best efforts to complete the Exchange
Offer as provided above, and shall comply with the applicable requirements
of the Securities Act, the Exchange Act and other applicable laws in
connection with the Exchange Offer. The Exchange Offer shall not be subject
to any conditions, other than that the Exchange Offer does not violate
applicable law or any applicable interpretation of the staff of the SEC.
Each Holder of Registrable Securities who wishes to exchange such
Registrable Securities for Exchange Securities in the Exchange Offer will
be required to make certain customary representations in connection
therewith, including, in the case of any such Holder, representations (i)
that such Holder is not an affiliate of the Issuer or the Guarantor within
the meaning of Rule 405 under the Securities Act or, if it is an affiliate,
that such Holder will comply with the registration and prospectus delivery
requirements of the Securities Act to the extent applicable, (ii) that any
Exchange Securities to be received by it will be acquired in the ordinary
course of business and (iii) that at the time of the commencement of the
Exchange Offer, it has no arrangement with any Person to participate in
7
<PAGE>
the distribution (within the meaning of the Securities Act) of the Exchange
Securities. The Issuer and the Guarantor shall inform the Initial
Purchasers, after consultation with the Trustee, of the names and addresses
of the Holders to whom the Exchange Offer is made, and the Initial
Purchasers shall have the right to contact such Holders and otherwise
facilitate the tender of Registrable Securities in the Exchange Offer. Each
Holder hereby acknowledges and agrees that any Participating Broker-Dealer
and any such Holder using the Exchange Offer to participate in a
distribution of the securities to be acquired in the Exchange Offer (1)
could not under SEC policy as in effect on the date of this Agreement rely
on the position of the SEC enunciated in the Morgan Stanley and Co., Inc.
(available June 5, 1991) and the Exxon Capital Holdings Corporation
(available May 13, 1988) no-action letters as interpreted in the SEC's
letter to Shearman & Sterling dated July 2, 1993, and similar no-action
letters, and (2) must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with a secondary resale
transaction and that such a secondary resale transaction should be covered
by an effective registration statement containing the selling security
holder information required by Item 507 and 508, as applicable, of
Regulation S-K if the resales are of Exchange Securities obtained by such
Holder in exchange for Securities acquired by such Holder directly from the
Issuer or the Guarantor.
(v) Upon consummation of the Exchange Offer in accordance with this
Section 2(a), the provisions of this Agreement shall continue to apply,
mutatis mutandis, solely with respect to Registrable Securities that are
Exchange Securities that are held by Participating Broker-Dealers, and the
Issuer and the Guarantor shall have no further obligation to register
Registrable Securities (other than pursuant to Section 2(b)(iii) hereof)
pursuant to Section 2(b) of this Agreement.
(b) Shelf Registration. In the event that (i) the Issuer and the
------------------
Guarantor are not permitted to effect the Exchange Offer pursuant to Section
2(a) hereof because of any change in law or in currently prevailing
interpretations of the staff of the SEC, (ii) the Exchange Offer Registration
Statement is not declared effective by the SEC within 180 calendar days after
the Time of Purchase for any reason or (iii) any Initial Purchaser requests with
respect to any Registrable Securities that it acquired directly from the Issuer
or the Guarantor and, with respect to other Registrable Securities held by it,
if such Initial Purchaser is not permitted, in the reasonable opinion of
nationally recognized counsel to such Initial Purchaser, pursuant to applicable
law or applicable interpretations of the staff of the SEC, to participate in the
Exchange Offer and thereby receive securities that are freely tradeable without
restriction under the Securities Act and applicable blue sky or state securities
laws (any of the events specified in clauses (i) through (iii) above being a
"Shelf Registration Event" and the date of occurrence thereof, a "Shelf
- ------------------------- -----
Registration Event Date"), the Issuer and the Guarantor shall (A) promptly cause
- -----------------------
the Trustee to deliver to the Holders written notice of such Shelf Registration
Event and (B) at the sole
8
<PAGE>
expense of the Guarantor, use their reasonable best efforts to cause to be filed
as promptly as practicable after such Shelf Registration Event Date, and, in any
event, within 60 days after such Shelf Registration Event Date, a Shelf
Registration Statement providing for the sale by the Holders of all of the
Registrable Securities, and shall use their reasonable best efforts to have such
Shelf Registration Statement declared effective by the SEC as soon as
practicable. No Holder of Registrable Securities shall be entitled to include
any of its Registrable Securities in any Shelf Registration pursuant to this
Agreement unless and until such Holder agrees in writing to be bound by all of
the provisions of this Agreement applicable to such Holder and furnishes to the
Issuer and the Guarantor in writing, within 15 days after receipt of a request
therefor, such information as the Issuer and the Guarantor may, after conferring
with counsel with regard to information relating to Holders that would be
required by the SEC to be included in such Shelf Registration Statement or
Prospectus included therein, reasonably request for inclusion in any Shelf
Registration Statement or Prospectus included therein. Each Holder as to which
any Shelf Registration is being effected agrees to furnish to the Issuer or the
Guarantor all information with respect to such Holder necessary to make the
information previously furnished to the Issuer and the Guarantor by such Holder
not materially misleading.
The Issuer and the Guarantor agree to use their reasonable best efforts to
keep each Shelf Registration Statement continuously effective for a period of
two years (or such shorter period as may hereafter be provided in Rule 144(k)
under the Securities Act) (or similar successor rule)) from the date of issuance
of the Securities (subject to extension pursuant to the last sentence of Section
3 hereof) or for such shorter period that will terminate when all of the
Registrable Securities covered by such Shelf Registration Statement have been
sold pursuant to such Shelf Registration Statement or cease to be Registrable
Securities (the "Effectiveness Period"). The Issuer and the Guarantor shall not
--------------------
permit any securities other than Registrable Securities to be included in such
Shelf Registration. The Issuer and the Guarantor will, in the event a Shelf
Registration Statement is declared effective, provide to each Holder a
reasonable number of copies of the Prospectus that is a part of such Shelf
Registration Statement, notify each such Holder when such Shelf Registration has
become effective and use their reasonable best efforts to take certain other
actions as are required to permit unrestricted resales of the Registrable
Securities covered by such Shelf Registration Statement. The Issuer and the
Guarantor further agree, if necessary, to supplement or amend such Shelf
Registration Statement, if required by the rules, regulations or instructions
applicable to the registration form used by the Issuer and the Guarantor for
such Shelf Registration Statement or by the Securities Act or by any other rules
and regulations thereunder for shelf registrations promulgated by the SEC, and
the Issuer and the Guarantor agree to furnish to the Holders of Registrable
Securities covered by such Shelf Registration Statement copies of any such
supplement or amendment promptly after it is being used or filed with the SEC.
(c) Expenses. The Issuer and the Guarantor shall pay all Registration Expenses
--------
in connection with the registration of the Registrable Securities pursuant
to Section 2(a) or 2(b) hereof and will reimburse the Initial Purchasers
for the reasonable fees and disbursements of Winthrop, Stimson, Putnam &
Roberts, counsel for the Initial
9
<PAGE>
Purchasers, incurred in connection with the Exchange Offer and any one
counsel designated in writing by the Majority Holders to act as counsel for
the Holders of the Registrable Securities covered by a Shelf Registration
Statement, which counsel shall be reasonably satisfactory to the Issuer and
the Guarantor. Except as provided herein, each Holder shall pay all
expenses of its counsel, underwriting discounts and commissions and
transfer taxes, if any, relating to the sale or disposition of such
Holder's Registrable Securities pursuant to such Shelf Registration
Statement.
(d) Effective Registration Statement. The Exchange Offer Registration Statement
--------------------------------
pursuant to Section 2(a) hereof or a Shelf Registration Statement pursuant
to Section 2(b) hereof will not be deemed to have become effective unless
it has been declared effective by the SEC; provided, however, that if,
after it has been declared effective by the SEC, the offering of
Registrable Securities pursuant to a Shelf Registration Statement is
interfered with by any stop order, injunction or other order or requirement
of the SEC or any other governmental agency or court, such Shelf
Registration Statement will be deemed not to have been effective during the
period of such interference until the offering of Registrable Securities
pursuant to such Registration Statement may legally resume. The Issuer and
the Guarantor will be deemed not to have used their reasonable best efforts
to cause the Exchange Offer Registration Statement or a Shelf Registration
Statement, as the case may be, to become, or to remain, effective during
the requisite period if the Issuer or the Guarantor voluntarily takes any
action that would result in any such Registration Statement not being
declared effective by the SEC or in the Holders of Registrable Securities
covered thereby not being able to exchange or offer and sell such
Registrable Securities during that period unless such action is required by
applicable law.
(e) Additional Interest. In the event that (i) (A) neither the Exchange Offer
-------------------
Registration Statement nor a Shelf Registration Statement is filed with the SEC
on or prior to the 150th calendar day following the Time of Purchase or (B)
notwithstanding that the Issuer and the Guarantor have consummated or will
consummate an Exchange Offer, the Issuer and the Guarantor are required to file
a Shelf Registration Statement and such Shelf Registration Statement is not
filed on or prior to the date required by Section 2(b) hereof, (ii) (A) neither
the Exchange Offer Registration Statement nor a Shelf Registration Statement is
declared effective by the SEC on or prior to the 30th calendar day following the
applicable required filing date or (B) notwithstanding that the Issuer and the
Guarantor have consummated or will consummate an Exchange Offer, the Issuer and
the Guarantor are required to file a Shelf Registration Statement and such Shelf
Registration Statement is not declared effective by the SEC on or prior to the
30th calendar day after the date such Shelf Registration Statement was required
to be filed, or (iii) the Issuer has not exchanged the Exchange Securities for
all Securities validly tendered in accordance with the terms of the Exchange
Offer on or prior to the 40th calendar day after the Exchange Offer Registration
Statement was declared effective, then, in each case, the interest rate borne by
the Securities shall be increased (the "Additional Interest") by 0.25% per annum
-------------------
(1) commencing on the day after either required filing until, but excluding, the
date the Exchange Offer Registration Statement or such Shelf Registration
Statement is filed in the case of clause (i) above, (2) commencing on the 31st
calendar day following the applicable required filing date until, but excluding,
the date the Exchange Offer Registration Statement or such Shelf Registration
Statement is declared effective by the SEC in the case of clause (ii) above and
(3) commencing on the 41st
10
<PAGE>
calendar day following the date the Exchange Offer Registration Statement was
declared effective until, but excluding, the exchange of Exchange Securities for
all Securities tendered in the case of clause (iii) above; provided, however,
that the aggregate maximum increase in such interest rate pursuant to this
Section 2(e) will in no event exceed 0.25% per annum. Upon (w) the filing of the
Exchange Offer Registration Statement or a Shelf Registration Statement in the
case of clause (i) above, (x) the effectiveness of the Exchange Offer
Registration Statement or a Shelf Registration Statement in the case of clause
(ii) above, (y) the exchange of Exchange Securities for all Securities tendered
in the case of clause (iii) above or (z) the expiration of two years (or such
shorter period as may hereafter be provided in Rule 144(k) under the Securities
Act (or similar successor rule)) commencing at the Time of Purchase, Additional
Interest on the Securities as a result of such clause (or relevant subclause
thereof, as the case may be) from the date of such filing, effectiveness,
exchange or expiration, as the case may be, shall cease to accrue.
In the event that a Shelf Registration Statement has been declared
effective and subsequently ceases to be effective prior to the end of the
Effectiveness Period therefor (subject to extension pursuant to the last
sentence of Section 3 hereof), then the interest rate borne by the Registrable
Securities shall be increased by 0.25% per annum on the day such Shelf
Registration Statement ceases to be effective. Upon the effectiveness of a Shelf
Registration Statement that had ceased to remain effective, Additional Interest
on the Securities shall cease to accrue unless and until such interest rate is
increased as described in this paragraph.
The Issuer and the Guarantor shall notify the Trustee within three Business
Days after each and every date on which an event occurs in respect of which
Additional Interest is required to be paid (an "Event Date"). Additional
----------
Interest shall be paid by depositing with the Trustee, in trust, for the benefit
of the Holders of Registrable Securities, on or before the applicable semi-
annual interest payment date, immediately available funds in sums sufficient to
pay the Additional Interest then due. The Additional Interest due shall be
payable on each interest payment date to the record Holder of Securities
entitled to receive the interest payment to be paid on such date as set forth in
the Indenture. Each obligation to pay Additional Interest shall be deemed to
accrue from and including the day following the applicable Event Date.
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(f) Specific Enforcement. Without limiting the remedies available to the
--------------------
Initial Purchasers and the Holders, the Issuer and the Guarantor acknowledge
that any failure by either the Issuer or the Guarantor to comply with its
obligations under Sections 2(a) and 2(b) hereof may result in material
irreparable injury to the Initial Purchasers or the Holders for which there is
no adequate remedy at law, that it would not be possible to measure damages for
such injuries precisely and that, in the event of any such failure, the Initial
Purchasers or any Holder may obtain such relief as may be required to
specifically enforce the obligations of the Issuer and the Guarantor under
Sections 2(a) and 2(b) hereof.
3. Registration Procedures. In connection with the obligations of the Issuer
-----------------------
and the Guarantor with respect to Registration Statements pursuant to Sections
2(a) and 2(b) hereof, the Issuer and the Guarantor shall use their reasonable
best efforts to:
(a) (i) prepare and file with the SEC a Registration Statement or
Registration Statements as prescribed by Sections 2(a) and 2(b) hereof within
the relevant time period specified in Section 2 hereof on the appropriate form
or forms under the Securities Act, which form or forms (A) shall be selected by
the Issuer and the Guarantor, (B) shall, in the case of a Shelf Registration, be
available for the sale of the Registrable Securities by the selling Holders
thereof and (C) shall comply as to form in all material respects with the
requirements of such appropriate form or forms and include all financial
statements required by the SEC to be filed therewith and (ii) cause such
Registration Statement to become effective and remain effective in accordance
with Section 2 hereof; provided, however, that if (1) such filing is pursuant to
Section 2(b) hereof or (2) a Prospectus contained in the Exchange Offer
Registration Statement filed pursuant to Section 2(a) hereof is required to be
delivered under the Securities Act by a Participating Broker-Dealer who seeks to
sell Exchange Securities, before filing any Registration Statement or Prospectus
or any amendments or supplements thereto, the Issuer shall furnish to and afford
the Holders of the Registrable Securities and each such Participating Broker-
Dealer, as the case may be, covered by such Registration Statement, their
counsel and the managing underwriters, if any, a reasonable opportunity to
review copies of all such documents (including copies of any documents to be
incorporated by reference therein and all exhibits thereto) proposed to be filed
at least five Business Days prior to such filing. The Issuer and the Guarantor
shall not file any Registration Statement or Prospectus or any amendments or
supplements thereto in respect of which the Holders and such Participating
Broker-Dealer must be afforded an opportunity to review prior to the filing of
such document if the Majority Holders or such Participating Broker-Dealer, as
the case may be, their counsel or the managing underwriters, if any, shall
reasonably object;
(b) (i) prepare and file with the SEC such amendments and post-effective
amendments to each Registration Statement as may be necessary to keep such
Registration Statement effective for the Effectiveness Period therefor or the
Applicable Period, as the case may be, (ii) cause each Prospectus to be
supplemented, if so determined by the Issuer or the Guarantor or requested by
the SEC, by any required prospectus supplement and as so supplemented to be
filed pursuant to Rule 424 (or any similar provision then in force) under the
Securities Act and (iii) comply with the provisions of the Securities Act, the
Exchange Act and the rules and regulations
12
<PAGE>
promulgated thereunder applicable to it with respect to the disposition of all
securities covered by each Registration Statement during the Effectiveness
Period therefor or the Applicable Period, as the case may be, in accordance with
the intended method or methods of distribution by the selling Holders thereof
described in this Agreement (including sales by any Participating Broker-
Dealer);
(c) in the case of a Shelf Registration, (i) notify each Holder of
Registrable Securities included in such Shelf Registration Statement, at least
three Business Days prior to filing, that a Shelf Registration Statement with
respect to the Registrable Securities is being filed and advising such Holder
that the distribution of Registrable Securities will be made in accordance with
the method selected by the Majority Holders, (ii) furnish to each Holder of
Registrable Securities included in such Shelf Registration Statement and to each
underwriter of an underwritten offering of Registrable Securities, if any,
without charge, as many copies of each Prospectus, including each preliminary
Prospectus, and any amendment or supplement thereto and such other documents as
such Holder or underwriter may reasonably request, in order to facilitate the
public sale or other disposition of the Registrable Securities and (iii) consent
to the use of a Prospectus or any amendment or supplement thereto by each of the
selling Holders of Registrable Securities included in such Shelf Registration
Statement in connection with the offering and sale of the Registrable Securities
covered by such Prospectus or any amendment or supplement thereto;
(d) in the case of a Shelf Registration, to register or qualify the
Registrable Securities under all applicable state securities or "blue sky" laws
of such jurisdictions by the time the applicable Registration Statement is
declared effective by the SEC as any Holder of Registrable Securities covered by
a Registration Statement and each underwriter of an underwritten offering of
Registrable Securities shall reasonably request in writing in advance of such
date of effectiveness, and do any and all other acts and things that may be
reasonably necessary or advisable to enable such Holder and underwriter to
consummate the disposition in each such jurisdiction of such Registrable
Securities owned by such Holder; provided, however, that neither the Issuer nor
the Guarantor shall be required to (i) qualify as a foreign corporation or as a
dealer in securities in any jurisdiction where it would not otherwise be
required to qualify but for this Section 3(d), (ii) file any general consent to
service of process in any jurisdiction where it would not otherwise be subject
to such service of process, (iii) subject itself to taxation in any such
jurisdiction if it is not then so subject or (iv) file annual reports or comply
with any other requirement reasonably determined by the Issuer or the Guarantor
to be unduly burdensome that would not otherwise be required but for this
Section 3(d);
(e) in the case of (i) a Shelf Registration or (ii) Participating Broker-
Dealers who (A) have notified the Issuer or the Guarantor that they will be
utilizing the Prospectus contained in the Exchange Offer Registration Statement
as provided in Section 3(t) hereof, (B) are seeking to sell Exchange Securities
and (C) are required to deliver a Prospectus, notify each Holder of Registrable
Securities, or such Participating Broker-Dealers, as the case may be, their
counsel and the managing underwriters, if any, promptly, and promptly confirm
such notice in writing, (1) when a Registration Statement has become effective
and when any post-effective amendments and
13
<PAGE>
supplements thereto become effective, (2) of any request by the SEC or any state
securities authority for amendments or supplements to a Registration Statement
or Prospectus or for additional information after such Registration Statement
has become effective, (3) of the issuance by the SEC or any state securities
authority of any stop order suspending the effectiveness of a Registration
Statement or the qualification of the Registrable Securities or the Exchange
Securities to be offered or sold by any Participating Broker-Dealer in any
jurisdiction described in Section 3(d) hereof or the initiation of any
proceedings for that purpose, (4) in the case of a Shelf Registration, if,
between the effective date of a Registration Statement and the closing of any
sale of Registrable Securities covered thereby, the representations and
warranties of the Issuer or the Guarantor contained in any underwriting
agreement, securities sales agreement or other similar agreement, if any cease
to be true and correct in all material respects, (5) in the case of a Shelf
Registration, of the happening of any event or the failure of any event to occur
or the discovery of any facts or otherwise, during the Effectiveness Period for
a Shelf Registration Statement relating to such Shelf Registration, that makes
any statement made in such Registration Statement or the related Prospectus
untrue in any material respect or that causes such Registration Statement or
Prospectus to omit to state a material fact necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading and (6) of the reasonable determination of the Issuer and the
Guarantor that a post-effective amendment to the Registration Statement would be
appropriate;
(f) make every reasonable effort to obtain the withdrawal of any order
suspending the effectiveness of a Registration Statement at the earliest
possible moment;
(g) in the case of a Shelf Registration, furnish to each Holder of
Registrable Securities covered by such Shelf Registration Statement, without
charge, at least one conformed copy of each Shelf Registration Statement
relating to such Shelf Registration and any post-effective amendment thereto
(without documents incorporated therein by reference or exhibits thereto unless
requested);
(h) in the case of a Shelf Registration, cooperate with the selling Holders
of Registrable Securities to facilitate the timely preparation and delivery of
certificates representing Registrable Securities to be sold and not bearing any
restrictive legends and in such denominations (consistent with the provisions of
the Indenture) and registered in such names as the selling Holders or the
underwriters may reasonably request at least two Business Days prior to the
closing of any sale of Registrable Securities pursuant to such Shelf
Registration Statement;
(i) in the case of a Shelf Registration or the Exchange Offer Registration,
upon the occurrence of any circumstance contemplated by Section 3(e)(ii),
3(e)(iii), 3(e)(v) or 3(e)(vi) hereof, (i) prepare a supplement or post-
effective amendment to a Registration Statement or the related Prospectus or any
document incorporated therein by reference or file any other document so that,
as thereafter delivered to the Initial Purchasers of the Registrable Securities,
such Prospectus will not contain any untrue statement of a material fact or omit
to state a material fact necessary to make the statements therein, in the light
of the circumstances under which they were made, not
14
<PAGE>
misleading and (ii) notify each Holder to suspend use of the Prospectus as
