<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
<TABLE>
<S> <C>
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted
by Rule 14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section240.14a-11(c) or
Section240.14a-12
</TABLE>
<TABLE>
<S> <C>
NIAGARA MOHAWK HOLDINGS, INC.
------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the
Registrant)
</TABLE>
Payment of Filing Fee (Check the appropriate box):
<TABLE>
<S> <C> <C>
/ / No fee required.
/X/ Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction
applies:
ORDINARY SHARES OF 10P EACH
----------------------------------------------------------
(2) Aggregate number of securities to which transaction
applies:
312,239,950 SHARES
----------------------------------------------------------
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth the
amount on which the filing fee is calculated and state how
it was determined):
$8.08
----------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
$666,045,282
----------------------------------------------------------
(5) Total fee paid:
$398,317.85
----------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/X/ Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which
the offsetting fee was paid previously. Identify the previous
filing by registration statement number, or the Form or
Schedule and the date of its filing.
(1) Amount Previously Paid:
$398,317.85
----------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
333-47324
----------------------------------------------------------
(3) Filing Party:
NEW NATIONAL GRID PLC
----------------------------------------------------------
(4) Date Filed:
OCTOBER 4, 2000
----------------------------------------------------------
</TABLE>
<PAGE>
[LOGO]
NIAGARA MOHAWK HOLDINGS, INC.
300 Erie Boulevard West
Syracuse, New York 13202
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
<TABLE>
<S> <C>
DATE & TIME: Friday, January 19, 2001, at 10:30 A.M. (EDT)
PLACE: The Onondaga County Convention Center
800 South State Street
Syracuse, New York 13202-3017
ITEM OF You will be asked to consider and vote on a proposal to
BUSINESS: adopt the Agreement and Plan of Merger and Scheme of
Arrangement, dated as of September 4, 2000, by and among
National Grid Group plc, Niagara Mohawk Holdings, Inc., New
National Grid plc and Grid Delaware, Inc., as amended by the
First Amendment to the Agreement and Plan of Merger and
Scheme of Arrangement, dated as of December 1, 2000 (the
"Merger Agreement"), pursuant to which Niagara Mohawk would
become a wholly owned subsidiary of New National Grid and a
sister company of National Grid. The merger cannot occur
until, among other things, the Merger Agreement is adopted
by holders of a majority of shares of Niagara Mohawk's
common stock outstanding on the record date.
The accompanying Proxy Statement/Prospectus contains
additional information about the proposed merger. A copy of
the Merger Agreement is attached as Appendix A to the Proxy
Statement/Prospectus. Please read these materials carefully.
THE BOARD OF DIRECTORS HAS, BY A UNANIMOUS VOTE OF DIRECTORS
PRESENT, ADOPTED THE MERGER AGREEMENT AND THE TRANSACTIONS
CONTEMPLATED BY THE MERGER AGREEMENT, INCLUDING THE MERGER,
AND HAS CONCLUDED THAT THE TERMS OF THE MERGER ARE IN YOUR
BEST INTERESTS. THE BOARD OF DIRECTORS RECOMMENDS THAT YOU
VOTE "FOR" ADOPTION OF THE MERGER AGREEMENT.
RECORD DATE: The Board of Directors has fixed the close of business on
November 29, 2000 as the record date for the purpose of
determining shareholders who are entitled to vote at the
special meeting.
PROXY VOTING: Shareholders of record may vote by mail, telephone or
on-line via the Internet.
Your vote is important to us. If you do attend and vote at
the Special Meeting, your vote in person will supersede any
earlier vote by proxy.
By Order of the Board of Directors
[/S/ KAPUA A. RICE]
Kapua A. Rice
Secretary
</TABLE>
December 6, 2000
THE PROXY SOLICITOR FOR THE SPECIAL MEETING IS:
D.F. KING & CO., INC.
77 WATER STREET
NEW YORK, NY 10005
CALL TOLL FREE: 1-800-928-0153
<PAGE>
<TABLE>
<S> <C>
NIAGARA MOHAWK HOLDINGS, INC. NEW NATIONAL GRID PLC
PROXY STATEMENT PROSPECTUS FOR UP TO 312,239,950 ORDINARY
SHARES
</TABLE>
MERGER PROPOSED--YOUR VOTE IS VERY IMPORTANT
The boards of directors of Niagara Mohawk Holdings, Inc., National Grid
Group plc and New National Grid plc have agreed on a merger in which Niagara
Mohawk would become a wholly owned subsidiary of New National Grid, a newly
formed company which will become National Grid Group's holding company prior to
the completion of the merger.
IN THE MERGER YOU WILL RECEIVE IN EXCHANGE FOR EACH SHARE OF NIAGARA MOHAWK
COMMON STOCK THAT YOU OWN CONSIDERATION OF $19.00 PER SHARE, IF THE DOLLAR VALUE
OF THE AVERAGE CLOSING PRICE OF FIVE NATIONAL GRID GROUP ORDINARY SHARES DURING
A SPECIFIED PERIOD SHORTLY BEFORE COMPLETION IS BETWEEN $32.50 AND $51.00. IN
THE EVENT THAT THE DOLLAR VALUE OF THE AVERAGE CLOSING PRICE OF FIVE NATIONAL
GRID GROUP ORDINARY SHARES DURING THE SPECIFIED PERIOD IS GREATER THAN $51.00,
THE PER SHARE CONSIDERATION YOU WILL RECEIVE WILL INCREASE BY TWO-THIRDS OF THE
PERCENTAGE OF THE INCREASE IN VALUE OVER $51.00. IN THE EVENT THAT THE DOLLAR
VALUE OF THE AVERAGE CLOSING PRICE OF FIVE NATIONAL GRID GROUP ORDINARY SHARES
DURING THE SPECIFIED PERIOD IS LESS THAN $32.50, THE PER SHARE CONSIDERATION YOU
WILL RECEIVE WILL DECREASE BY TWO-THIRDS OF THE PERCENTAGE OF THE DECREASE IN
VALUE BELOW $32.50. YOU WILL BE ABLE TO ELECT TO RECEIVE YOUR CONSIDERATION IN
CASH, SHARES OF NEW