promptly as practicable after the occurrence of such an event, and each Holder
hereby agrees to suspend use of the Prospectus until the Issuer and the
Guarantor has amended or supplemented the Prospectus to correct such
misstatement or omission;
(j) in the case of a Shelf Registration, a reasonable time prior to the
filing of any document that is to be incorporated by reference into a Shelf
Registration Statement or a Prospectus after the initial filing of a Shelf
Registration Statement, (i) provide a reasonable number of copies of such
document to the Holders and (ii) make such of the representatives of the Issuer
and the Guarantor as shall be reasonably requested by the Holders of Registrable
Securities or the Initial Purchasers on behalf of such Holders available for
discussion of such document;
(k) obtain a CUSIP number for all Exchange Securities or Registrable
Securities, as the case may be, not later than the effective date of a
Registration Statement, and provide the Trustee with printed certificates for
the Exchange Securities or the Registrable Securities, as the case may be, in a
form eligible for deposit with the Depositary;
(l) cause the Indenture to be qualified under the Trust Indenture Act in
connection with the registration of the Exchange Securities or Registrable
Securities, as the case may be, and effect such changes to the Indenture as may
be required for the Indenture to be so qualified in accordance with the terms of
the Trust Indenture Act and execute, and cause the Trustee to execute, all
documents as may be required to effect such changes, and all other forms and
documents required to be filed with the SEC to enable the Indenture to be so
qualified in a timely manner;
(m) in the case of a Shelf Registration, enter into such agreements
(including underwriting agreements) as are customary in underwritten offerings
and take all such other appropriate actions as are reasonably requested in order
to expedite or facilitate the registration or the disposition of such
Registrable Securities and, in such connection, whether or not an underwriting
agreement is entered into and whether or not the registration is an underwritten
registration, if requested by (i) any Initial Purchaser, in the case where an
Initial Purchaser holds Securities acquired by it as part of its initial
distribution or (ii) Holders of Securities covered thereby, in the case where no
Initial Purchaser holds any such Securities, (A) make such representations and
warranties to Holders of such Registrable Securities and the underwriters (if
any), with respect to the business of the Guarantor and its subsidiaries
(including the Issuer) as then conducted and the Registration Statement,
Prospectus and documents, if any, incorporated or deemed to be incorporated by
reference therein, in each case, as are customarily made by issuers to
underwriters in underwritten offerings, and confirm the same if and when
requested, (B) obtain opinions of counsel to the Issuer and the Guarantor and
updates thereof (which may be in the form of a reliance letter) in form and
substance reasonably satisfactory to the managing underwriters (if any) and the
Holders of a majority in principal amount of the Registrable Securities being
sold, addressed to each selling Holder and the underwriters (if any) covering
the matters customarily covered in opinions requested in underwritten offerings
and such other matters as may be reasonably
15
<PAGE>
requested by such Holders and underwriters (it being agreed that the matters to
be covered by such opinions should be subject to customary qualifications and
exceptions), (C) obtain "cold comfort" letters and updates thereof in form and
substance reasonably satisfactory to the managing underwriters from the
independent certified public accountants of the Issuer and the Guarantor (and,
if necessary, any other independent certified public accountants of any
subsidiary of the Guarantor or of any business acquired by the Issuer or the
Guarantor for which financial statements and financial data are, or are required
to be, included in the Registration Statement), addressed to each of the
underwriters with copies thereof to the selling Holders of Registrable
Securities, such letters to be in customary form and covering matters of the
type customarily covered in "cold comfort" letters in connection with
underwritten offerings and such other matters as reasonably requested by such
underwriters in accordance with Statement on Auditing Standards No. 72 of the
American Institute of Certified Public Accountants (the "AICPA") and (D) if an
-----
underwriting agreement is entered into, the same shall contain indemnification
provisions and procedures no less favorable than those set forth in Section 4
hereof (or such other provisions and procedures acceptable to Holders of a
majority in aggregate principal amount of Registrable Securities covered by such
Registration Statement and the managing underwriters or agents) with respect to
all parties to be indemnified pursuant to Section 4 hereof (including such
underwriters and selling Holders); the above shall be done at each closing under
such underwriting agreements or as and to the extent required thereunder;
(n) if (i) a Shelf Registration is filed pursuant to Section 2(b) hereof or
(ii) a Prospectus contained in the Exchange Offer Registration Statement filed
pursuant to Section 2(a) hereof is required to be delivered under the Securities
Act by any Participating Broker-Dealer who seeks to sell Exchange Securities
during the Applicable Period, make reasonably available for inspection by any
selling Holder of such Registrable Securities being sold, or each such
Participating Broker-Dealer, as the case may be, any underwriter participating
in any such disposition of Registrable Securities, if any, and any attorney,
accountant or other agent retained by any such selling Holder or each such
Participating Broker-Dealer, as the case may be, or underwriter (collectively,
the "Inspectors"), at the offices where normally kept, during reasonable
----------
business hours, all financial and other records, pertinent corporate documents
and properties (collectively, the "Records") of the Guarantor and its
-------
subsidiaries (including the Issuer) as shall be reasonably necessary to enable
them to exercise any applicable due diligence responsibilities, and cause the
officers, directors and employees of the Guarantor and its subsidiaries
(including the Issuer) to supply all relevant information in each case
reasonably requested by any of the Inspectors in connection with such
Registration Statement; provided, however, that the foregoing inspection and
information gathering shall be coordinated on behalf of the Initial Purchasers
by you and on behalf of the other parties, by one counsel designated by you and
on behalf of such other parties as described in Section 2(c) hereof. Records
that the Issuer and the Guarantor determine, in good faith, to be confidential
and any records that they notify the Inspectors are confidential shall not be
disclosed by the Inspectors unless (A) the disclosure of such Records is
necessary to avoid or correct a material misstatement or omission in such
Registration Statement, (B) the release of such Records is ordered pursuant to a
subpoena or other order from a court of competent jurisdiction or is necessary
in connection with any action, suit or proceeding
16
<PAGE>
or (C) the information in such Records has been made generally available to the
public; each selling Holder of such Registrable Securities and each such
Participating Broker-Dealer will be required to agree in writing that (1)
information obtained by it as a result of such inspections shall be deemed
confidential and shall not be used by it as the basis for any market
transactions in the securities of the Issuer or the Guarantor unless and until
such is made generally available to the public and (2) it will, upon learning
that disclosure of such Records is sought in a court of competent jurisdiction,
give notice to the Issuer or the Guarantor and allow the Issuer and the
Guarantor at the expense of the Issuer and the Guarantor to undertake
appropriate action to prevent disclosure of the Records deemed confidential;
(o) comply with all applicable rules and regulations of the SEC so long as
any provision of this Agreement shall be applicable and make generally available
to its securityholders earning statements satisfying the provisions of Section
11(a) of the Securities Act and Rule 158 thereunder (or any similar rule
promulgated under the Securities Act) no later than 45 days after the end of any
12-month period (or 90 days after the end of any 12-month period if such period
is a fiscal year) (i) commencing at the end of any fiscal quarter in which
Registrable Securities are sold to underwriters in a firm commitment or best
efforts underwritten offering and (ii) if not sold to underwriters in such an
offering, commencing on the first day of the first fiscal quarter of the Issuer
and the Guarantor after the effective date of a Registration Statement, which
statements shall cover such 12-month periods;
(p) upon consummation of the Exchange Offer, if requested by the Trustee,
obtain an opinion of counsel to the Issuer and the Guarantor addressed to the
Trustee for the benefit of all Holders of Registrable Securities participating
in the Exchange Offer and that includes an opinion that (i) the Issuer has duly
authorized, executed and delivered the Exchange Securities and the Guarantor has
duly authorized, executed and delivered the Guarantee and (ii) (A) each of the
Exchange Securities constitute legal, valid and binding obligations of the
Issuer, enforceable against the Issuer in accordance with their respective terms
(in each case, with customary exceptions) and (B) the Guarantee endorsed on any
such security constitutes a legal, valid and binding obligation of the
Guarantor, enforceable against the Guarantor in accordance with its terms (with
customary exceptions);
(q) if the Exchange Offer is to be consummated, upon delivery of the
Registrable Securities by Holders to the Issuer or the Guarantor (or to such
other Person as directed by the Issuer and the Guarantor) in exchange for the
Exchange Securities the Issuer shall mark, or cause to be marked, on such
Registrable Securities delivered by such Holders that such Registrable
Securities are being cancelled in exchange for the Exchange Securities and in no
event shall such Registrable Securities be marked as paid or otherwise
satisfied;
(r) cooperate with each seller of Registrable Securities covered by any
Registration Statement and each underwriter, if any, participating in the
disposition of such Registrable Securities and their respective counsel in
connection with any filings required to be made with the NASD;
17
<PAGE>
(s) take all other steps necessary to effect the registration of the
Registrable Securities covered by a Registration Statement contemplated hereby;
(t) (i) in the case of the Exchange Offer Registration Statement (A)
include in the Exchange Offer Registration Statement a section entitled "Plan of
Distribution," which section shall be reasonably acceptable to the Initial
Purchasers or another representative of the Participating Broker-Dealers and
shall contain a summary statement of the positions taken or policies made by the
staff of the SEC with respect to the potential "underwriter" status of any
broker-dealer that holds Registrable Securities acquired for its own account as
a result of market-making activities or other trading activities and that will
be the beneficial owner (as defined in Rule 13d-3 under the Exchange Act) of
Exchange Securities to be received by such broker-dealer in the Exchange Offer
(a "Participating Broker-Dealer"), including a statement that any such
---------------------------
Participating Broker-Dealer who receives Exchange Securities for Registrable
Securities pursuant to the Exchange Offer may be deemed a statutory underwriter
and must deliver a prospectus meeting the requirements of the Securities Act in
connection with any resale of such Exchange Securities, (B) furnish to each
Participating Broker-Dealer who has delivered to the Issuer or the Guarantor the
notice referred to in Section 3(e) hereof, without charge, as many copies of
each Prospectus included in the Exchange Offer Registration Statement, including
any preliminary prospectus, and any amendment or supplement thereto, as such
Participating Broker-Dealer may reasonably request (each of the Issuer and the
Guarantor hereby consents to the use of the Prospectus forming part of the
Exchange Offer Registration Statement, or any amendment or supplement thereto,
by any Person subject to the prospectus delivery requirements of the SEC,
including all Participating Broker-Dealers, in connection with the sale or
transfer of the Exchange Securities covered by the Prospectus or any amendment
or supplement thereto), (C) use their reasonable best efforts to keep the
Exchange Offer Registration Statement effective and to amend and supplement the
Prospectus contained therein in order to permit such Prospectus to be lawfully
delivered by all Persons subject to the prospectus delivery requirements of the
Securities Act for such period of time as such Persons must comply with such
requirements under the Securities Act and applicable rules and regulations in
order to resell the Exchange Securities, provided that such period shall not be
required to exceed 180 days (or such longer period if extended pursuant to the
last sentence of Section 3 hereof) (the "Applicable Period") and (D) include in
-----------------
the transmittal letter or similar documentation to be executed by an exchange
offeree in order to participate in the Exchange Offer (1) the following
provision:
"if the exchange offeree is a broker-dealer holding Registrable Securities
acquired for its own account as a result of market-making activities or
other trading activities, it will deliver a prospectus meeting the
requirements of the Securities Act in connection with any resale of
Exchange Securities received in respect of such Registrable Securities
pursuant to the Exchange Offer";
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<PAGE>
and (2) a statement to the effect that by a Participating Broker-Dealer making
the acknowledgment described in clause (1) above and by delivering a Prospectus
in connection with the exchange of Registrable Securities, such Participating
Broker-Dealer will not be deemed to admit that it is an underwriter within the
meaning of the Securities Act; and
(ii) in the case of the Exchange Offer Registration Statement, the Issuer
and the Guarantor agree to deliver to the Initial Purchasers or to another
representative of the Participating Broker-Dealers, if requested by any such
Initial Purchasers or such other representative, on behalf of the Participating
Broker-Dealers, upon consummation of the Exchange Offer (A) an opinion of
counsel in form and substance reasonably satisfactory to the Initial Purchasers
or such other representative, covering the matters customarily covered in
opinions requested in connection with exchange offer registration statements and
such other matters as may be reasonably requested (it being agreed that the
matters to be covered by such opinion may be subject to customary qualifications
and exceptions), (B) an officers' certificate containing certifications
substantially similar to those set forth in Section 3(e) of the Purchase
Agreement and such additional certifications as are customarily delivered in a
public offering of debt securities and (C) as well as upon the effectiveness of
the Exchange Offer Registration Statement, a comfort letter, in each case, in
customary form if permitted by Statement on Auditing Standards No. 72 of the
AICPA.
The Issuer and the Guarantor may require each seller of Registrable
Securities as to which any registration is being effected to furnish to the
Issuer or the Guarantor such information regarding such seller and the proposed
distribution of such Registrable Securities, to the extent necessary in
connection with such registration, as the Issuer and the Guarantor may from time
to time reasonably request in writing. The Issuer and the Guarantor may exclude
from such registration the Registrable Securities of any seller who fails to
furnish such information within a reasonable time after receiving such request.
In the case of a Shelf Registration Statement or Participating Broker-
Dealers who have notified the Issuer or the Guarantor that they will be
utilizing the Prospectus contained in the Exchange Offer Registration Statement
as provided in Section 3(t) hereof, are seeking to sell Exchange Securities and
are required to deliver a Prospectus, each Holder agrees that, upon receipt of
any notice from the Issuer and the Guarantor of the happening of any event of
the kind described in Section 3(e)(ii), 3(e)(iii), 3(e)(v) or 3(e)(vi) hereof,
such Holder will forthwith discontinue disposition of Registrable Securities
pursuant to a Registration Statement until such Holder's receipt of the copies
of the supplemented or amended Prospectus contemplated by Section 3(i) hereof or
until it is advised in writing (the "Advice") by the Issuer and the Guarantor
------
that the use of the applicable Prospectus may be resumed, and, if so directed by
the Issuer and the Guarantor, such Holder will deliver to the Issuer or the
Guarantor (at the expense of the Issuer and the Guarantor) all copies in such
Holder's possession, other than permanent file copies then in such Holder's
possession, of the Prospectus covering such Registrable Securities or Exchange
Securities, as the case may be, current at the time of receipt of
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such notice. If the Issuer or the Guarantor shall give any such notice to
suspend the disposition of Registrable Securities or Exchange Securities, as the
case may be, pursuant to a Registration Statement, each of the Issuer and the
Guarantor shall use its reasonable best efforts to file and have declared
effective (if an amendment) as soon as practicable an amendment or supplement to
the Registration Statement and shall extend the period during which such
Registration Statement shall be maintained effective pursuant to this Agreement
by the number of days in the period from and including the date of the giving of
such notice to and including the date when the Issuer or the Guarantor shall
have made available to the Holders copies of the supplemented or amended
Prospectus necessary to resume such dispositions or the Advice.
4. Indemnification and Contribution. (a) In connection with any
--------------------------------
Registration Statement, the Issuer and the Guarantor agree, to the extent
permitted by law, to indemnify, jointly and severally, and hold harmless each
Holder, each Participating Broker-Dealer and each Person, if any, who controls
any such Holder or Participating Broker-Dealer within the meaning of Section 15
of the Securities Act against any and all losses, claims, damages or
liabilities, joint or several, to which they or any of them may become subject
under the Securities Act or otherwise, and to reimburse each Holder, each
Participating Broker-Dealer and each such controlling Person, if any, for any
legal or other expenses as incurred by them in connection with defending any
action, insofar as such losses, claims, damages, liabilities or actions arise
out of or are based upon any untrue statement or alleged untrue statement of a
material fact contained in such Registration Statement (or any amendment
thereto) covering Registrable Securities or Exchange Securities, including all
documents incorporated therein by reference, or arise out of or are based upon
any omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading or
arise out of or are based upon any untrue statement or alleged untrue statement
of a material fact contained in any Prospectus (or any amendment or supplement
thereto) or arise out of or are based upon any omission or alleged omission to
state therein a material fact necessary in order to make the statements therein,
in the light of the circumstances under which they were made, not misleading,
except insofar as such losses, claims, damages, liabilities or action arise out
of or are based upon any such untrue statement or alleged untrue statement or
omission or alleged omission that was made in such Registration Statement or
Prospectus, as so amended or supplemented, in reliance upon and in conformity
with information furnished in writing by such Holder or such Participating
Broker-Dealer, as the case may be, expressly for use therein and except that
this indemnity shall not inure to the benefit of any such Holder, Participating
Broker-Dealer or controlling person on account of any losses, claims, damages,
liabilities or actions arising from the sale of Securities to any Person if a
copy of a Prospectus, as the same may then be amended or supplemented, was not
sent or given by or on behalf of such Holder, Participating Broker-Dealer or
controlling person to such Person with or prior to the written confirmation of
the sale involved and the omission or alleged omission or untrue statement or
alleged untrue statement was corrected in such Prospectus, as amended or
supplemented, at the time of such confirmation and such Prospectus, as so
amended or supplemented, was timely delivered to such Holder or Participating
Broker-Dealer. Each Holder and Participating Broker-Dealer agrees within ten
calendar days after the receipt by it or notice of the commencement of any
action in
20
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respect to which indemnity from the Issuer or the Guarantor on account
of its agreement contained in this Section 4(a) may be sought by it, or by any
Person controlling it, to notify the Issuer and the Guarantor in writing of the
commencement thereof, but the failure of such Holder or Participating Broker-
Dealer so to notify the Issuer and the Guarantor of any such action shall not
release either the Issuer or the Guarantor from any liability that it may have
to such Holder or Participating Broker-Dealer or to any such controlling person
otherwise than on account of the indemnity agreement contained in this Section
4(a). In case any such action shall be brought against any Holder or
Participating Broker-Dealer or any such controlling person and such Holder or
Participating Broker-Dealer shall notify the Issuer and the Guarantor of the
commencement thereof, as above provided, the Issuer and the Guarantor shall be
entitled to participate in (and, to the extent that they shall wish, including
the selection of counsel (which counsel shall be reasonably satisfactory to such
Holder or Participating Broker-Dealer), to direct) the defense thereof at their
own expense. In case the Issuer and the Guarantor elect to direct such defense
and select such counsel ("Company Counsel"), any Holder or Participating Broker-
---------------
Dealer or any such controlling person shall have the right to employ its own
counsel, but, in any such case, the fees and expenses of such counsel shall be
at the expense of such Holder, Participating Broker-Dealer or controlling person
unless (i) the Issuer and the Guarantor have agreed in writing to pay such fees
and expenses or (ii) the named parties to any such action (including any
impleaded parties) include both any such Holder, Participating Broker-Dealer or
controlling person and the Issuer and the Guarantor, and any such Holder,
Participating Broker-Dealer or controlling person shall have been advised by its
counsel that a conflict of interest between the Issuer or the Guarantor and any
such Holder, Participating Broker-Dealer or controlling person may arise (and
Company Counsel shall have concurred in good faith with such advice) and for
this reason it is not desirable for Company Counsel to represent both the
indemnifying party and the indemnified party (it being understood, however, that
the Issuers and the Guarantor shall not, in connection with any one such action
or separate but substantially similar or related actions in the same
jurisdiction arising out of the same general allegations or circumstances, be
liable for the reasonable fees and expenses of more than one separate firm of
attorneys for any such Holder, Participating Broker-Dealer or controlling person
(plus any local counsel retained by any such Holder, Participating Broker-Dealer
or controlling person in their reasonable judgement), which firm (or firms)
shall be designated in writing by any such Holder, Participating Broker-Dealer
or controlling person).
(b) Each Holder agrees, to the extent permitted by law, to indemnify and
hold harmless the Issuer and the Guarantor, their directors and their officers
and each Person, if any, who controls either of the Issuer or the Guarantor
within the meaning of Section 20(a) of the Exchange Act, to the same extent and
upon the same terms as the indemnity agreement of the Issuer and the Guarantor
set forth in Section 4(a) hereof, but only with respect to untrue statements or
alleged untrue statements or omissions or alleged omissions made in a Shelf
Registration Statement or a Prospectus with respect thereto, as they may be
amended or supplemented, in reliance upon and in conformity with information
furnished in writing to the Issuer and the Guarantor by such Holder expressly
for use therein. The Issuer and the Guarantor agree within ten calendar days
after the
21
<PAGE>
receipt by it or notice of the commencement of any action in respect of which
indemnity from such Holder on account of its agreement contained in this Section
4(b) may be sought by it, or by any such controlling person, to notify such
Holder in writing of the commencement thereof, but the failure of the Issuer or
the Guarantor so to notify such Holder of any such action shall not release such
Holder from any liability that it may have to the Issuer or the Guarantor or to
such controlling person otherwise than on account of the indemnity agreement
contained in this Section 4(b).
(c) If recovery is not available under Section 4(a) or 4(b) hereof for any
reason other than as specified therein, the indemnified party shall be entitled
to contribution for any and all losses, claims, damages, liabilities and
expenses for which such indemnification is so unavailable under this Section
4(c). In determining the amount of contribution to which such indemnified party
is entitled, there shall be considered the relative knowledge and access to
information concerning the matter with respect to which the claim was asserted,
the opportunity to correct and prevent any statement or omission and any other
equitable considerations appropriate under the circumstances. The Issuer, the
Guarantor and each Holder agree that it would not be equitable if the amount of
such contribution were determined by pro rata or per capita allocation (even if
the Holders were treated as one entity for such purpose) without reference to
the considerations called for in the previous sentence. No Holder or any such
controlling person shall be obligated to contribute any amount or amounts
hereunder that in the aggregate exceeds the total price at which Registrable
Securities were sold by such Holder, less the aggregate amount of any damages
that such Initial Purchaser and its controlling persons have otherwise been
required to pay in respect of the same claim or any substantially similar claim.
No person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation. Any Holder's obligation
to contribute under this Section 4 is several in proportion to the aggregate
principal amount of such Holder's Registrable Securities that were registered
pursuant to a Registration Statement.
(d) No indemnifying party shall, without the prior written consent of the
indemnified parties, settle or compromise or consent to the entry of any
judgment with respect to any litigation, or any investigation or proceeding by
any governmental agency or body, commenced or threatened, or any claim
whatsoever in respect of which indemnification or contribution could be sought
under this Section 4 (whether or not such indemnified parties are actual or
potential parties thereto), unless such settlement, compromise or consent (i)
includes an unconditional release of each indemnified party from all liability
arising out of such litigation, investigation, proceeding or claim and (ii) does
not include a statement as to or an admission of fault, culpability or a failure
to act by or on behalf of such indemnified party.
5. Participation in Underwritten Registrations. No Holder may participate in
-------------------------------------------
any underwritten registration hereunder unless such Holder (a) agrees to sell
such Holder's Registrable Securities on the basis provided in any underwriting
arrangements approved by the Persons entitled hereunder to approve such
arrangements and (b) completes and executes all reasonable questionnaires,
powers of attorney, indemnities, underwriting
22
<PAGE>
agreements, lock-up letters and other documents reasonably required under the
terms of such underwriting arrangements.
6. Selection of Underwriters. The Holders of Registrable Securities covered by
-------------------------
a Shelf Registration Statement who desire to do so may sell the securities
covered by such Shelf Registration in an underwritten offering. In any such
underwritten offering, the underwriter or underwriters and manager or managers
that will administer such offering will be selected by the Majority Holders;
provided, however, that such underwriters and managers must be reasonably
satisfactory to the Issuer and the Guarantor.
7. Miscellaneous. (a) Rule 144 and Rule 144A. For so long as the Issuer or
------------- ----------------------
the Guarantor is subject to the reporting requirements of Section 13 or 15 of
the Exchange Act and any Registrable Securities remain outstanding, the Issuer
and the Guarantor, as the case may be, agrees that (a) it will use its
reasonable best efforts to file the reports required to be filed by it under the
Securities Act and Section 13(a) or 15(d) of the Exchange Act and the rules and
regulations adopted by the SEC thereunder and (b) if it ceases to be so required
to file such reports, it will, upon the request of any Holder of Registrable
Securities, (i) make publicly available such information as is necessary to
permit sales of their securities pursuant to Rule 144 under the Securities Act,
(ii) deliver such information to a prospective purchaser as is necessary to
permit sales of their securities pursuant to Rule 144A under the Securities Act
and it will take such further action as any Holder of Registrable Securities may
reasonably request and (iii) take such further action that is reasonable in the
circumstances, in each case, to the extent required from time to time to enable
such Holder to sell its Registrable Securities without registration under the
Securities Act within the limitation of the exemptions provided by (A) Rule 144
under the Securities Act, as such rule may be amended from time to time, (B)
Rule 144A under the Securities Act , as such rule may be amended from time to
time, or (C) any similar rules or regulations hereafter adopted by the SEC. Upon
the request of any Holder of Registrable Securities, the Issuer and the
Guarantor will deliver to such Holder a written statement as to whether or not
it has complied with such requirements.
(b) No Inconsistent Agreements. Neither the Issuer nor the Guarantor has
--------------------------
entered into nor will either on or after the date of this Agreement enter into
any agreement that is inconsistent with the rights granted to the Holders of
Registrable Securities in this Agreement or otherwise conflicts with the
provisions hereof. The rights granted to the Holders hereunder do not in any way
conflict with and are not inconsistent with the rights granted to the holders of
the other issued and outstanding securities of the Issuer and the Guarantor
under any such agreements.
(c) Amendments and Waivers. The provisions of this Agreement, including the
----------------------
provisions of this Section 7(c), may not be amended, modified or supplemented,
and waivers or consents to departures from the provisions hereof may not be
given, unless the Issuer and the Guarantor have obtained the written consent of
the Majority Holders affected by such amendment, modification, supplement,
waiver or departure; provided, however, that no amendment, modification or
supplement or waiver or consent to departure with respect to the provisions of
Section 4 hereof shall be effective as against any Holder of Registrable
Securities unless consented to in writing by such Holder.
(d) Notices. All notices and other communications provided for or permitted
-------
hereunder shall be made in writing by hand delivery, telex, telecopier or any
courier guaranteeing overnight or two day delivery (i) if to a Holder, at the
most current address
23
<PAGE>
given by such Holder to the Issuer or the Guarantor by means of a notice given
in accordance with the provisions of this Section 7(d), which address initially
is, with respect to the Initial Purchasers, the address set forth in the
Purchase Agreement; and (ii) if to the Issuer or the Guarantor, initially at the
appropriate address set forth in the Purchase Agreement and thereafter at such
other address, notice of which is given in accordance with the provisions of
this Section 7(d). All such notices and communications shall be deemed to have
been duly given: (A) at the time delivered by hand, if personally delivered; (B)
when answered back, if telexed; (C) when receipt is acknowledged, if telecopied;
and (D) in one or two Business Days, as the case may be, if timely delivered to
an air courier guaranteeing overnight or two day delivery. The Person giving the
same to the Trustee, at the address specified in the Indenture, shall
concurrently deliver copies of all such notices, demands, or other
communications.
(e) Successors and Assigns. This Agreement shall inure to the benefit of and
----------------------
be binding upon the successors, assigns and transferees of the Initial
Purchasers, including, without the need for an express assignment, subsequent
Holders; provided, however, that nothing herein shall be deemed to permit any
assignment, transfer or other disposition of Registrable Securities in violation
of the terms of the Purchase Agreement or the Indenture. If any transferee of
any Holder shall acquire Registrable Securities, in any manner, whether by
operation of law or otherwise, by taking and holding such Registrable
Securities, such Person shall be conclusively deemed to have agreed to be bound
by and to perform all of the terms and provisions of this Agreement and such
Person shall be entitled to receive the benefits hereof.
(f) Third Party Beneficiary. Each of the Initial Purchasers shall be a third-
-----------------------
party beneficiary of the agreements made hereunder between the Issuer and the
Guarantor, on the one hand, and the Holders, on the other hand, and shall have
the right to enforce such agreements directly to the extent it deems such
enforcement necessary or advisable to protect its rights or the rights of
Holders hereunder.
(g) Counterparts. This Agreement may be executed in any number of counterparts
------------
and by the parties hereto in separate counterparts, each of which when so
executed shall be deemed to be an original and all of which taken together shall
constitute one and the same agreement.
(h) Headings. The headings in this Agreement are for convenience of reference
--------
only and shall not limit or otherwise affect the meaning hereof.
(i) GOVERNING LAW. THIS AGREEMENT WILL BE GOVERNED AND CONSTRUED IN ACCORDANCE
-------------
WITH THE LAWS OF THE STATE OF NEW YORK. The Issuer and the Guarantor irrevocably
consent and agree that any civil action, suit or proceeding against them with
respect to their obligations, liabilities or any other matter arising out of or
in connection with this Agreement may be brought in the Supreme Court of New
York, New York County or the United States District Court for the Southern
District of New York and any appellate court from either thereof and, until
amounts due and to become due in respect of the Securities have been paid,
hereby irrevocably consent and submit to the non-exclusive jurisdiction of each
such court in personam, generally and unconditionally with respect to any civil
action, suit or proceeding for themselves and in respect of their properties,
assets and revenues.
(j) Appointment of Agents for Service of Process. The Issuer and the Guarantor
--------------------------------------------
have irrevocably designated, appointed, and empowered CT Corporation System,
located
24
<PAGE>
at 1633 Broadway, New York, New York 10019, as their designee, appointee and
agent to receive, accept and acknowledge for and on their behalf, and their
properties, assets and revenues, service of any and all legal process, summons,
notices and documents which may be served in any civil action, suit or
proceeding brought against them in any United States or state court. If for any
reason such designee, appointee and agent hereunder shall cease to be available
to act as such, the Issuer and the Guarantor agree to designate a new designee,
appointee and agent in the Borough of Manhattan, The City of New York. The
Issuer and the Guarantor further hereby irrevocably consent and agree to the
service of any and all legal process, summons, notices and documents in any
civil action, suit or proceeding against them by serving a copy thereof upon the
relevant agent for service of process referred to in this Section 7(j) (whether
or not the appointment of such agent shall for any reason prove to be
ineffective or such agent shall accept or acknowledge such service) or by
mailing copies thereof by registered or certified air mail, postage prepaid, to
the Issuer and the Guarantor at their respective addresses specified in or
designated pursuant to this Agreement. The Issuer and the Guarantor agree that
the failure of any such designee, appointee and agent to give any notice of such
service to them shall not impair or affect in any way the validity of such
service or any judgment rendered in any civil action or proceeding based
thereon. Nothing herein shall in any way be deemed to limit the ability of any
of the other parties hereto to serve any such legal process, summons, notices
and documents in any other manner permitted by applicable law or to obtain
jurisdiction over the Issuer and the Guarantor or bring civil actions, suits or
proceedings against the Issuer and the Guarantor in such other jurisdictions,
and in such manner, as may be permitted by applicable law. The Issuer and the
Guarantor irrevocably and unconditionally waive, to the fullest extent permitted
by law, any objection which they may now or hereafter have to the laying of
venue of any of the aforesaid civil actions, suits or proceedings arising out of
or in connection with this Agreement brought in the Supreme Court of New York,
New York County or the United States District Court for the Southern District of
New York and any appellate court from either thereof and hereby further
irrevocably and unconditionally waive and agree not to plead or claim in any
such court that any such civil action, suit or proceeding brought in any such
court has been brought in an inconvenient forum.
(k) Survival. The provisions of Sections 4, 7(i), 7(j), 7(l) and 7(m) hereof
--------
shall survive any termination of this Agreement, in whole or part.
(l) Waiver of Immunities. To the extent that the Issuer or the Guarantor may
--------------------
in any jurisdiction claim for itself or its assets immunity (to the extent such
immunity may now or hereafter exist, whether on the grounds of sovereign
immunity or otherwise) from suit, execution, attachment (whether in aid of
execution, before judgment or otherwise) or other legal process (whether through
service or notice or otherwise), and to the extent that in any such jurisdiction
there may be attributed to itself or its assets such immunity (whether or not
claimed), the Issuer and the Guarantor irrevocably agree with respect to any
matter arising under the Agreement, for the benefit of the Initial Purchasers,
not to claim, and irrevocably waive, such immunity to the full extent permitted
by the laws of such jurisdiction.
(m) Foreign Taxes; Judgment Currency. (i) All payments by the Issuer or the
--------------------------------
Guarantor to the Initial Purchasers hereunder shall be made free and clear of,
and without deduction or withholding for or on account of, any and all present
and future income,
25
<PAGE>
stamp or other taxes, levies, imposts, duties, charges, fees, deductions or
withholdings, now or hereafter imposed, levied, collected, withheld or assessed
by the United Kingdom or any other jurisdiction in which the Issuer or the
Guarantor has a branch or an office from which payment is made or deemed to be
made, excluding (x) any such tax imposed by reason of any Initial Purchaser
having some connection with any such jurisdiction other than its participation
as an Initial Purchaser hereunder and (y) any income or franchise tax on the
overall net income of any Initial Purchaser imposed by the United States of
America or by the State of New York or any political subdivision of the United
States of America or of the State of New York (all such non-excluded taxes,
"Foreign Taxes"). If either the Issuer or the Guarantor is prevented by
operation of law or otherwise from paying, causing to be paid or remitting that
portion of amounts payable hereunder represented by Foreign Taxes withheld or
deducted, then amounts payable under this Agreement shall, to the extent
permitted by law, be increased to such amount as is necessary to yield and remit
to such Initial Purchaser an amount that, after deduction of all Foreign Taxes
(including all Foreign Taxes payable on such increased payments), equals the
amount that would have been payable if no Foreign Taxes applied; and (ii) If for
the purpose of obtaining judgment in any court it is necessary to convert a sum
due hereunder to the Initial Purchasers from United States dollars into another
currency, the Issuer and the Guarantor have agreed, and each Initial Purchaser
will be deemed to have agreed, to the fullest extent that they may effectively
do so, that the rate of exchange used shall be that at which in accordance with
normal banking procedures such Initial Purchasers could purchase United States
dollars with such other currency in The City of New York on the business day
preceding the day on which final judgment is given. The obligations of the
Issuer and the Guarantor in respect of any sum payable by it to the Initial
Purchasers shall, notwithstanding any judgment in a currency (the "judgment
currency") other than United States dollars, be discharged only to the extent
that on the business day following receipt by such Initial Purchaser of any sum,
adjudged to be so due in the judgment currency, such Initial Purchaser may in
accordance with normal banking procedures purchase United States dollars with
the judgment currency; if the amount of United States dollars so purchased is
less than the sum originally due to such Initial Purchaser in the judgment
currency (determined in the manner set forth in the preceding paragraph), the
Issuer and the Guarantor agree, as a separate obligation and notwithstanding any
such judgment, to indemnify such Initial Purchaser against such loss, and if the
amount of the United States dollars so purchased exceeds the sum originally due
to such Initial Purchaser, such Initial Purchaser agrees to remit to the Issuer
or the Guarantor, as the case may be, such excess amount.
(n) Severability. In the event that any one or more of the provisions
------------
contained herein, or the application thereof in any circumstance, is held
invalid, illegal or unenforceable, the validity, legality and enforceability of
any such provision in every other respect and of the remaining provisions
contained herein shall not be affected or impaired thereby.
(o) Securities Held by the Issuer or the Guarantor or their Affiliates.
------------------------------------------------------------------
Whenever the consent or approval of Holders of a specified percentage of
Registrable Securities is required hereunder, Registrable Securities held by the
Issuer or the Guarantor, or their affiliates (as such term is defined in Rule
405 under the Securities Act), shall not be
26
<PAGE>
counted in determining whether or not such consent or approval was given by
the Holders of such required percentage.
(p) Luxembourg Stock Exchange Provisions. (i) The Issuer and the Guarantor
------------------------------------
will use their reasonable best efforts to list the Exchange Securities on the
Luxembourg Stock Exchange; and (ii) as long as the Securities or Exchange
Securities, as applicable, are listed on the Luxembourg Stock Exchange and the
rules of such Exchange so require:
(A) The exchange of the Securities for the Exchange Securities
pursuant to the Exchange Offer may be effected through the Paying
Agent in Luxembourg,
(B) The Issuer and the Guarantor will provide such Paying Agent with
all documentation with respect to the Exchange Offer, and
(C) The Issuer and the Guarantor will cause the publication of a
notice in a leading newspaper having general circulation in
Luxembourg (x) prior to the Exchange Offer, indicating the
procedures to be followed pursuant to the Exchange Offer, (y)
subsequent to the Exchange Offer, indicating the results thereof
and (z) of the payment of any Additional Interest.
27
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.
Yorkshire Power Finance Limited
By: /s/ A. A. Pena
Name: A. A. Pena
Title: Attorney-in-fact
Yorkshire Power Group Limited
By: /s/ A. A. Pena
Name: A. A. Pena
Title: Director
Confirmed and accepted as of
the date first above written:
Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith Incorporated
Salomon Brothers Inc
J.P. Morgan Securities Inc.
Morgan Stanley & Co. Incorporated
UBS Securities LLC
By: Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith Incorporated
By: /s/ Robert Craig
Name: Robert Craig
Title: Vice President
28
<PAGE>
Exhibit 5.1
July 21, 1998
Yorkshire Power Group Limited
Wetherby Road, Scarcroft
Leeds LS14 3HS, England
Yorkshire Power Finance Limited
Wetherby Road, Scarcroft
Leeds LS14 3HS, England
Re: Registration Statement on Form S-4
----------------------------------
Ladies and Gentlemen:
We are acting as United States counsel to Yorkshire Power Group Limited
("Yorkshire") and Yorkshire Power Finance Limited ("Yorkshire Finance") in
connection with the preparation of a Registration Statement on Form S-4,
including a preliminary prospectus, filed with the Securities and Exchange
Commission (the "Commission") on July 21, 1998 (the "Registration Statement")
under the United States Securities Act of 1933, as amended (the "Securities
Act"), relating to Yorkshire Finance's proposed offer to exchange up to
$350,000,000 aggregate principal amount of its 6.154% Series B Senior Notes due
2003 (the "2003 Senior Notes") and up to $300,000,000 aggregate principal amount
of its 6.496% Series B Senior Notes due 2008 (the "2008 Senior Notes" and,
together with the 2003 Senior Notes, the "Senior Notes"), which have been
registered under the Securities Act, for a like principal amount of its 6.154%
Series A Senior Notes due 2003 (the "Original 2003 Senior Notes") and its 6.496%
Series A Senior Notes due 2008 (the "Original 2008 Senior Notes" and, together
with the Original 2003 Senior Notes, the "Original Senior Notes"), respectively.
Yorkshire has irrevocably and unconditionally guaranteed the due and punctual
payment of the Original Senior Notes (the "Original Notes Guarantee") and will
likewise guarantee payment of the Senior Notes (the "Notes Guarantee"). The
Notes Guarantee has also been registered under the Securities Act. The Original
Senior Notes and the Original Notes Guarantee were, and the Senior Notes and the
Notes Guarantee will be, issued pursuant to an indenture dated as of February 1,
1998, as supplemented, among Yorkshire, Yorkshire Finance, the paying agents and
the trustee named therein (the "Indenture"), in substantially the form filed as
an exhibit to the Registration Statement.
<PAGE>
We are of the opinion that, upon compliance with the pertinent provisions
of the Act and the Public Utility Holding Company Act of 1935, as amended, upon
compliance with applicable securities or blue sky laws of various jurisdictions,
upon the adoption of appropriate resolutions by the Directors of Yorkshire
Finance or a duly authorized committee thereof and by the Directors of Yorkshire
or a duly authorized committee thereof, when the Senior Notes have been
executed, authenticated, delivered and exchanged for the Original Senior Notes
in accordance with the terms of the Indenture (i) the Senior Notes will be
valid, binding and legal obligations of Yorkshire Finance (subject to applicable
bankruptcy, insolvency, reorganization, moratorium and other similar laws
relating to or affecting creditors' rights generally and to general principles
of equity, whether considered in a proceeding at law or in equity) and (ii) the
Notes Guarantee will be a valid, binding and legal obligation of Yorkshire
(subject to applicable bankruptcy, insolvency, reorganization, moratorium and
other similar laws relating to or affecting creditors' rights generally, and to
general principles of equity, whether considered in a proceeding at law or in
equity).
We are members of the State Bar of New York and we do not express any
opinion herein concerning any law other than the law of the State of New York
and the federal law of the United States. In rendering the opinion expressed
immediately above with respect to the validity of the Senior Notes, we have
relied upon the opinion addressed to Yorkshire Finance and dated the date hereof
of Maples and Calder as to matters of Cayman Islands law. We hereby consent to
the reliance by Maples and Calder on the opinions expressed herein insofar as
such opinions relate to matters of New York law.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the statements with respect to our firm under the
caption "Legal Opinions" in the Registration Statement. In giving the foregoing
consent, we do not hereby admit that we come within the category of persons
whose consent is required under Section 7 of the Securities Act or the rules and
regulations of the Commission thereunder.
Very truly yours,
/s/ Dewey Ballantine LLP
DEWEY BALLANTINE LLP
2
<PAGE>
Exhibit 5.2
21st July, 1998
To: Yorkshire Power Finance Limited
PO Box 309
George Town
Grand Cayman
Cayman Islands
British West Indies
Dear Sirs:
RE: REGISTRATION STATEMENT ON FORM S-4
- --- ----------------------------------
We are Cayman Islands Counsel to Yorkshire Power Finance Limited ("Yorkshire
Finance") in connection with the preparation of a registration statement on Form
S-4, including a preliminary prospectus, filed with the United States Securities
and Exchange Commission (the "Commission") on 21st July, 1998 (the "Registration
Statement"), under the United States Securities Act of 1933, as amended (the
"Securities Act"), relating to the proposed offer to exchange up to $350,000,000
aggregate principal amount of its 6.154% Series B Senior Notes due 2003 (the
"2003 Senior Notes") and up to $300,000,000 aggregate principal amount of its
6.496% Series B Senior Notes due 2008 (together with the 2003 Senior Notes, the
"Senior Notes") of Yorkshire Finance for a like principal amount of its 6.154%
Series A Senior Notes due 2003 (the "Original 2003 Senior Notes") and its 6.496%
Series B Senior Notes due 2008 (together with the Original 2003 Senior Notes,
the "Original Senior Notes"), respectively. The Original Senior Notes were and
the Senior Notes will be issued pursuant to an indenture dated as of 1st
February, 1998, as supplemented, entered into between Yorkshire Finance,
Yorkshire and the trustee named therein (the "Subordinated Indenture") in
substantially the form filed as an exhibit to the Registration Statement.
For the purposes of this opinion, we have reviewed the Companies Law (1995
Revision) of the Cayman Islands (the "Companies Law") and have examined and
relied upon:
1. the prospectus relating to the Senior Notes in the form included in the
Registration Statement;
2. the Memorandum and Articles of Association of Yorkshire Finance;
3. the Certificate of Incorporation and Certificate of Incorporation on Change
of Name of Yorkshire Finance;
<PAGE>
2
To: Yorkshire Power Finance Limited 21st July, 1998
Re: Registration Statement
- --------------------------------------------------------------------------------
Yorkshire Finance:
4. the form of the Indenture;
5. the Minutes of a Meeting of the Board of Directors of Yorkshire Finance held
on 11th February, 1998 (the "Minutes"), the Power of Attorney granted by the
Company on 11th February, 1998 and the corporate records of Yorkshire
Finance;
6. a Certificate from a Director of Yorkshire Finance in the form annexed hereto
(the "Director's Certificate"); and
7. the opinion dated the date hereof and given by Dewey Ballantine, LLP, United
States counsel to Yorkshire Finance and Yorkshire (the "Dewey Ballantine
Opinion").
The following opinion is given only as to circumstances existing on the date
hereof and known to us and as to the laws of the Cayman Islands as the same are
in force at the date hereof. In giving this opinion, we have relied upon the
accuracy of the Director's Certificate and the Dewey Ballantine Opinion on the
date of issue hereof without further verification and have relied upon the
following assumptions, which we have not independently verified:-
(a) The Indenture has been duly authorised, executed and delivered by or on
behalf of all relevant parties (other than Yorkshire Finance);
(b) The Senior Notes will be duly authorised, executed and delivered by or on
behalf of all relevant parties (other than Yorkshire Finance).
(c) The choice of the laws of the State of New York as the governing law of the
Senior Notes and the Indenture has been in good faith and would be regarded
as a valid and binding selection which will be upheld by the courts of the
State of New York as a matter of New York law and all other relevant
courts (other than the courts of the Cayman Islands);
(d) Copy documents or the forms of documents provided to us are true copies of,
or in the final forms of, the originals;
(e) The genuineness of all signatures;
(f) The power, authority and legal right of all parties under all relevant laws
and regulations (other than Yorkshire Finance under the laws of the Cayman
Islands) to execute and perform their respective obligations under the
Senior Notes and the Indenture;
<PAGE>
3
To: Yorkshire Power Finance Limited 21st July, 1998
Re: Registration Statement
- --------------------------------------------------------------------------------
(g) The Senior Notes will be duly completed, executed, authenticated, delivered
and exchanged for a like principal amount of Original Senior Notes in
accordance with, and as contemplated by, the provisions of the Indenture;
(h) That all preconditions to the obligations of the parties to the Senior
Notes and the Subordinated Indenture have been or will be satisfied or duly
waived and there has been no breach of the terms of the Senior Notes or the
Indenture; and
(i) There is nothing under any law (other than the laws of the Cayman Islands)
which would or might affect the opinions hereinafter appearing.
Specifically, we have made no independent investigation of the laws of the
State of New York.
We render no opinion as to the negotiability or transferability by delivery of
any Senior Notes in any jurisdiction which does not recognise such negotiability
or transferability.
Based upon and subject to the foregoing and having regard to such legal
considerations as we deem relevant, we are of the opinion that:-
1. Yorkshire Finance has been duly incorporated and is validly existing under
the laws of the Cayman Islands;
2. Assuming that the precise terms of issue of the Senior Notes are duly
determined by an Attorney of the Company in accordance with the resolutions
set forth in the Minutes, the Senior Notes have been duly authorised by
Yorkshire Finance and, when executed on behalf of Yorkshire Finance,
authenticated in the manner set forth in the Junior Subordinated Indenture
and delivered in exchange for a like principal amount of validly tendered
Original Senior Notes, will constitute the legal, valid and binding
obligations of Yorkshire Finance enforceable in accordance with their terms,
except and insofar as such enforcement may be limited as hereinafter set
forth. The term "enforceable" as used above means the obligations assumed by
Yorkshire Finance under the Senior Notes are of a type which the Courts of
the Cayman Islands enforce. It does not mean those obligations will
necessarily be enforced in all circumstances in accordance with their terms
and we would draw to your attention:
(i) enforcement may be limited by bankruptcy, insolvency, liquidation,
reorganization and other laws of general application relating to or
affecting the rights of creditors;
(ii) enforcement may be limited by general principles of equity - for example,
equitable remedies such as specific performance may not be available, inter
alia, where damages are considered to be an adequate remedy;
<PAGE>
4
To: Yorkshire Power Finance Limited 21st July, 1998
Re: Registration Statement
- --------------------------------------------------------------------------------
(iii) claims may become barred under the statutes of limitation or may be or
become subject to defences of set-off or counterclaim;
(iv) where obligations are to be performed in a jurisdiction outside the
Cayman Islands, they may not be enforceable in the Cayman Islands to the
extent that performance would be illegal under the laws of that
jurisdiction;
(v) in the event of any proceedings being brought in the Cayman Islands
courts in respect of a monetary obligation expressed to be payable in a
currency other than Cayman Islands dollars, a Cayman Islands court will
give judgement expressed as an order to pay such other currency on
enforcement of the judgement. With respect to winding up proceedings,
Cayman Islands law will require that all claims or debts are converted
into Yorkshire Finance's functional currency of account;
(vi) Cayman Islands stamp duty will be payable if any of the Senior Notes in
bearer form or the Indenture is brought to or executed in the Cayman
Islands, which duty would be up to CI$250 on each of the Senior Notes in
bearer form (unless Yorkshire Finance has paid a duty of CI$500 in
respect of the issue of the Senior Notes in bearer form) and would be
CI$40 on the Indenture. Senior Notes in registered form and any global
Notes representing the Senior Notes which are evidence of entitlement
only and title to which passes by entry in the relevant register, will
not be subject to Cayman Islands stamp duty. Any instrument transferring
title to any Senior Note in registered form may be subject to Cayman
Islands stamp duty of CI$100 if brought to or executed in the Cayman
Islands;
(vii) a certificate, determination, calculation or designation of any party to
the foregoing documents as to any matter provided therein might be held
by a Cayman Islands court not to be conclusive, final and binding if, for
example, it could be shown to have an unreasonable or arbitrary basis or
in the event of manifest error;
(viii) although there is no statutory enforcement in the Cayman Islands of
judgments obtained in New York, the courts of the Cayman Islands will
recognise and enforce a foreign judgment of a court of competent
jurisdiction without reexamination or relitigation of the matter
adjudicated upon, based on the principle that a judgment of a competent
foreign court imposes upon the judgment debtor an obligation to pay the
sum for which judgment has been given, and provided such judgment is
final, for a liquidated sum not in respect of taxes or a fine or penalty,
and which was not obtained in a manner, and is not of a kind the
enforcement of which is, contrary to the public policy of the Cayman
Islands; a Cayman Islands court may stay proceedings if concurrent
proceedings are being brought elsewhere;
<PAGE>
5
To: Yorkshire Power Finance Limited 21st July, 1998
Re: Registration Statement
- --------------------------------------------------------------------------------
(ix) obligations to make payments that may be regarded as penalties will not
be enforceable to the extent that they are penal;
(x) in principle a Cayman Islands court will award costs and disbursements in
litigation in accordance with contractual provisions in this regard but
the applicable rule of court (GCR Order 62, rule 2) has been in force
only since 1st June, 1995 and there remains some uncertainty as to the
way in which it will be applicable in practice. Whilst it is clear that
costs incurred prior to judgement can be recovered in accordance with the
contract, it is likely that post-judgment costs will be recoverable, if
at all, in accordance with the scales laid down in the Grand Court
(Taxation of Costs) Rules 1995;
(xi) we reserve our opinion as to the extent to which a Cayman Islands court
would, in the event of any relevant illegality, sever the offending
provisions and enforce the remainder of the transaction of which such
provisions form a part, notwithstanding any express provisions in this
regard;
(xii) to maintain Yorkshire Finance in good standing under the laws of the
Cayman Islands, annual filing fees must be paid and Returns made to the
Registrar of Companies;
(xiii) the obligations of Yorkshire Finance under the Senior Notes or the
Indenture which involve the government of any country which is currently
the subject of United Nations sanctions as extended to the Cayman Islands
by an Order in Council (namely Iraq and Libya and each an "Affected
Country"), any person or body resident in, incorporated in or constituted
under the laws of any Affected Country or exercising public functions in
any Affected Country or any person or body controlled by any of the
foregoing or by any person acting on behalf of any of the foregoing may
be subject to restrictions pursuant to such sanctions as implemented
under the laws of the Cayman Islands;
(xiv) if Yorkshire Finance obtains a beneficial interest in any of the Senior
Notes then its rights and obligations in respect thereof may merge thus
extinguishing its rights and obligations in respect thereof, so that any
attempted resale of those Senior Notes might constitute a separate issue
of debt obligations;
(xvi) we make no comment with regard to the references to foreign statutes in
the Senior Notes or the Indenture.
This opinion is for the benefit of the addressees but may be relied upon by the
addressees' legal advisors (in that capacity only).We hereby consent to the
filing of this opinion as an exhibit to the Registration Statement and to the
reference to us under the heading "Legal Opinions" in the prospectus included in
the Registration Statement. In giving such consent, we
<PAGE>
6
To: Yorkshire Power Finance Limited 21st July, 1998
Re: Registration Statement
- --------------------------------------------------------------------------------
do not thereby admit that we are in the category of persons whose consent is
required under Section 7 of the Securities Act or the rules or regulations of
the Commission thereunder.
Yours faithfully
/s/ Maples And Calder
MAPLES AND CALDER
<PAGE>
Attachment to Exhibit 5.2
YORKSHIRE POWER FINANCE LIMITED
Ugland House
P.O. Box 309
Grand Cayman, Cayman Islands
British West Indies
21st July, 1998
Maples and Calder
P.O. Box 309
Grand Cayman
British West Indies
Dear Sirs,
I, being a Director of YORKSHIRE POWER FINANCE LIMITED (the "Company"), hereby
certify that as at the date hereof:-
1. The Memorandum and Articles of Association of the Company as registered on
18th August, 1997 remain in full force and effect and are unamended save that
the name of the Company was changed from Yorkshire Power Finance (Cayman)
Limited to Yorkshire Power Finance Limited by special resolution of the sole
shareholder passed on 12th December, 1997.
2. The Minutes of the Meetings of the Board of Directors held on 11th February,
1998 (the "Meeting") are a true and correct record of the proceedings of the
Meeting duly convened and held, and at which a quorum was present throughout, in
the manner prescribed in the Articles of Association. The issued share capital
of the Company is 2,000 shares, which shares are fully paid up. The
shareholders of the Company, being Yorkshire Power Group Limited and Yorkshire
Holdings PLC, have not restricted the powers of the Directors in any fashion.
3. The resolutions set forth in the Minutes of the Meetings were duly adopted
and are in full force and effect at the date hereof and the resolutions set
forth in the Minutes of the Meeting, insofar as they relate to the Senior Notes
the subject of your opinion dated the date hereof, have not been amended, varied
or revoked in any respect.
4. The precise terms of issue of the Senior Notes referred to in the Minutes of
the Meeting (including principal amount and interest rates) were duly determined
by an Attorney of the Company, and the Documents and Senior Notes also referred
to in the Minutes of the Meeting were duly executed and delivered by an Attorney
on behalf of the Company, each in accordance with the resolutions set forth in
the Minutes of the Meeting.
5. The directors of the Company at the date of the Meeting and at the date
hereof were
<PAGE>
-2-
and are as follows:-
A.G Donnelly
R. Dickinson
G.J. Hall
6. The Minute Book and corporate records of the Company as maintained at its
registered office in the Cayman Islands and made available to you are complete
and accurate in all material respects and all Minutes and Resolutions filed
thereon represent a complete and accurate record of all Meetings of the
Shareholders and Directors duly convened in accordance with the Articles of
Association and all Resolutions passed by written consent.
7. Prior to, at the time of, and immediately following execution of the
Documents (as referred to in the Minutes of the Meeting) to which the Company is
a party, the Company was able to pay its debts as they fell due and entered into
the Documents for proper value and not with an intention to defraud or hinder
its creditors or by way of undue or fraudulent preference.
8. Each Director has acted bona fide in the interests of the Company and for
proper purposes in approving the transaction the subject of your opinion and has
disclosed his interest (if any) in accordance with the Articles of Association
of the Company.
9. No steps have been taken by the Company to wind up the Company and to the
best of my knowledge no Resolutions have been passed by the Shareholders to
voluntarily wind up the Company.
10. The Company has not entered into any mortgages and charges over its
property, details of which are required to be entered in the Register of
Mortgages and Charges maintained at its registered office in the Cayman Islands.
11. The Company has no employees located in the Cayman Islands.
Signature:.........................................
Name:
Title: Director
<PAGE>
Exhibit 8.1
July 21, 1998
Yorkshire Power Group Limited
Wetherby Road, Scarcroft
Leeds LS14 3HS, England
Yorkshire Power Finance Limited
Wetherby Road, Scarcroft
Leeds LS14 3HS, England
Re: Registration Statement on Form S-4
----------------------------------
Ladies and Gentlemen:
We are acting as United States counsel to Yorkshire Power Group Limited and
Yorkshire Power Finance Limited ("Yorkshire Finance") in connection with the
preparation of a Registration Statement on Form S-4, including a preliminary
prospectus, filed with the Securities and Exchange Commission (the "Commission")
on July 21, 1998 (the "Registration Statement") relating to Yorkshire Finance's
proposed offer to exchange up to $350,000,000 aggregate principal amount of its
6.154% Series B Senior Notes due 2003 and up to $300,000,000 aggregate principal
amount of its 6.496% Series B Senior Notes due 2008, which have been registered
under the Securities Act of 1933, as amended (the "Securities Act"), for a like
principal amount of its 6.154% Series A Senior Notes due 2003 and its 6.496%
Series A Senior Notes due 2008, respectively, as set forth in the prospectus
filed as part of the Registration Statement. We have reviewed copies of the
Registration Statement and the preliminary prospectus and such other documents
as we have deemed necessary or appropriate as a basis for the opinion set forth
below.
We hereby confirm our opinion that the statements as to matters of law and
legal conclusions set forth under the caption "Certain Income Tax Considerations
- - US Federal Income Tax Considerations" in the preliminary prospectus included
in the Registration Statement are correct in all material respects.
We hereby consent to the filing of this opinion with the Commission as an
exhibit to the Registration Statement and to the use of our name under the
heading "Certain Income Tax Considerations - US Federal Income Tax
Considerations" in the preliminary prospectus forming part of the Registration
Statement. In giving the foregoing consent,
<PAGE>
we do not hereby admit that we come within the category of persons whose consent
is required under Section 7 of the Securities Act or the rules and regulations
of the Commission thereunder.
Very truly yours,
/s/ Dewey Ballantine LLP
DEWEY BALLANTINE LLP
2
<PAGE>
Exhibit 8.2
Telephone: 0171-330 3000
Direct Line: 0171-330 3609
Fax (Group 3): 0171-330 9999
Fax (Group 4): 0171-248 1100
DX No. 73
Our Ref: MTM/JCB/LM/TX:59315.1
21st July, 1998
Yorkshire Power Group Limited
Wetherby Road
Scarcroft
Leeds
LS14 3HS
Yorkshire Power Finance Limited
Wetherby Road
Scarcroft
Leeds
LS14 3HS
Dear Ladies and Gentleman,
REGISTRATION STATEMENT ON FORM S-4
We are legal advisers as to English law to Yorkshire Power Group Limited and
Yorkshire Power Finance Limited ("Yorkshire Finance") in connection with the
preparation of a Registration Statement on Form S-4, including a preliminary
prospectus, filed with the Securities and Exchange Commission (the "Commission")
on 21st July, 1998 (the "Registration Statement") relating to the proposed offer
to exchange up to $350,000,000 aggregate principal amount of 6.154% Series B
Senior Notes due 2003 and up to $300,000,000 6.496% Series B Senior Notes due
2008 of Yorkshire Finance for a like principal amount of its 6.154% Series A
Senior Notes due 2003 or its 6.496% Series A Senior Notes due 2008,
respectively, as set forth in the prospectus filed as part of the Registration
Statement (the "Prospectus"). We have reviewed copies of the Registration
Statement and the Prospectus and such other documents as we have deemed
necessary or appropriate as a basis for the opinion set forth below.
We confirm that the information relating to United Kingdom taxation in the
section of the preliminary prospectus headed "Certain Income Tax Considerations"
and specifically the paragraphs headed "UK Income Tax Considerations" is the
opinion of Allen & Overy and is correct in all material respects.
We consent to the filing of this opinion with the Commission as an exhibit to
the Registration Statement and to the use of our name under the heading "Certain
Income Tax Considerations - UK Income Tax Considerations" in the preliminary
prospectus forming part of the Registration Statement. In giving the foregoing
consent, we do not admit that we come within the category of persons whose
consent is required under Section 7 of the Securities Act of 1933, as amended,
or the rules and regulations of the Commission thereunder.
Yours faithfully,
/s/ Allen & Overy
ALLEN & OVERY
<PAGE>
EXHIBIT 8.3
21st July, 1998
To: Yorkshire Power Finance Limited
PO Box 309
George Town
Grand Cayman
Cayman Islands
British West Indies
Dear Sirs:
RE: REGISTRATION STATEMENT ON FORM S-4
- ---------------------------------------
We are Cayman Islands Counsel to Yorkshire Power Finance Limited in connection
with the registration statement on Form S-1, including a preliminary prospectus,
filed with the Securities and Exchange Commission (the "Commission") on 21st
July, 1998 (the "Registration Statement") relating to the proposed offer to
exchange up to $350,000,000 aggregate principal amount of 6.154% Series B Senior
Notes due 2003 and up to $300,000,000 6.496% Series B Senior Notes due 2008 of
Yorkshire Finance for a like principal amount of its 6.154% Series A Senior
Notes due 2003 and its 6.496% Series A Senior Notes due 2008, respectively, as
set forth in the prospectus filed as part of the Registration Statement (the
"Prospectus"). We have reviewed copies of the Registration Statement and the
Prospectus and such other documents as we have deemed necessary or appropriate
as a basis for the opinion set forth below.
We confirm that the statements as to matters of law and legal conclusions set
forth under the caption "Cayman Islands Taxation" in the preliminary prospectus
included in the Registration Statement are the opinion of Maples and Calder and
are correct in all material respects.
We here by consent to the filing of this opinion with the Commission as an
exhibit to the Registration Statement and to the use of our name under the
heading "Cayman Islands Taxation" in the preliminary prospectus forming part of
the Registration Statement. In giving the foregoing consent, we do not hereby
admit that we come within the category of persons whose consent is required
under Section 7 of the United States Securities Act of 1933, as amended, or the
rules or regulations of the Commission thereunder.
Yours faithfully
/s/ Maples And Calder
Maples and Calder
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-4 of
our reports dated July 15, 1997 on our audits of the financial statements and
financial statement schedules of Yorkshire Electricity Group plc and Yorkshire
Power Group Limited. We also consent to the references to us under the
captions "Selected Consolidated Financial Data" and "Experts".
Deloitte & Touche
Leeds
United Kingdom
July 21, 1998
<PAGE>
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Yorkshire Power Group
Limited on Form S-4 of our report dated June 10, 1998, appearing in the
Prospectus, which is part of this Registration Statement and of our report
dated June 10, 1998 relating to the financial statement schedule appearing
elsewhere in this Registration Statement.
We also consent to the reference to us under the captions "Selected
Consolidated Financial Data" and "Experts".
Deloitte & Touche LLP
Columbus, Ohio
July 21, 1998
<PAGE>
EXHIBIT 24.1
July 14, 1998
Armando A. Pena
1 Riverside Plaza
Columbus, Ohio 43215
Richard C. Kelly
1225 Seventeenth Street
Denver, Colorado 80502
Dear Sirs:
Yorkshire Power Group Limited (the "Company") proposes to file a
registration statement with the Securities and Exchange Commission under the
Securities Act of 1933, as amended, relating to (i) $650,000,000 of Senior Notes
of Yorkshire Power Finance Limited, a Cayman Islands company with limited
liability and subsidiary of the Company and (ii) guarantees by the Company of
the above-mentioned securities.
The Company and the undersigned directors and officers of the Company,
individually as a director and/or as an officer of the Company, hereby make,
constitute and appoint each of you our true and lawful attorney for each of us
and in each of our names, places and steads to sign and cause to be filed with
the Securities and Exchange Commission said registration statement and any
appropriate amendments thereto, to be accompanied by a prospectus and any
appropriately amended prospectus and any necessary exhibits.
The Company hereby authorizes you or any one of you to execute said
registration statement and amendments thereto on its behalf as attorney-in-fact
for it and its authorized officers, and to file the same as aforesaid.
The undersigned directors and officers of the Company hereby authorize you
or any one of you to sign said registration statement on their behalf as
attorney-in-fact and to amend, or remedy any deficiencies with respect to, said
registration statement by appropriate amendment or amendments and to file the
same as aforesaid.
Very truly yours,
YORKSHIRE POWER GROUP LIMITED
By: /s/ Wayne H. Brunetti
Name: Wayne H. Brunetti
Title: Chairman and Director
1
<PAGE>
/s/ Dr. E. Linn Draper, Jr.
Dr. E. Linn Draper, Jr.
Director
/s/ Donald M. Clements, Jr.
Donald M. Clements, Jr.
Director
/s/ Armando A. Pena
Armando A. Pena
Director and Chief Financial Officer
/s/ Wayne H. Brunetti
Wayne H. Brunetti
Chairman and Director
/s/ Richard C. Kelly
Richard C. Kelly
Director
/s/ Teresa S. Madden
Teresa S. Madden
Director
2
<PAGE>
EXHIBIT 24.2
July 16, 1998
Armando A. Pena
1 Riverside Plaza
Columbus, Ohio 43215
Richard C. Kelly
1225 Seventeenth Street
Denver, Colorado 80502
Dear Sirs:
Yorkshire Power Finance Limited (the "Company") proposes to file a
registration statement with the Securities and Exchange Commission under the
Securities Act of 1933, as amended, relating to (i) $650,000,000 aggregate
principal amount of its Senior Notes and (ii) guarantees of the above-mentioned
securities by Yorkshire Power Group Limited, the parent of the Company.
The Company and the undersigned directors and officers of the Company,
individually as a director and/or as an officer of the Company, hereby make,
constitute and appoint each of you our true and lawful attorney for each of us
and in each of our names, places and steads to sign and cause to be filed with
the Securities and Exchange Commission said registration statement and any
appropriate amendments thereto, to be accompanied by a prospectus and any
appropriately amended prospectus and any necessary exhibits.
The Company hereby authorizes you or any one of you to execute said
registration statement and amendments thereto on its behalf as attorney-in-fact
for it and its authorized officers, and to file the same as aforesaid.
The undersigned directors and officers of the Company hereby authorize you
or any one of you to sign said registration statement on their behalf as
attorney-in-fact and to amend, or remedy any deficiencies with respect to, said
registration statement by appropriate amendment or amendments and to file the
same as aforesaid.
Very truly yours,
Executed as a deed by )
YORKSHIRE POWER FINANCE LIMITED ) /s/ Roger Dickinson
in the presence of )
/s/ Galan Rodney Harper Moss
Witness
Name: Galan Rodney Harper Moss
Title: Legal Executive
1
<PAGE>
Executed as a deed by:
/s/ Graham J. Hall
Graham J. Hall
Director and Principal Executive Officer
Executed as a deed by:
/s/ Roger Dickinson
Roger Dickinson
Director
Executed as a deed by:
/s/ Andrew G. Donnelly
Andrew G. Donnelly
Director and Principal Financial Officer
and Principal Accounting Officer
Witness to each of the above signatures:
/s/ Galan Rodney Harper Moss
Name: Galan Rodney Harper Moss
2
<PAGE>
EXHIBIT 25.1
================================================================================
FORM T-1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2) |__|
----------------------
THE BANK OF NEW YORK
(Exact name of trustee as specified in its charter)
New York 13-5160382
(State of incorporation (I.R.S. employer
if not a U.S. national bank) identification no.)
48 Wall Street, New York, N.Y. 10286
(Address of principal executive offices) (Zip code)
----------------------
YORKSHIRE POWER GROUP LIMITED
(Exact name of obligor as specified in its charter)
England and Wales Not Applicable
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
----------------------
YORKSHIRE POWER FINANCE LIMITED
(Exact name of obligor as specified in its charter)
Cayman Islands Not Applicable
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
Wetherby Road, Scarcroft
Leeds LS14 3HS, England
(Address of principal executive offices) (Zip code)
-----------------------
Exchange Senior Notes of Yorkshire Power Finance Limited (Title of the
indenture securities)
================================================================================
<PAGE>
1. GENERAL INFORMATION. FURNISH THE FOLLOWING INFORMATION AS TO THE TRUSTEE:
(A) NAME AND ADDRESS OF EACH EXAMINING OR SUPERVISING AUTHORITY TO WHICH IT
IS SUBJECT.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
Name Address
- -----------------------------------------------------------------------------------
<S> <C>
Superintendent of Banks of the State of 2 Rector Street, New York,
New York N.Y. 10006, and Albany, N.Y. 12203
Federal Reserve Bank of New York 33 Liberty Plaza, New York,
N.Y. 10045
Federal Deposit Insurance Corporation Washington, D.C. 20429
New York Clearing House Association New York, New York 10005
</TABLE>
(b) WHETHER IT IS AUTHORIZED TO EXERCISE CORPORATE TRUST POWERS.
Yes.
2. AFFILIATIONS WITH OBLIGOR.
IF THE OBLIGOR IS AN AFFILIATE OF THE TRUSTEE, DESCRIBE EACH SUCH
AFFILIATION.
None.
16. LIST OF EXHIBITS.
EXHIBITS IDENTIFIED IN PARENTHESES BELOW, ON FILE WITH THE COMMISSION, ARE
INCORPORATED HEREIN BY REFERENCE AS AN EXHIBIT HERETO, PURSUANT TO RULE 7A-
29 UNDER THE TRUST INDENTURE ACT OF 1939 (THE "ACT") AND 17 C.F.R.
229.10(D).
1. A copy of the Organization Certificate of The Bank of New York (formerly
Irving Trust Company) as now in effect, which contains the authority to
commence business and a grant of powers to exercise corporate trust
powers. (Exhibit 1 to Amendment No. 1 to Form T-1 filed with
Registration Statement No. 33-6215, Exhibits 1a and 1b to Form T-1 filed
with Registration Statement No. 33-21672 and Exhibit 1 to Form T-1 filed
with Registration Statement No. 33-29637.)
4. A copy of the existing By-laws of the Trustee. (Exhibit 4 to Form T-1
filed with Registration Statement No. 33-31019.)
-2-
<PAGE>
6. The consent of the Trustee required by Section 321(b) of the Act.
(Exhibit 6 to Form T-1 filed with Registration Statement No. 33-44051.)
7. A copy of the latest report of condition of the Trustee published
pursuant to law or to the requirements of its supervising or examining
authority.
-3-
<PAGE>
SIGNATURE
Pursuant to the requirements of the Act, the Trustee, The Bank of New York,
a corporation organized and existing under the laws of the State of New York,
has duly caused this statement of eligibility to be signed on its behalf by the
undersigned, thereunto duly authorized, all in The City of New York, and State
of New York, on the 17th day of July, 1998.
THE BANK OF NEW YORK
By: /s/REMO J. REALE
------------------------
Name: REMO J. REALE
Title: ASSISTANT VICE PRESIDENT
-4-
<PAGE>
- --------------------------------------------------------------------------------
Exhibit 7
Consolidated Report of Condition of
THE BANK OF NEW YORK
of 48 Wall Street, New York, N.Y. 10286
And Foreign and Domestic Subsidiaries,
a member of the Federal Reserve System, at the close of business March 31, 1998,
published in accordance with a call made by the Federal Reserve Bank of this
District pursuant to the provisions of the Federal Reserve Act.
Dollar Amounts
ASSETS in Thousands
Cash and balances due from depos-
itory institutions:
Noninterest-bearing balances and
currency and coin.................... $ 6,397,993
Interest-bearing balances............. 1,138,362
Securities:
Held-to-maturity securities........... 1,062,074
Available-for-sale securities......... 4,167,240
Federal funds sold and Securities pur-
chased under agreements to resell..... 391,650
Loans and lease financing
receivables:
Loans and leases, net of unearned
income .................36,538,242
LESS: Allowance for loan and
lease losses ..............631,725
LESS: Allocated transfer risk
reserve..........................0
Loans and leases, net of unearned
income, allowance, and reserve 35,906,517
Assets held in trading accounts......... 2,145,149
Premises and fixed assets (including
capitalized leases)................... 663,928
Other real estate owned................. 10,895
Investments in unconsolidated
subsidiaries and associated
companies............................. 237,991
Customers' liability to this bank on
acceptances outstanding............... 992,747
Intangible assets....................... 1,072,517
Other assets............................ 1,643,173
-----------
Total assets............................ $55,830,236
===========
LIABILITIES
Deposits:
In domestic offices................... $24,849,054
Noninterest-bearing ......10,011,422
Interest-bearing .........14,837,632
In foreign offices, Edge and
Agreement subsidiaries, and IBFs...... 15,319,002
Noninterest-bearing .........707,820
Interest-bearing .........14,611,182
Federal funds purchased and Securities
sold under agreements to repurchase. 1,906,066
Demand notes issued to the U.S.
Treasury.............................. 215,985
Trading liabilities..................... 1,591,288
Other borrowed money:
With remaining maturity of one year
or less............................. 1,991,119
With remaining maturity of more than
one year through three years........ 0
With remaining maturity of more than
three years......................... 25,574
Bank's liability on acceptances exe-
cuted and outstanding................. 998,145
Subordinated notes and debentures....... 1,314,000
Other liabilities....................... 2,421,281
-----------
Total liabilities....................... 50,631,514
-----------
EQUITY CAPITAL
Common stock............................ 1,135,284
Surplus................................. 731,319
Undivided profits and capital
reserves.............................. 3,328,050
Net unrealized holding gains
(losses) on available-for-sale
securities............................ 40,198
Cumulative foreign currency transla-
tion adjustments...................... ( 36,129)
-----------
Total equity capital.................... 5,198,722
-----------
Total liabilities and equity
capital ............................ $55,830,236
===========
<PAGE>
I, Robert E. Keilman, Senior Vice President and Comptroller of the above-
named bank do hereby declare that this Report of Condition has been prepared in
conformance with the instructions issued by the Board of Governors of the
Federal Reserve System and is true to the best of my knowledge and belief.
Robert E. Keilman
We, the undersigned directors, attest to the correctness of this Report of
Condition and declare that it has been examined by us and to the best of our
knowledge and belief has been prepared in conformance with the instructions
issued by the Board of Governors of the Federal Reserve System and is true and
correct.
Thomas A. Renyi ]
Alan R. Griffith ] Directors
J. Carter Bacot ]
- --------------------------------------------------------------------------------
<PAGE>
EXHIBIT 99.1
YORKSHIRE POWER FINANCE LIMITED
FORM OF LETTER OF TRANSMITTAL
TO ACCOMPANY OFFER TO EXCHANGE ITS
___% SERIES B SENIOR NOTES DUE _____
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
FOR ANY AND ALL OF ITS
___% SERIES A SENIOR NOTES DUE _____
PURSUANT TO THE PROSPECTUS DATED ___________, 1998
- -------------------------------------------------------------------------------
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK
CITY TIME, ON SEPTEMBER ___, 1998, UNLESS THE OFFER IS EXTENDED.
- -------------------------------------------------------------------------------
To: THE BANK OF NEW YORK, Exchange Agent
By Mail: By Hand Or Overnight Courier:
The Bank of New York The Bank of New York
101 Barclay Street 101 Barclay Street
Floor 7E Corporate Trust Services Window
New York, New York 10286 Ground Level
Attn: Diana Torres New York, New York 10286
Attn: Diana Torres
FOR INFORMATION AND TO CONFIRM FACSIMILE TRANSMISSIONS:
BY TELEPHONE (ELIGIBLE INSTITUTIONS ONLY)
(212) 815-5789 (212) 815-6339
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE OR TRANSMISSION OF THIS LETTER OF TRANSMITTAL VIA FACSIMILE TO A NUMBER
OTHER THAN AS SET FORTH ABOVE DOES NOT CONSTITUTE A VALID DELIVERY.
THE INSTRUCTIONS CONTAINED HEREIN SHOULD BE READ CAREFULLY BEFORE THIS LETTER OF
TRANSMITTAL IS COMPLETED.
Capitalized terms used but not defined herein shall have the same meaning
given them in the Prospectus (as defined below).
This Letter of Transmittal is to be completed by holders of Original Senior
Notes (as defined below) either if Original Senior Notes are to be forwarded
herewith or if tenders of Original Senior Notes are to be made by book-entry
transfer to an account maintained by The Bank of New York (the "Exchange Agent")
at The Depository Trust Company ("DTC") pursuant to the procedures set forth in
"The Exchange Offer -- Procedures for Tendering Original Senior Notes" in the
Prospectus and an Agent's Message (as defined below) is not delivered.
Holders of Original Senior Notes whose certificates (the "Certificates")
for such Original Senior Notes are not immediately available or who cannot
deliver their Certificates and all other required documents to the Exchange
Agent on or prior to the Expiration Date (as defined in the Prospectus) or who
cannot complete the procedures for book-entry transfer on a timely basis must
tender their Original Senior Notes according to the guaranteed delivery
procedures set forth in "The Exchange Offer -- Procedures for Tendering Original
Senior Notes" in the Prospectus.
DELIVERY OF DOCUMENTS TO DTC DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE AGENT.
<PAGE>
NOTE: SIGNATURES MUST BE PROVIDED BELOW
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
ALL TENDERING HOLDERS COMPLETE THIS BOX:
<TABLE>
<CAPTION>
DESCRIPTION OF ORIGINAL SENIOR NOTES
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
Please print Name and Address | Please Show | Original Senior | Principal Amount | Beneficial Holders |
of Registered Holder | Certificate Number(s) | Notes Tendered | of Original Senior | and Names in |
| (Need not be Completed | (Attach additional list | Notes Tendered | which such |
| by Book-Entry Holders) | if needed) | (if Principal Amount | Securities are held |
| | | of Original Senior | |
| | | Notes is Less than | |
| | | All)* | |
|-------------------------|-------------------------|-----------------------|------------------------|
| | | | |
|-------------------------|-------------------------|-----------------------|------------------------|
| | | | |
|-------------------------|-------------------------|-----------------------|------------------------|
| | | | |
------------------------------------------------------------------------------------------------------
TOTAL
- ------------------------------------------------------------------------------------------------------------------------------------
* All Original Senior Notes held shall be deemed tendered unless a lesser number is specified in this column.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(BOXES BELOW TO BE CHECKED BY ELIGIBLE INSTITUTIONS ONLY)
[ ] CHECK HERE IF TENDERED ORIGINAL SENIOR NOTES ARE BEING DELIVERED BY BOOK-
ENTRY TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH
DTC AND COMPLETE THE FOLLOWING:
Name of Tendering Institution:_____________________________________________
DTC Account Number:________________________________________________________
Transaction Code Number:___________________________________________________
[ ] CHECK HERE AND ENCLOSE A PHOTOCOPY OF THE NOTICE OF GUARANTEED DELIVERY IF
TENDERED ORIGINAL SENIOR NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE OF
GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND COMPLETE THE
FOLLOWING:
Name of Registered Holders(s):_____________________________________________
Window Ticket Number (if any):_____________________________________________
Date of Execution of Notice of Guaranteed Delivery:________________________
Name of Institution which Guaranteed Delivery:_____________________________
If Guaranteed Delivery is to be made by Book-Entry Transfer:_______________
Name of Tendering Institution:_____________________________________________
DTC Account Number:________________________________________________________
Transaction Code Number:___________________________________________________
[ ] CHECK HERE IF TENDERED BY BOOK-ENTRY TRANSFER AND NON-EXCHANGED ORIGINAL
SENIOR NOTES ARE TO BE RETURNED BY CREDITING THE DTC ACCOUNT NUMBER SET
FORTH ABOVE.
[ ] CHECK HERE IF YOU ARE A BROKER-DEALER WHO ACQUIRED THE ORIGINAL SENIOR
NOTES FOR ITS OWN ACCOUNT AS A RESULT OF MARKET MAKING OR OTHER TRADING
ACTIVITIES (A "PARTICIPATING BROKER-DEALER") AND WISH TO RECEIVE 10
ADDITIONAL COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR
SUPPLEMENTS THERETO.
Name:______________________________________________________________________
Address:___________________________________________________________________
2
<PAGE>
Ladies and Gentlemen:
The undersigned hereby tenders to Yorkshire Power Finance Limited, a
private company with limited liability incorporated under the laws of the Cayman
Islands ("Yorkshire Finance"), and Yorkshire Power Group Limited, a private
company with limited liability incorporated under the laws of England and Wales
("Yorkshire Group"), the above-described aggregate principal amount of Yorkshire
Finance's ____% Series A Senior Notes due 200_ (the "Original Senior Notes") in
exchange for a like aggregate principal amount of Yorkshire Finance's _____%
Series B Senior Notes due 200_ (the "Exchange Senior Notes") which have been
registered under the Securities Act of 1933 (the "Securities Act"), upon the
terms and subject to the conditions set forth in the Prospectus dated
___________, 1998 (as the same may be amended or supplemented from time to time,
the "Prospectus"), receipt of which is acknowledged, and in this Letter of
Transmittal (which, together with the Prospectus, constitute the "Exchange
Offer").
For purposes of this Letter of Transmittal, unless the context requires
otherwise, the term "holder" shall include any person who owns an interest in
the Book-Entry Interests. As described in the Prospectus under "Description of
the Exchange Senior Notes -- Form, Documentation, Book-Entry Procedures and
Transfer," each person who owns an interest in the Book-Entry Interests must
rely on the procedures of the Book-Entry Depository and DTC and, if such person
is not a participant in DTC, on the procedures of the Participant through which
such person owns its interest to exercise any rights granted to, and perform any
obligations of, a holder of Senior Notes, including rights and obligations in
connection with the Exchange Offer. Furthermore, references to the terms
"Exchange Senior Notes" and "Original Senior Notes" contained herein, unless the
context requires otherwise, shall be deemed to include interests in the Book-
Entry Interests relating to such securities.
Subject to and effective upon the acceptance for exchange of all or any
portion of the Original Senior Notes tendered herewith in accordance with the
terms and conditions of the Exchange Offer (including, if the Exchange Offer is
extended or amended, the terms and conditions of any such extension or
amendment), the undersigned hereby sells, assigns and transfers to or upon the
order of Yorkshire Finance all right, title and interest in and to such Original
Senior Notes as are being tendered herewith. The undersigned hereby irrevocably
constitutes and appoints the Exchange Agent as its agent and attorney-in-fact
(with full knowledge that the Exchange Agent is also acting as agent of
Yorkshire Finance and Yorkshire Group in connection with the Exchange Offer)
with respect to the tendered Original Senior Notes, with full power of
substitution (such power of attorney being deemed to be an irrevocable power
coupled with an interest), subject only to the right of withdrawal described in
the Prospectus, to (i) deliver Certificates for Original Senior Notes to
Yorkshire Finance or Yorkshire Group together with all accompanying evidences of
transfer and authenticity to, or upon the order of, Yorkshire Finance, upon
receipt by the Exchange Agent, as the undersigned's agent, of the Exchange
Senior Notes to be issued in exchange for such Original Senior Notes, (ii)
present Certificates for such Original Senior Notes for transfer and to transfer
the Original Senior Notes on the books of Yorkshire Finance and (iii) receive
for the account of Yorkshire Finance all benefits and otherwise exercise all
rights of beneficial ownership of such Original Senior Notes, all in accordance
with the terms and conditions of the Exchange Offer.
THE UNDERSIGNED HEREBY REPRESENT(S) AND WARRANT(S) THAT THE UNDERSIGNED HAS
FULL POWER AND AUTHORITY TO TENDER, EXCHANGE, SELL, ASSIGN AND TRANSFER THE
ORIGINAL SENIOR NOTES TENDERED HEREBY AND THAT, WHEN THE SAME ARE ACCEPTED FOR
EXCHANGE, YORKSHIRE FINANCE WILL ACQUIRE GOOD, MARKETABLE AND UNENCUMBERED TITLE
THERETO, FREE AND CLEAR OF ALL LIENS, RESTRICTIONS, CHARGES AND ENCUMBRANCES AND
THAT THE ORIGINAL SENIOR NOTES TENDERED HEREBY ARE NOT SUBJECT TO ANY ADVERSE
CLAIMS OR PROXIES. THE UNDERSIGNED WILL, UPON REQUEST, EXECUTE AND DELIVER ANY
ADDITIONAL DOCUMENTS DEEMED BY YORKSHIRE FINANCE, YORKSHIRE GROUP OR THE
EXCHANGE AGENT TO BE NECESSARY OR DESIRABLE TO COMPLETE THE EXCHANGE, ASSIGNMENT
AND TRANSFER OF THE ORIGINAL SENIOR NOTES TENDERED HEREBY AND THE UNDERSIGNED
WILL COMPLY WITH ITS OBLIGATIONS UNDER THE REGISTRATION RIGHTS AGREEMENT.
THE UNDERSIGNED HAS READ AND AGREES TO ALL OF THE TERMS OF THE EXCHANGE
OFFER.
The name(s) and address(es) of the registered holder(s) of the Original
Senior Notes tendered hereby should be printed above, if they are not already
set forth above, as they appear on the Certificates representing such Original
Senior Notes. The Certificate number(s) and the Original Senior Notes that the
undersigned wishes to tender should be indicated in the appropriate boxes above.
If any tendered Original Senior Notes are not exchanged pursuant to the
Exchange Offer for any reason, or if Certificates are submitted for more
Original Senior Notes than are tendered or accepted for exchange, Certificates
for such nonexchanged or nontendered Original Senior Notes will be returned (or,
in the case of Original Senior Notes tendered by book-entry transfer, such
Original Senior Notes will be credited to an account maintained at DTC), without
expense to the tendering holder, promptly following the expiration or
termination of the Exchange Offer.
3
<PAGE>
The undersigned understands that tenders of Original Senior Notes pursuant
to any one of the procedures described in "The Exchange Offer -- Procedures for
Tendering Original Senior Notes" in the Prospectus and in the instructions
hereto will, upon Yorkshire Finance's acceptance for exchange of such tendered
Original Senior Notes, constitute a binding agreement among the undersigned and
Yorkshire Finance upon the terms and subject to the conditions of the Exchange
Offer. The undersigned recognizes that, under certain circumstances set forth in
the Prospectus, Yorkshire Finance may not be required to accept for exchange any
of the Original Senior Notes tendered hereby.
Unless otherwise indicated herein in the box entitled "Special Issuance
Instructions," below, the undersigned hereby directs that the Exchange Senior
Notes be issued in the name(s) of the undersigned or, in the case of a book-
entry transfer of Original Senior Notes, that such Exchange Senior Notes be
credited to the account indicated above maintained at DTC. If applicable,
substitute Certificates representing Original Senior Notes not exchanged or not
accepted for exchange will be issued to the undersigned or, in the case of a
book-entry transfer of Original Senior Notes, will be credited to the account
indicated above maintained at DTC. Similarly, unless otherwise indicated under
"Special Delivery Instructions," please deliver Exchange Senior Notes to the
undersigned at the address shown below the undersigned's signature.
BY TENDERING ORIGINAL SENIOR NOTES AND EXECUTING THIS LETTER OF TRANSMITTAL
OR BY DELIVERING AN AGENT'S MESSAGE IN LIEU THEREOF, THE UNDERSIGNED HEREBY
REPRESENTS AND AGREES THAT (I) THE UNDERSIGNED IS NOT AN "AFFILIATE" OF
YORKSHIRE FINANCE OR YORKSHIRE GROUP WITHIN THE MEANING OF RULE 405 UNDER THE
SECURITIES ACT, (II) ANY EXCHANGE SENIOR NOTES TO BE RECEIVED BY THE UNDERSIGNED
ARE BEING ACQUIRED IN THE ORDINARY COURSE OF ITS BUSINESS, (III) THE UNDERSIGNED
HAS NO ARRANGEMENT OR UNDERSTANDING WITH ANY PERSON TO PARTICIPATE IN A
DISTRIBUTION (WITHIN THE MEANING OF THE SECURITIES ACT) OF SUCH EXCHANGE SENIOR
NOTES AND (IV) IF THE UNDERSIGNED IS NOT A BROKER-DEALER, THE UNDERSIGNED IS NOT
ENGAGED IN, AND DOES NOT INTEND TO ENGAGE IN, A DISTRIBUTION (WITHIN THE MEANING
OF THE SECURITIES ACT) OF SUCH EXCHANGE SENIOR NOTES. BY TENDERING ORIGINAL
SENIOR NOTES PURSUANT TO THE EXCHANGE OFFER AND EXECUTING THIS LETTER OF
TRANSMITTAL, A HOLDER OF ORIGINAL SENIOR NOTES WHICH IS A BROKER-DEALER
REPRESENTS AND AGREES, CONSISTENT WITH CERTAIN INTERPRETIVE LETTERS ISSUED BY
THE STAFF OF THE DIVISION OF CORPORATION FINANCE OF THE SECURITIES AND EXCHANGE
COMMISSION TO THIRD PARTIES, THAT (A) SUCH ORIGINAL SENIOR NOTES HELD BY THE
BROKER-DEALER ARE HELD ONLY AS A NOMINEE OR (B) SUCH ORIGINAL SENIOR NOTES WERE
ACQUIRED BY SUCH BROKER-DEALER FOR ITS OWN ACCOUNT AS A RESULT OF MARKET-MAKING
ACTIVITIES OR OTHER TRADING ACTIVITIES AND IT WILL DELIVER THE PROSPECTUS (AS
AMENDED OR SUPPLEMENTED FROM TIME TO TIME) MEETING THE REQUIREMENTS OF THE
SECURITIES ACT IN CONNECTION WITH ANY RESALE OF SUCH EXCHANGE SENIOR NOTES
(PROVIDED THAT, BY SO ACKNOWLEDGING AND BY DELIVERING A PROSPECTUS, SUCH BROKER-
DEALER WILL NOT BE DEEMED TO ADMIT THAT IT IS AN "UNDERWRITER" WITHIN THE
MEANING OF THE SECURITIES ACT).
YORKSHIRE FINANCE AND YORKSHIRE GROUP HAVE AGREED THAT, SUBJECT TO THE
PROVISIONS OF THE REGISTRATION RIGHTS AGREEMENT, THE PROSPECTUS, AS IT MAY BE
AMENDED OR SUPPLEMENTED FROM TIME TO TIME, MAY BE USED BY A PARTICIPATING
BROKER-DEALER (AS DEFINED BELOW) IN CONNECTION WITH RESALES OF EXCHANGE SENIOR
NOTES RECEIVED IN EXCHANGE FOR ORIGINAL SENIOR NOTES, WHERE SUCH ORIGINAL SENIOR
NOTES WERE ACQUIRED BY SUCH PARTICIPATING BROKER-DEALER FOR ITS OWN ACCOUNT AS A
RESULT OF MARKET-MAKING ACTIVITIES OR OTHER TRADING ACTIVITIES, FOR A PERIOD NOT
EXCEEDING 180 DAYS AFTER THE EXPIRATION DATE (SUBJECT TO EXTENSION UNDER CERTAIN
LIMITED CIRCUMSTANCES DESCRIBED IN THE PROSPECTUS). IN THAT REGARD, EACH BROKER-
DEALER WHO ACQUIRED ORIGINAL SENIOR NOTES FOR ITS OWN ACCOUNT AS A RESULT OF
MARKET-MAKING OR OTHER TRADING ACTIVITIES (A "PARTICIPATING BROKER-DEALER"), BY
TENDERING SUCH ORIGINAL SENIOR NOTES AND EXECUTING THIS LETTER OF TRANSMITTAL OR
BY DELIVERING AN AGENT'S MESSSAGE IN LIEU THEREOF, AGREES THAT, UPON RECEIPT OF
NOTICE FROM YORKSHIRE FINANCE OR YORKSHIRE GROUP OF THE OCCURRENCE OF ANY EVENT
OR THE DISCOVERY OF (I) ANY FACT WHICH MAKES ANY STATEMENT CONTAINED IN THE
PROSPECTUS UNTRUE IN ANY MATERIAL RESPECT OR (II) ANY FACT WHICH CAUSES THE
PROSPECTUS TO OMIT TO STATE A MATERIAL FACT NECESSARY IN ORDER TO MAKE THE
STATEMENTS CONTAINED THEREIN, IN LIGHT OF THE CIRCUMSTANCES UNDER WHICH THEY
WERE MADE, NOT MISLEADING OR (III) OF THE OCCURRENCE OF CERTAIN OTHER EVENTS
SPECIFIED IN THE REGISTRATION RIGHTS AGREEMENT, SUCH PARTICIPATING BROKER-DEALER
WILL SUSPEND THE SALE OF EXCHANGE SENIOR NOTES PURSUANT TO THE PROSPECTUS UNTIL
YORKSHIRE FINANCE OR YORKSHIRE GROUP HAS AMENDED OR SUPPLEMENTED THE PROSPECTUS
TO CORRECT SUCH MISSTATEMENT OR OMISSION AND HAS FURNISHED COPIES OF THE AMENDED
OR SUPPLEMENTED PROSPECTUS TO THE PARTICIPATING BROKER-DEALER OR YORKSHIRE
FINANCE OR YORKSHIRE GROUP HAS GIVEN NOTICE THAT THE SALE OF THE EXCHANGE SENIOR
NOTES MAY BE RESUMED,
4
<PAGE>
AS THE CASE MAY BE. IF YORKSHIRE FINANCE OR YORKSHIRE GROUP GIVES SUCH NOTICE TO
SUSPEND THE SALE OF THE EXCHANGE SENIOR NOTES, THEY SHALL EXTEND THE 180-DAY
PERIOD REFERRED TO ABOVE DURING WHICH PARTICIPATING BROKER-DEALERS ARE ENTITLED
TO USE THE PROSPECTUS IN CONNECTION WITH THE RESALE OF EXCHANGE SENIOR NOTES BY
THE NUMBER OF DAYS DURING THE PERIOD FROM AND INCLUDING THE DATE OF THE GIVING
OF SUCH NOTICE TO AND INCLUDING THE DATE WHEN PARTICIPATING BROKER-DEALERS SHALL
HAVE RECEIVED COPIES OF THE SUPPLEMENTED OR AMENDED PROSPECTUS NECESSARY TO
PERMIT RESALES OF THE EXCHANGE SENIOR NOTES OR TO AND INCLUDING THE DATE ON
WHICH YORKSHIRE FINANCE OR YORKSHIRE GROUP HAS GIVEN NOTICE THAT THE SALE OF
EXCHANGE SENIOR NOTES MAY BE RESUMED, AS THE CASE MAY BE.
As a result, a Participating Broker-Dealer who intends to use the
Prospectus in connection with resales of Exchange Senior Notes received in
exchange for Original Senior Notes pursuant to the Exchange Offer, must notify
Yorkshire Finance or Yorkshire Group, or cause Yorkshire Finance or Yorkshire
Group to be notified, on or prior to the Expiration Date, that it is a
Participating Broker-Dealer. Such notice may be given in the space provided
above or may be delivered to the Exchange Agent at the address set forth in the
Prospectus under "The Exchange Offer -- Exchange Agent."
Holders of Original Senior Notes whose Original Senior Notes are accepted
for exchange will not receive interest on such Original Senior Notes and hereby
will be deemed to waive the right to receive any interest on such Original
Senior Notes accumulated from and including February 25, 1998. Holders of
Exchange Senior Notes as of the record date for the payment of interest on
October 15, 1998 will be entitled to receive interest accruing from and
including February 25, 1998.
All authority herein conferred or agreed to be conferred in this Letter of
Transmittal shall survive the death or incapacity of the undersigned and any
obligation of the undersigned hereunder shall be binding upon the heirs,
executors, administrators, personal representatives, trustees in bankruptcy,
legal representatives, successors and assigns of the undersigned. Except as
stated in the Prospectus, this tender is irrevocable.
Please be advised that Yorkshire Finance and Yorkshire Group are making the
Exchange Offer in reliance on the position of the staff of the Division of
Corporation Finance of the Securities and Exchange Commission (the "Staff") set
forth in certain interpretive letters addressed to third parties in other
transactions. In addition, Yorkshire Finance and Yorkshire Group have authorized
us to inform you as follows: Yorkshire Finance and Yorkshire Group have not
entered into any arrangement or understanding with any person to distribute the
Exchange Senior Notes to be received in the Exchange Offer and, to the best of
their information and belief, each person participating in the Exchange Offer is
acquiring the Exchange Senior Notes in its ordinary course of business and has
no arrangement or understanding with any person to participate in the
distribution of the Exchange Senior Notes to be received in the Exchange Offer.
In this regard, Yorkshire Finance and Yorkshire Group will make each person
participating in the Exchange Offer aware that if such person is participating
in the Exchange Offer for the purpose of distributing the Exchange Senior Notes
to be acquired in the Exchange Offer, such person (a) could not rely on the
Staff position enunciated in the interpretative letters referred to above and
(b) must comply with the registration and prospectus delivery requirements of
the Securities Act in connection with a secondary resale transaction. Yorkshire
Finance and Yorkshire Group acknowledge that such a secondary resale transaction
by such person participating in the Exchange Offer for the purpose of
distributing the Exchange Senior Notes should be covered by an effective
registration statement containing the selling securityholder information
required by Item 507 or 508, as applicable, of Regulation S-K. Furthermore,
Yorkshire Finance and Yorkshire Group will include in the transmittal letter to
be executed by an exchange offeree in order to participate in the Exchange Offer
(x) an acknowledgment that if such exchange offeree is a broker-dealer that will
receive Exchange Senior Notes for its own account in exchange for Original
Senior Notes that were acquired as a result of market-making activities or other
trading activities, it will deliver a prospectus in connection with any resale
of such Exchange Senior Notes and (y) a statement that by so acknowledging and
by delivering a prospectus, such exchange offeree will not be deemed to admit
that it is an "underwriter" within the meaning of the Securities Act.
5
<PAGE>
HOLDER(S) SIGN HERE
(SEE INSTRUCTIONS 2, 5 AND 6)
(NOTE: SIGNATURE(S) MUST BE GUARANTEED IF REQUIRED BY INSTRUCTION 2)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(SIGNATURE(S) OF HOLDER(S)
Dated: _____________, 1998
Must be signed by registered holder(s) exactly as name(s) appear(s) on
Certificate(s) for the Original Senior Notes hereby tendered or on a security
position listing, or by any person(s) authorized to become the registered
holder(s) by endorsements and documents transmitted herewith (including such
opinions of counsel, certifications and other information as may be required by
Yorkshire Finance or the Exchange Agent to comply with the restrictions on
transfer applicable to the Original Senior Notes). If signature is by an
attorney-in-fact, executor, administrator, trustee, guardian, officer of a
corporation or another acting in a fiduciary capacity or representative
capacity, please set forth the signer's full title. See Instruction 5.
Name(s):
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(PLEASE PRINT)
Capacity (full title):
- --------------------------------------------------------------------------------
Address:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(INCLUDE ZIP CODE)
Telephone Number:
- --------------------------------------------------------------------------------
Tax ID Number:
- --------------------------------------------------------------------------------
GUARANTEE OF SIGNATURE(S)
(SEE INSTRUCTIONS 2 AND 5)
- --------------------------------------------------------------------------------
AUTHORIZED SIGNATURE
Dated: _____________, 1998
Name of Firm:
- --------------------------------------------------------------------------------
Capacity (full title):
- --------------------------------------------------------------------------------
(PLEASE PRINT)
Address:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(INCLUDE ZIP CODE)
Area Code and Telephone Number:
- --------------------------------------------------------------------------------
6
<PAGE>
<TABLE>
<S> <C>
SPECIAL ISSUANCE INSTRUCTIONS SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 1, 5, AND 6) (SEE INSTRUCTIONS 1, 5, AND 6)
To be completed ONLY if the Exchange Senior Notes are to be To be completed ONLY if Exchange Senior Notes are to be
issued in the name of someone other than the registered sent to (i) someone other than the registered holder of
holder of the Original Senior Notes whose name(s) the Original Senior Notes whose name(s) appear(s) above,
appear(s) above. or (ii) such registered holder(s) at an address other than
that shown above.
Issue Mail
[ ] Original Senior Notes not tendered to: [ ] Original Senior Notes not tendered to:
[ ] Exchange Senior Notes to: [ ] Exchange Senior Notes to:
Name(s) Name(s)
___________________________________________________________ ___________________________________________________________
Address Address
___________________________________________________________ ___________________________________________________________
___________________________________________________________ ___________________________________________________________
___________________________________________________________ ___________________________________________________________
(INCLUDE ZIP CODE) (INCLUDE ZIP CODE)
Telephone Number Telephone Number
___________________________________________________________ ___________________________________________________________
Tax ID Number Tax ID Number
___________________________________________________________ ___________________________________________________________
</TABLE>
7
<PAGE>
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER
1. DELIVERY OF LETTER OF TRANSMITTAL AND CERTIFICATES; GUARANTEED DELIVERY
PROCEDURES.
This Letter of Transmittal is to be completed either if (a) Certificates are
to be forwarded herewith or (b) tenders are to be made pursuant to the
procedures for tender by book-entry transfer set forth in "The Exchange Offer --
Procedures for Tendering Original Senior Notes" in the Prospectus and an Agent's
Message is not delivered. Certificates, or timely confirmation of a book-entry
transfer of such Original Senior Notes into the Exchange Agent's account at DTC,
as well as this Letter of Transmittal (or facsimile thereof), properly completed
and duly executed, with any required signature guarantees, and any other
documents required by this Letter of Transmittal, must be received by the
Exchange Agent at any of its addresses set forth herein on or prior to the
Expiration Date. Tenders by book-entry transfer may also be made by delivering
an Agent's Message in lieu of this Letter of Transmittal. The term "Agent's
Message" means a message, transmitted by DTC to and received by the Exchange
Agent and forming a part of a book-entry confirmation, which states that DTC has
received an express acknowledgment from the DTC participant, which
acknowledgment states that such participant has received and agrees to be bound
by the Letter of Transmittal (including the representations contained herein)
and that the Yorkshire Finance and Yorkshire Group may enforce the Letter of
Transmittal against such participant. Original Senior Notes may be tendered in
whole or in part in the principal amount of $1,000 and integral multiples
thereof, provided that, if any Original Senior Notes are tendered for exchange
in part, the untendered principal amount thereof must be $1,000 or any integral
multiple thereof.
Holders who wish to tender their Original Senior Notes and (i) whose
Original Senior Notes are not immediately available or (ii) who cannot deliver
their Original Senior Notes, this Letter of Transmittal and all other required
documents to the Exchange Agent on or prior to the Expiration Date or (iii) who
cannot complete the procedures for delivery by book-entry transfer on a timely
basis, may tender their Original Senior Notes by properly completing and duly
executing a Notice of Guaranteed Delivery pursuant to the guaranteed delivery
procedures set forth in "The Exchange Offer -- Procedures for Tendering Original
Senior Notes" in the Prospectus. Pursuant to such procedures: (A) such tender
must be made by or through an Eligible Institution (as defined below); (B) a
properly completed and duly executed Notice of Guaranteed Delivery,
substantially in the form made available by Yorkshire Finance, must be received
by the Exchange Agent on or prior to the Expiration Date; and (C) the
Certificates (or a book-entry confirmation (as defined in the Prospectus))
representing all tendered Original Senior Notes, in proper form for transfer,
together with a Letter of Transmittal (or facsimile thereof), properly completed
and duly executed, with any required signature guarantees and any other
documents required by this Letter of Transmittal, must be received by the
Exchange Agent within three New York Stock Exchange trading days after the date
of execution of such Notice of Guaranteed Delivery, all as provided in "The
Exchange Offer -- Procedures for Tendering Original Senior Notes" in the
Prospectus.
The Notice of Guaranteed Delivery may be delivered by hand or transmitted by
facsimile or mail to the Exchange Agent, and must include a guarantee by an
Eligible Institution in the form set forth in such Notice. For Original Senior
Notes to be properly tendered pursuant to the guaranteed delivery procedure, the
Exchange Agent must receive a Notice of Guaranteed Delivery on or prior to the
Expiration Date. As used herein and in the Prospectus, "Eligible Institution"
means a firm or other entity identified in Rule 17Ad-15 under the Exchange Act
as "an eligible guarantor institution," including (as such terms are defined
therein) (i) a bank; (ii) a broker, dealer, municipal securities broker or
dealer or government securities broker or dealer; (iii) a credit union; (iv) a
national securities exchange, registered securities association or clearing
agency; or (v) a savings association that is a participant in a Securities
Transfer Association.
THE METHOD OF DELIVERY OF CERTIFICATES, THIS LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND SOLE RISK OF THE TENDERING HOLDER
AND THE DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE EXCHANGE
AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED,
PROPERLY INSURED, OR OVERNIGHT DELIVERY SERVICE IS RECOMMENDED. IN ALL CASES,
SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY.
Neither Yorkshire Group nor Yorkshire Finance will accept any alternative,
conditional or contingent tenders. Each tendering holder, by execution of a
Letter of Transmittal (or facsimile thereof), waives any right to receive any
notice of the acceptance of such tender.
The exchange of the Original Senior Notes for Exchange Senior Notes pursuant
to the Exchange Offer, and any related transactions, may be effected through the
Paying Agent (as defined in the Prospectus) in Luxembourg.
8
<PAGE>
2. GUARANTEE OF SIGNATURES.
No signature guarantee on this Letter of Transmittal is required if:
(i) this Letter of Transmittal is signed by the registered holder (which
term, for purposes of this document, shall include any participant in DTC
whose name appears on a security position listing as the owner of the
Original Senior Notes) of Original Senior Notes tendered herewith, unless
such holder(s) has completed either the box entitled "Special Issuance
Instructions" or the box entitled "Special Delivery Instructions" above, or
(ii) such Original Senior Notes are tendered for the account of a firm
that is an Eligible Institution.
In all other cases, an Eligible Institution must guarantee the signature(s)
on this Letter of Transmittal. See Instruction 5.
3. INADEQUATE SPACE.
If the space provided in the box captioned "Description of Original Senior
Notes" is inadequate, the Certificate number(s) and/or the principal amount of
Original Senior Notes and any other required information should be listed on a
separate signed schedule which is attached to this Letter of Transmittal.
4. PARTIAL TENDERS AND WITHDRAWAL RIGHTS.
If less than all the Original Senior Notes evidenced by any Certificate
submitted are to be tendered, fill in the principal amount of Original Senior
Notes which are to be tendered in the box entitled "Principal Amount of Original
Senior Notes Tendered (if Principal Amount of Original Senior Notes is Less than
All)." In such case, new Certificate(s) for the remainder of the Original Senior
Notes that were evidenced by your old Certificate(s) will only be sent to the
holder of the Original Senior Note, promptly after the Expiration Date. All
Original Senior Notes represented by Certificates delivered to the Exchange
Agent will be deemed to have been tendered unless otherwise indicated.
Except as otherwise provided herein, tenders of Original Senior Notes may be
withdrawn at any time on or prior to the Expiration Date. In order for a
withdrawal to be effective on or prior to that time, a written, telegraphic,
telex or facsimile transmission of such notice of withdrawal must be timely
received by the Exchange Agent at any of its addresses set forth above or in the
Prospectus on or prior to the Expiration Date. Any such notice of withdrawal
must specify the name of the person who tendered the Original Senior Notes to be
withdrawn, the aggregate principal amount of Original Senior Notes to be
withdrawn, and (if Certificates for Original Senior Notes have been tendered)
the name of the registered holder of the Original Senior Notes as set forth on
the Certificate for the Original Senior Notes, if different from that of the
person who tendered such Original Senior Notes. If Certificates for the Original
Senior Notes have been delivered or otherwise identified to the Exchange Agent,
then prior to the physical release of such Certificates for the Original Senior
Notes, the tendering holder must submit the serial numbers shown on the
particular Certificates for the Original Senior Notes to be withdrawn and the
signature on the notice of withdrawal must be guaranteed by an Eligible
Institution, except in the case of Original Senior Notes tendered for the
account of an Eligible Institution. If Original Senior Notes have been tendered
pursuant to the procedures for book-entry transfer set forth in "The Exchange
Offer -- Procedures for Tendering Original Senior Notes," the notice of
withdrawal must specify the name and number of the account at DTC to be credited
with the withdrawal of Original Senior Notes, in which case a notice of
withdrawal will be effective if delivered to the Exchange Agent by written,
telegraphic, telex or facsimile transmission. Withdrawals of tenders of Original
Senior Notes may not be rescinded. Original Senior Notes properly withdrawn will
not be deemed validly tendered for purposes of the Exchange Offer, but may be
retendered at any subsequent time on or prior to the Expiration Date by
following any of the procedures described in the Prospectus under "The Exchange
Offer -- Procedures for Tendering Original Senior Notes."
All questions as to the validity, form and eligibility (including time of
receipt) of such withdrawal notices will be determined by Yorkshire Finance and
Yorkshire Group, in their sole discretion, whose determination shall be final
and binding on all parties. Yorkshire Finance and Yorkshire Group, any
affiliates or assigns of Yorkshire Finance and Yorkshire Group, the Exchange
Agent or any other person shall not be under any duty to give any notification
of any irregularities in any notice of withdrawal or incur any liability for
failure to give any such notification. Any Original Senior Notes which have been
tendered but which are withdrawn will be returned to the holder thereof without
cost to such holder promptly after withdrawal.
5. SIGNATURES ON LETTER OF TRANSMITTAL, ASSIGNMENTS AND ENDORSEMENTS.
If this Letter of Transmittal is signed by the registered holder(s) of the
Original Senior Notes tendered hereby, the signature(s) must correspond exactly
with the name(s) as written on the face of the Certificate(s) without
alteration, enlargement or any change whatsoever.
9
<PAGE>
If any of the Original Senior Notes tendered hereby are owned of record by two
or more joint owners, all such owners must sign this Letter of Transmittal.
If any tendered Original Senior Notes are registered in different name(s) on
several Certificates, it will be necessary to complete, sign and submit as many
separate Letters of Transmittal (or facsimiles thereof) as there are different
registrations of Certificates.
If this Letter of Transmittal or any Certificates or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing and must submit proper evidence
satisfactory to Yorkshire Finance and Yorkshire Group, in their sole discretion,
of such persons' authority to so act.
When this Letter of Transmittal is signed by the registered owner(s) of the
Original Senior Notes listed and transmitted hereby, no endorsement(s) of
Certificate(s) or separate bond power(s) are required unless Exchange Senior
Notes are to be issued in the name of a person other than the registered
holder(s). Signature(s) on such Certificate(s) or bond power(s) must be
guaranteed by an Eligible Institution.
If this Letter of Transmittal is signed by a person other than the registered
owner(s) of the Original Senior Notes listed, the Certificates must be endorsed
or accompanied by appropriate bond powers, signed exactly as the name or names
of the registered owner(s) appear(s) on the Certificates, and also must be
accompanied by such opinions of counsel, certifications and other information as
Yorkshire Finance, Yorkshire Group or the Exchange Agent may require in
accordance with the restrictions on transfer applicable to the Original Senior
Notes. Signatures on such Certificates or bond powers must be guaranteed by an
Eligible Institution.
6. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS.
If Exchange Senior Notes are to be issued in the name of a person other than
the signer of this Letter of Transmittal, or if Exchange Senior Notes are to be
sent to someone other than the signer of this Letter of Transmittal or to an
address other than that shown above, the appropriate boxes on this Letter of
Transmittal should be completed. Certificates for Original Senior Notes not
exchanged will be returned by mail or, if tendered by book-entry transfer, by
crediting the account indicated above maintained at DTC. See Instruction 4.
Yorkshire Finance and Yorkshire Group will determine, in their sole
discretion, all questions as to the form of documents, validity, eligibility
(including time of receipt) and acceptance for exchange of any tender of
Original Senior Notes, which determination shall be final and binding on all
parties. Yorkshire Finance and Yorkshire Group reserve the absolute right to
reject any and all tenders determined by either of them not to be in proper form
or the acceptance of which, or exchange for, may, in the view of counsel to
Yorkshire Finance and Yorkshire Group, be unlawful. Yorkshire Finance and
Yorkshire Group also reserve the absolute right, subject to applicable law, to
waive any of the conditions of the Exchange Offer set forth in the Prospectus
under "The Exchange Offer Conditions to the Exchange Offer" or any conditions
or irregularity in any tender of Original Senior Notes of any particular holder
whether or not similar conditions or irregularities are waived in the case of
other holders. The interpretation by Yorkshire Finance and Yorkshire Group of
the terms and conditions of the Exchange Offer (including this Letter of
Transmittal and the instructions hereto) will be final and binding. No tender of
Original Senior Notes will be deemed to have been validly made until all
irregularities with respect to such tender have been cured or waived. Yorkshire
Finance and Yorkshire Group, any affiliates or assigns of Yorkshire Finance and
Yorkshire Group, the Exchange Agent, or any other person shall not be under any
duty to give notification of any irregularities in tenders or incur any
liability for failure to give such notification.
8. QUESTIONS, REQUESTS FOR ASSISTANCE AND ADDITIONAL COPIES.
Questions and requests for assistance may be directed to the Exchange Agent
at any of its addresses and telephone number set forth on the front of this
Letter of Transmittal. Additional copies of the Prospectus, the Notice of
Guaranteed Delivery and the Letter of Transmittal may be obtained from the
Exchange Agent or from your broker, dealer, commercial bank, trust company or
other nominee.
9. 31% BACKUP WITHHOLDING; SUBSTITUTE FORM W-9.
Under U.S. Federal income tax law, a holder whose tendered Original Senior
Notes are accepted for exchange is required to provide the Exchange Agent with
such holder's correct taxpayer identification number ("TIN") on Substitute Form
W-9 below. If the Exchange Agent is not provided with the correct TIN, the
Internal Revenue Service (the "IRS") may subject the holder or other payee to a
$50 penalty. In addition, payments to such holders or other payees with respect
to Original Senior Notes exchanged pursuant to the Exchange Offer may be subject
to 31% backup withholding.
10
<PAGE>
The box in Part 2 of the Substitute Form W-9 may be checked if the tendering
holder has not been issued a TIN and has applied for a TIN or intends to apply
for a TIN in the near future. If the box in Part 2 is checked, the holder or
other payee must also complete the Certificate of Awaiting Taxpayer
Identification Number below in order to avoid backup withholding.
Notwithstanding that the box in Part 2 is checked and the Certificate of
Awaiting Taxpayer Identification Number is completed, the Exchange Agent will
withhold 31% of all payments made prior to the time a properly certified TIN is
provided to the Exchange Agent. The Exchange Agent will retain such amounts
withheld during the 60 day period following the date of the Substitute Form W-9.
If the holder furnishes the Exchange Agent with its TIN within 60 days after the
date of the Substitute Form W-9, the amounts retained during the 60 day period
will be remitted to the holder and no further amounts shall be retained or
withheld from payments made to the holder thereafter. If, however, the holder
has not provided the Exchange Agent with its TIN within such 60 day period,
amounts withheld will be remitted to the IRS as backup withholding. In addition,
31% of all payments made thereafter will be withheld and remitted to the IRS
until a correct TIN is provided.
The holder is required to give the Exchange Agent the TIN (e.g., social
security number or employer identification number) of the registered owner of
the Original Senior Notes or of the last transferee appearing on the transfers
attached to, or endorsed on, the Original Senior Notes. If the Original Senior
Notes are registered in more than one name or are not in the name of the actual
owner, consult the enclosed "Guidelines for Certification of Taxpayer
Identification Number on Substitute Form W-9" for additional guidance on which
number to report.
Certain holders (including, among others, corporations, financial institutions
and certain foreign persons) may not be subject to these backup withholding and
reporting requirements. Such holders should nevertheless complete the attached
Substitute Form W-9 below, and write "exempt" on the face thereof, to avoid
possible erroneous backup withholding. A foreign person may qualify as an exempt
recipient by submitting a properly completed IRS Form W-8, signed under
penalties of perjury, attesting to that holder's exempt status. Please consult
the enclosed "Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9" for additional guidance on which holders are exempt from
backup withholding.
Backup withholding is not an additional U.S. Federal income tax. Rather, the
U.S. Federal income tax liability of a person subject to backup withholding will
be reduced by the amount of tax withheld. If withholding results in an
overpayment of taxes, a refund may be obtained.
10. NO CONDITIONAL TENDERS.
No alternative, conditional or contingent tenders will be accepted. All
tendering holders of Original Senior Notes, by execution of this Letter of
Transmittal, shall waive any right to receive notice of the acceptance of
Original Senior Notes for exchange.
Neither Yorkshire Finance, Yorkshire Group, the Exchange Agent nor any other
person is obligated to give notice of any defect or irregularity with respect to
any tender of Original Senior Notes nor shall any of them incur any liability
for failure to give any such notice.
11. LOST, DESTROYED OR STOLEN CERTIFICATES.
If any Certificate(s) representing Original Senior Notes have been lost,
destroyed or stolen, the holder should promptly notify the Exchange Agent. The
holder will then be instructed as to the steps that must be taken in order to
replace the Certificate(s). This Letter of Transmittal and related documents
cannot be processed until the procedures for replacing lost, destroyed or stolen
Certificate(s) have been followed.
12. SECURITY TRANSFER TAXES.
Holders who tender their Original Senior Notes for exchange will not be
obligated to pay any transfer taxes in connection therewith. If, however,
Exchange Senior Notes are to be delivered to, or are to be issued in the name
of, any person other than the registered holder of the Original Senior Notes
tendered, or if a transfer tax is imposed for any reason other than the exchange
of Original Senior Notes in connection with the Exchange Offer, then the amount
of any such transfer tax (whether imposed on the registered holder or any other
persons) will be payable by the tendering holder. If satisfactory evidence of
payment of such taxes or exemption therefrom is not submitted with the Letter of
Transmittal, the amount of such transfer taxes will be billed directly to such
tendering holder.
IMPORTANT: THIS LETTER OF TRANSMITTAL (OR FACSIMILE THEREOF) AND ALL OTHER
REQUIRED DOCUMENTS MUST BE RECEIVED BY THE EXCHANGE AGENT
ON OR PRIOR TO THE EXPIRATION DATE.
11
<PAGE>
(TO BE COMPLETED BY ALL TENDERING SECURITY HOLDERS)
(SEE INSTRUCTION 9)
PAYER'S NAME: THE BANK OF NEW YORK
<TABLE>
<S> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
SUBSTITUTE FORM W-9 | PART 1 -- PLEASE PROVIDE YOUR TIN ON THE | TIN:______________________________________
| LINE AT RIGHT AND CERTIFY BY SIGNING AND |
Department of the Treasury Internal | DATING BELOW | ------------------------------------------
Revenue Service Payor's Request for | | Social Security Number
Taxpayer Identification Number (TIM) and | --------------------------------------- |
Certification | NAME | OR
| |
| --------------------------------------- | ------------------------------------------
| ADDRESS | Employer Identification Number
| |
| --------------------------------------- |
| CITY, STATE & ZIP CODE |
| |
| ---------------------------------------------------------------------------------------
| PART 2
|
| Awaiting TIN
| --------------------------------------------------------------------------------------
| PART 3 CERTIFICATION -- UNDER THE PENALTIES OF PERJURY, I CERTIFY THAT (1) THE NUMBER
| SHOWN ON THIS FORM IS MY CORRECT TAXPAYER IDENTIFICATION NUMBER (OR I AM WAITING FOR A
| NUMBER TO BE ISSUED TO ME), (2) I AM NOT SUBJECT TO BACKUP WITHHOLDING EITHER BECAUSE
| (I) I AM EXEMPT FROM BACKUP WITHHOLDING, (II) I HAVE NOT BEEN NOTIFIED BY THE INTERNAL
| REVENUE SERVICE ("IRS") THAT I AM SUBJECT TO BACKUP WITHHOLDING AS A RESULT OF A
| FAILURE TO REPORT ALL INTEREST OR DIVIDENDS, OR (III) THE IRS HAS NOTIFIED ME THAT I AM
| NO LONGER SUBJECT TO BACKUP WITHHOLDING, AND (3) ANY OTHER INFORMATION PROVIDED ON THIS
| FORM IS TRUE AND CORRECT.
|
| SIGNATURE______________________________________________________________________________
|
| DATE___________________________________________________________________________________
|
| You must cross out item (iii) in Part (2) above if you have been notified by the IRS
| that you are subject to backup withholding because of underreporting interest or
| dividends on your tax return and you have not been notified by the IRS that you are no
| longer subject to backup withholding.
- ------------------------------------------------------------------------------------------------------------------------------------
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY IN CERTAIN CIRCUMSTANCES RESULT IN BACKUP WITHHOLDING OF 31% OF ANY AMOUNTS PAID
TO YOU PURSUANT TO THE EXCHANGE OFFER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER
ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
12
<PAGE>
- --------------------------------------------------------------------------------
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number has
not been issued to me and either (1) I have mailed or delivered an application
to receive a taxpayer identification number to the appropriate Internal Revenue
Service Center or Social Security Administration Office or (2) I intend to mail
or deliver an application in the near future. I understand that if I do not
provide a taxpayer identification number by the time of payment, 31% of all
payments made to me on account of the Exchange Senior Notes shall be retained
until I provide a taxpayer identification number to the Exchange Agent and that,
if I do not provide my taxpayer identification number within 60 days, such
retained amounts shall be remitted to the Internal Revenue Service as backup
withholding and 31% of all reportable payments made to me thereafter will be
withheld and remitted to the Internal Revenue Service until I provide a taxpayer
identification number.
Signature_______________________________________________________________________
Date: ______________________, 1998
- --------------------------------------------------------------------------------
13
<PAGE>
EXHIBIT 99.2
NOTICE OF GUARANTEED DELIVERY
FOR TENDER OF ____ % SERIES B SENIOR NOTES DUE _____
OF
YORKSHIRE POWER FINANCE LIMITED
This Notice of Guaranteed Delivery, or one substantially equivalent to this
form, must be used to accept the Exchange Offer (as defined below) if (i)
certificates for the above-referenced ___% Series A Senior Notes Due _____ (the
"Original Senior Notes") are not immediately available, (ii) Original Senior
Notes, the Letter of Transmittal and all other required documents cannot be
delivered to The Bank of New York (the "Exchange Agent") on or prior to the
Expiration Date (as defined in the Prospectus referred to below) or (iii) the
procedures for delivery by book-entry transfer cannot be completed on a timely
basis. This Notice of Guaranteed Delivery may be delivered by hand, overnight
courier or mail, or transmitted by facsimile transmission, to the Exchange
Agent. See "The Exchange Offer -- Procedures for Tendering Original Senior
Notes" in the Prospectus.
THE EXCHANGE AGENT FOR THE EXCHANGE OFFER IS:
THE BANK OF NEW YORK
By Mail: By Hand or Overnight Courier:
The Bank of New York The Bank of New York
101 Barclay Street 101 Barclay Street
Floor 7E Corporate Trust Services Window
New York, New York 10286 Ground Floor
Attn: Diana Torres New York, New York 10286
Attn: Diana Torres
FOR INFORMATION AND TO CONFIRM FACSIMILE TRANSMISSIONS:
BY TELEPHONE (ELIGIBLE INSTITUTIONS ONLY)
(212) 815-5789 (212) 815-6339
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN AS SET
FORTH ABOVE OR TRANSMISSION OF THIS NOTICE OF GUARANTEED DELIVERY VIA FACSIMILE
TO A NUMBER OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
THIS NOTICE OF GUARANTEED DELIVERY IS NOT TO BE USED TO GUARANTEE SIGNATURES. IF
A SIGNATURE ON A LETTER OF TRANSMITTAL IS REQUIRED TO BE GUARANTEED BY AN
"ELIGIBLE INSTITUTION" UNDER THE INSTRUCTIONS THERETO, SUCH SIGNATURE GUARANTEE
MUST APPEAR IN THE APPLICABLE SPACE PROVIDED IN THE SIGNATURE BOX ON THE LETTER
OF TRANSMITTAL.
<PAGE>
Ladies and Gentlemen:
The undersigned hereby tenders to Yorkshire Power Finance Limited, a
private company with limited liability incorporated under the laws of the Cayman
Islands (the "Company"), upon the terms and subject to the conditions set forth
in the Prospectus dated _____________, 1998 (as the same may be amended or
supplemented from time to time, the "Prospectus"), and the related Letter of
Transmittal (which together constitute the "Exchange Offer"), receipt of which
is hereby acknowledged, the aggregate principal amount of Original Senior Notes
set forth below pursuant to the guaranteed delivery procedures set forth in the
Prospectus under the caption "The Exchange Offer -- Procedures for Tendering
Original Senior Notes."
Name(s) of Registered Holder(s):
- ------------------------------------------------------------------------------
Aggregate Principal Amount Tendered:
- ------------------------------------------------------------------------------
Certificate No(s):
- ------------------------------------------------------------------------------
Address(es):
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Area Code and Telephone Number(s):
- ------------------------------------------------------------------------------
If Original Senior Notes will be tendered by book-entry transfer, provide the
following information:
Signature(s):
- ------------------------------------------------------------------------------
DTC Account Number:
- ------------------------------------------------------------------------------
Date:
- ------------------------------------------------------------------------------
THE GUARANTEE ON THE REVERSE SIDE MUST BE COMPLETED
2
<PAGE>
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a firm or other entity identified in Rule 17Ad-15 under
the Securities Exchange Act of 1934, as amended, as an "eligible guarantor
institution," including (as such terms are defined therein): (i) a bank; (ii) a
broker, dealer, municipal securities broker, municipal securities dealer,
government securities broker, government securities dealer; (iii) a credit
union; (iv) a national securities exchange, registered securities association or
clearing agency; or (v) a savings association that is a participant in a
Securities Transfer Association recognized program (each of the foregoing being
referred to as an "Eligible Institution"), hereby guarantees to deliver to the
Exchange Agent, at any of its addresses set forth above, either the Original
Senior Notes tendered hereby in proper form for transfer, or confirmation of the
book-entry transfer of such Original Senior Notes to the Exchange Agent's
account at The Depositary Trust Company ("DTC"), pursuant to the procedures for
book-entry transfer set forth in the Prospectus, in either case together with
one or more properly completed and duly executed Letter(s) of Transmittal (or
facsimile thereof) and any other required documents within five business days
after the date of execution of this Notice of Guaranteed Delivery.
The undersigned acknowledges that it must deliver the Letter(s) of
Transmittal and the Original Senior Notes tendered hereby to the Exchange Agent
within the time period set forth above and that failure to do so could result in
a financial loss to the undersigned.
Name of Firm:
- -------------------------------------------------------------------------------
Authorized Signature:
- -------------------------------------------------------------------------------
Title:
- -------------------------------------------------------------------------------
Address:
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Telephone Number:
- -------------------------------------------------------------------------------
Date:
- -------------------------------------------------------------------------------
NOTE: DO NOT SEND ORIGINAL SENIOR NOTES WITH THIS NOTICE OF GUARANTEED
DELIVERY. ACTUAL SURRENDER OF ORIGINAL SENIOR NOTES MUST BE MADE PURSUANT TO,
AND BE ACCOMPANIED BY, A PROPERLY COMPLETED AND DULY EXECUTED LETTER OF
TRANSMITTAL AND ANY OTHER REQUIRED DOCUMENTS.
3
<PAGE>
Exhibit 99.3
FORM OF EXCHANGE AGENT AGREEMENT
August ___, 1998
The Bank of New York
Attention: Corporate Trust Administration
101 Barclay Street
New York, New York 10286
Ladies and Gentlemen:
Yorkshire Power Finance Limited, a private company with limited
liability incorporated under the laws of the Cayman Islands ("Yorkshire
Finance"), and Yorkshire Power Group Limited, a private company with limited
liability incorporated under the laws of England and Wales ("Yorkshire Group"),
hereby appoint The Bank of New York to act as exchange agent (either "The Bank
of New York" or the "Exchange Agent") in connection with an exchange offer by
Yorkshire Finance to exchange up to $___,000,000 aggregate principal amount of
Yorkshire Finance's __% Exchange Senior Notes due 200_ (the "Exchange Senior
Notes"), which have been registered under the Securities Act of 1933, as amended
(the "Securities Act"), for a like aggregate principal amount of Yorkshire
Finance's outstanding ___% Senior Notes due 200_ (the "Original Senior Notes"
and, together with the Exchange Senior Notes, the "Senior Notes"). The terms
and conditions of the exchange offer are set forth in a Prospectus dated
________, 1998 (as the same may be amended or supplemented from time to time,
the "Prospectus") and in the related Letter of Transmittal, which together
constitute the "Exchange Offer." Capitalized terms used herein and not defined
shall have the respective meanings ascribed thereto in the Prospectus.
For purposes of this Agreement, unless the context requires otherwise,
the term "Holder" means any person who owns an interest in the Book-Entry
Interests. Furthermore, references to the terms "Exchange Senior Notes" and
"Original Senior Notes," unless the context requires otherwise, shall be deemed
to refer to interests in the Book-Entry Interests relating to such securities.
On the basis of the representations, warranties and agreements of
Yorkshire Finance, Yorkshire Group and The Bank of New York contained herein and
subject to the terms and conditions hereof, the following sets forth the
agreement between Yorkshire Finance, Yorkshire Group and The Bank of New York,
as Exchange Agent for the Exchange Offer:
1. APPOINTMENT AND DUTIES AS EXCHANGE AGENT.
a. Yorkshire Finance and Yorkshire Group hereby authorize The Bank of New
York to act as Exchange Agent in connection with the Exchange Offer and The Bank
of New York agrees to act as Exchange Agent in connection with the Exchange
Offer. As Exchange Agent,
<PAGE>
The Bank of New York will perform those services as are outlined herein,
including accepting tenders of Original Senior Notes, and communicating
generally regarding the Exchange Offer with brokers, dealers, commercial banks,
trust companies and other persons, including Holders of the Original Senior
Notes.
b. Yorkshire Finance and Yorkshire Group acknowledge and agree that The
Bank of New York has been retained pursuant to this Agreement to act solely as
Exchange Agent in connection with the Exchange Offer and, in such capacity, The
Bank of New York shall perform such duties in good faith as are outlined herein.
c. The Bank of New York will examine each of the Letters of Transmittal and
certificates for Original Senior Notes and any other documents delivered or
mailed to The Bank of New York by or for Holders of the Original Senior Notes,
and any book-entry confirmations received by The Bank of New York with respect
to the Original Senior Notes, to ascertain whether:
(i) the Letters of Transmittal and any such other documents are duly
executed and properly completed in accordance with the instructions set
forth therein and that such book-entry confirmations are in due and proper
form and contain the information required to be set forth therein,
(ii) the Original Senior Notes have otherwise been properly tendered and
(iii) Holders have provided their correct Tax Identification Number or
required certification.
Determination of all questions as to validity, form, eligibility and acceptance
for exchange of any Original Senior Notes shall be made by Yorkshire Finance or
Yorkshire Group, whose determination shall be final and binding. In each case
where the Letters of Transmittal or any other documents have been improperly
completed or executed or where book-entry confirmations are not in due and
proper form or omit certain information, or any of the certificates for Original
Senior Notes are not in proper form for transfer or some other irregularity in
connection with the tender or acceptance of the Original Senior Notes exists,
The Bank of New York will endeavor upon request of Yorkshire Finance or
Yorkshire Group to advise the tendering Holders of the irregularity and to take
any other action as Yorkshire Finance or Yorkshire Group may request to cause
such irregularity to be corrected. Notwithstanding the above, The Bank of New
York shall not be under any duty to give any notification of any irregularities
in tenders or incur any liability for failure to give any such notification.
d. With the approval of any director of Yorkshire Finance or Yorkshire
Group or any other party designated by any such director of Yorkshire Finance or
Yorkshire Group (such approval, if given orally, to be confirmed in writing),
The Bank of New York is authorized to waive any irregularities in connection
with any tender of Original Senior Notes pursuant to the Exchange Offer.
2
<PAGE>
e. Tenders of Original Senior Notes may be made only as set forth in the
Letter of Transmittal and in the section of the Prospectus captioned "The
Exchange Offer" and Original Senior Notes shall be considered properly tendered
only when tendered in accordance with such procedures set forth therein.
Notwithstanding the provisions of this paragraph, Original Senior Notes which
any director of Yorkshire Finance or Yorkshire Group or any other party
designated by any such director of Yorkshire Finance or Yorkshire Group shall
approve (such approval, if given orally, to be confirmed in writing) as having
been properly tendered shall be considered to be properly tendered.
f. The Bank of New York shall advise Yorkshire Finance or Yorkshire Group
with respect to any Original Senior Notes received as soon as possible after
5:00 p.m., New York City time, on the Expiration Date and accept its
instructions with respect to disposition of such Original Senior Notes.
g. The Bank of New York shall deliver certificates (or effect appropriate
book-entry transfer) for Original Senior Notes tendered in part to the transfer
agent for split-up and shall return any untendered Original Senior Notes or
Original Senior Notes which have not been accepted by Yorkshire Finance or
Yorkshire Group to the Holders promptly after the expiration or termination of
the Exchange Offer.
h. Upon acceptance by Yorkshire Finance or Yorkshire Group of any Original
Senior Notes duly tendered pursuant to the Exchange Offer (such acceptance, if
given orally, to be confirmed in writing), Yorkshire Finance will cause Exchange
Senior Notes in exchange therefor to be issued as promptly as possible and The
Bank of New York will deliver such Exchange Senior Notes on behalf of Yorkshire
Finance at the rate of $1,000 principal amount of Exchange Senior Notes for each
$1,000 principal amount of Original Senior Notes tendered as promptly as
possible after acceptance by Yorkshire Finance of the Original Senior Notes for
exchange and notice (such notice, if given orally, to be confirmed in writing)
of such acceptance by Yorkshire Finance or Yorkshire Group. Unless otherwise
instructed by Yorkshire Finance or Yorkshire Group, The Bank of New York shall
issue Exchange Senior Notes only in denominations of $1,000 or any integral
multiple thereof.
i. Tenders pursuant to the Exchange Offer are irrevocable, except that,
subject to the terms and the conditions set forth in the Prospectus and the
Letter of Transmittal, Original Senior Notes tendered pursuant to the Exchange
Offer may be withdrawn at any time on or prior to the Expiration Date in
accordance with the terms of the Exchange Offer.
j. Yorkshire Finance shall not be required to exchange any Original Senior
Notes tendered if any of the conditions set forth in the Exchange Offer are not
met. Notice of any decision by Yorkshire Finance not to exchange any Original
Senior Notes tendered shall be given by Yorkshire Finance or Yorkshire Group
either orally (if given orally, to be confirmed in writing) or in a written
notice to The Bank of New York.
k. If, pursuant to the Exchange Offer, Yorkshire Finance or Yorkshire Group
do not accept for exchange all or part of the Original Senior Notes tendered
because of an invalid
3
<PAGE>
tender, the occurrence of certain other events set forth in the Prospectus under
the caption "The Exchange Offer -- Conditions to the Exchange Offer" or
otherwise, The Bank of New York shall, upon notice from Yorkshire Finance or
Yorkshire Group (such notice, if given orally, to be confirmed in writing),
promptly after the expiration or termination of the Exchange Offer return such
certificates for unaccepted Original Senior Notes (or effect appropriate book-
entry transfer), together with any related required documents and the Letters of
Transmittal relating thereto that are in The Bank of New York's possession, to
the persons who deposited such certificates.
l. Certificates for reissued Original Senior Notes, unaccepted Original
Senior Notes or Exchange Senior Notes shall be forwarded by (a) first-class
certified mail, return receipt requested under a blanket surety bond obtained by
The Bank of New York protecting The Bank of New York, Yorkshire Group and
Yorkshire Finance from loss or liability arising out of the non-receipt or non-
delivery of such certificates or (b) by registered mail insured by The Bank of
New York separately for the replacement value of each such certificate.
m. The Bank of New York is not authorized to pay or offer to pay any
concessions, commissions or solicitation fees to any broker, dealer, commercial
bank, trust company or other nominee or to engage or use any person to solicit
tenders.
n. As Exchange Agent, The Bank of New York:
(i) shall have no duties or obligations other than those specifically
set forth herein or as may be subsequently agreed to in writing;
(ii) will make no representations and will have no responsibilities as
to the validity, value or genuineness of any of the certificates for the
Original Senior Notes deposited pursuant to the Exchange Offer, and will
not be required to and will make no representation as to the validity,
value or genuineness of the Exchange Offer;
(iii) shall not be obligated to take any legal action hereunder which
might in The Bank of New York's reasonable judgment involve any expense or
liability, unless The Bank of New York shall have been furnished with
indemnity reasonably satisfactory to it and additional fees for the taking
of such action;
(iv) may reasonably rely on and shall be protected in acting in reliance
upon any certificate, instrument, opinion, notice, letter, telegram or other
document or security delivered to The Bank of New York and reasonably
believed by The Bank of New York to be genuine and to have been signed by
the proper party or parties;
(v) may reasonably act upon any tender, statement, request, comment,
agreement or other instrument whatsoever not only as to its due execution
and validity and effectiveness of its provisions, but also as to the truth
and accuracy of any information contained therein, which The Bank of New
York believes in good faith to be genuine and to have been signed or
represented by a proper person or persons acting in a fiduciary or
representative capacity;
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(vi) may rely on and shall be protected in acting upon written or oral
instructions from any director of Yorkshire Finance or Yorkshire Group or
any other party designated by any such director of Yorkshire Finance or
Yorkshire Group;
(vii) may consult with its own counsel with respect to any questions
relating to The Bank of New York's duties and responsibilities and the
advice of such counsel shall be full and complete authorization and
protection in respect of any action taken, suffered or omitted to be taken
by The Bank of New York hereunder in good faith and in accordance with the
advice of such counsel; and
(viii) shall not advise any person tendering Original Senior Notes
pursuant to the Exchange Offer as to whether to tender or refrain from
tendering all or any portion of its Original Senior Notes or as to the
market value, decline or appreciation in market value of any Original
Senior Notes that may or may not occur as a result of the Exchange Offer or
as to the market value of the Exchange Senior Notes.
o. The Bank of New York shall take such action as may from time to time be
requested by Yorkshire Finance or Yorkshire Group to furnish copies of the
Prospectus, Letter of Transmittal and the Notice of Guaranteed Delivery or such
other forms as may be approved from time to time by Yorkshire Finance or
Yorkshire Group, to all persons requesting such documents and to accept and
comply with telephone requests for information relating to the Exchange Offer.
Yorkshire Finance or Yorkshire Group will furnish The Bank of New York with
copies of such documents at its request.
p. The Bank of New York shall advise orally and promptly thereafter confirm
in writing to Yorkshire Finance or Yorkshire Group and such other person or
persons as Yorkshire Finance or Yorkshire Group may request, daily (and more
frequently during the week immediately preceding the Expiration Date and if
otherwise reasonably requested) up to and including the Expiration Date, the
aggregate principal amount of Original Senior Notes which have been tendered
pursuant to the terms of the Exchange Offer and the items received by The Bank
of New York pursuant to the Exchange Offer and this Agreement. In addition, The
Bank of New York will also provide, and cooperate in making available to
Yorkshire Finance or Yorkshire Group, or any such other person or persons upon
request made from time to time, such other information in its possession as
Yorkshire Finance or Yorkshire Group may reasonably request. Such cooperation
shall include, without limitation, the granting by The Bank of New York to
Yorkshire Finance and Yorkshire Group, and such person or persons as Yorkshire
Finance or Yorkshire Group may request, access to those persons on The Bank of
New York's staff who are responsible for receiving tenders, in order to ensure
that, immediately prior to the Expiration Date, Yorkshire Finance and Yorkshire
Group shall have received adequate information in sufficient detail to enable
Yorkshire Finance and Yorkshire Group to decide whether to extend the Exchange
Offer. The Bank of New York shall prepare a final list of all persons whose
tenders were accepted, the aggregate principal amount of Original Senior Notes
tendered, the aggregate principal amount of Original Senior Notes accepted and
deliver said list to Yorkshire Finance and Yorkshire Group.
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q. Letters of Transmittal, book-entry confirmations and Notices of
Guaranteed Delivery shall be stamped by The Bank of New York as to the date and
the time of receipt thereof and shall be preserved by The Bank of New York for a
period of time at least equal to the period of time The Bank of New York
preserves other records pertaining to the transfer of securities, or one year,
whichever is longer, and thereafter shall be delivered by The Bank of New York
to Yorkshire Finance. The Bank of New York shall dispose of unused Letters of
Transmittal and other surplus materials by returning them to Yorkshire Finance.
r. The Bank of New York hereby expressly waives any lien, encumbrance or
right of set-off whatsoever that The Bank of New York may have with respect to
any funds deposited with it for the payment of transfer taxes by reason of
amounts, if any, borrowed by Yorkshire Finance or Yorkshire Group, or any of its
or their subsidiaries or affiliates pursuant to any loan or credit agreement
with The Bank of New York or for compensation owed to The Bank of New York
hereunder or for any other matter.
2. COMPENSATION.
For services rendered as Exchange Agent hereunder, The Bank of New
York shall be entitled to such reasonable compensation as shall be agreed to by
Yorkshire Finance and Yorkshire Group.
3. INDEMNIFICATION.
Yorkshire Finance and Yorkshire Group hereby agree to indemnify the
Exchange Agent for, and to hold it harmless against, any loss, liability or
expense incurred without negligence, bad faith or willful misconduct on its part
arising out of or in connection with the acceptance or administration of this
Agreement and the performance of its duties hereunder, including the costs and
expenses of defending itself against any claim of liability in connection with
the exercise or performance of any of its powers or duties hereunder. This
indemnification shall survive the termination of this Agreement pursuant to
Section 10 hereof.
4. GOVERNING LAW.
This Agreement shall be governed by, and construed in accordance with,
the laws of the State of New York applicable to contracts executed in and to be
performed in that state.
5. NOTICES.
Any communication or notice provided for hereunder shall be in writing
and shall be given (and shall be deemed to have been given upon receipt) by
delivery in person, telecopy, or overnight delivery or by registered or
certified mail (postage prepaid, return receipt requested) to the applicable
party at the addresses indicated below:
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If to Yorkshire Finance or Yorkshire Group: Yorkshire Power Finance Limited/
Yorkshire Power Group Limited
c/o American Electric Power
Service Corporation
1 Riverside Plaza
Columbus, Ohio 43215
Attn: Stephan T. Haynes
Telephone: (614) 223-2852
Facsimile: (614) 223-2807
If to The Bank of New York: The Bank of New York
101 Barclay Street
New York, New York 10286
Attn: Corporate Trust Department
Telephone: (212) 815-4701
Facsimile: (212) 815-5915
or, as to each party, at such other address as shall be designated by such party
in a written notice complying as to delivery with the terms of this Section.
6. PARTIES IN INTEREST.
This Agreement shall be binding upon and inure solely to the benefit
of each party hereto and nothing in this Agreement, express or implied, is
intended to or shall confer upon any other person any right, benefit or remedy
of any nature whatsoever under or by reason of this Agreement. Without
limitation to the foregoing, the parties hereto expressly agree that no Holder
of Original Senior Notes or Exchange Senior Notes shall have any right, benefit
or remedy of any nature whatsoever under or by reason of this Agreement.
7. COUNTERPARTS; SEVERABILITY.
This Agreement may be executed in one or more counterparts, and by
different parties hereto on separate counterparts, each of which when so
executed shall be deemed an original, and all of such counterparts shall
together constitute one and the same agreement. If any term or other provision
of this Agreement or the application thereof is invalid, illegal or incapable of
being enforced by any rule of law, or public policy, all other provisions of
this Agreement shall nevertheless remain in full force and effect so long as the
economic or legal substance of the agreements contained herein is not affected
in any manner adverse to any party. Upon such determination that any term or
provision or the application thereof is invalid, illegal or unenforceable, the
parties hereto shall negotiate in good faith to modify this Agreement so as to
effect the original intent of the parties as closely as possible in a mutually
acceptable manner in order that the agreements contained herein may be performed
as originally contemplated to the fullest extent possible.
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8. CAPTIONS.
The descriptive headings contained in this Agreement are included for
convenience of reference only and shall not affect in any way the meaning or
interpretation of this Agreement.
9. ENTIRE AGREEMENT; AMENDMENT.
This Agreement constitutes the entire understanding of the parties
hereto with respect to the subject matter hereof. This Agreement may not be
amended or modified nor may any provision hereof be waived except in writing
signed by each party to be bound thereby.
10. TERMINATION.
This Agreement shall terminate upon the earliest of (a) the 90th day
following the expiration, withdrawal, or termination of the Exchange Offer, (b)
the close of business on the date of actual receipt of written notice by The
Bank of New York from Yorkshire Finance or Yorkshire Group stating that this
Agreement is terminated, (c) one year following the date of this Agreement or
(d) the time and date on which this Agreement shall be terminated by mutual
consent of the parties hereto.
11. MISCELLANEOUS.
The Bank of New York hereby acknowledges receipt of the Prospectus and
the Letter of Transmittal and the Notice of Guaranteed Delivery and further
acknowledges that it has examined each of them. Any inconsistency between this
Agreement, on the one hand, and the Prospectus and the Letter of Transmittal and
the Notice of Guaranteed Delivery (as they may be amended or supplemented from
time to time), on the other hand, shall be resolved in favor of the latter three
documents, except with respect to the duties, liabilities and indemnification of
The Bank of New York as Exchange Agent which shall be controlled by this
Agreement.
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Kindly indicate your willingness to act as Exchange Agent and The Bank
of New York's acceptance of the foregoing provisions by signing in the space
provided below for that purpose and returning to Yorkshire Finance and Yorkshire
Group a copy of this Agreement so signed, whereupon this Agreement and The Bank
of New York's acceptance shall constitute a binding agreement among The Bank of
New York, Yorkshire Finance and Yorkshire Group.
Very truly yours,
YORKSHIRE POWER FINANCE LIMITED
By:___________________________
Name:
Title:
YORKSHIRE POWER GROUP LIMITED
By:___________________________
Name:
Title:
Accepted as of the date first above written:
THE BANK OF NEW YORK,
as Exchange Agent
By:___________________________
Name:
Title:
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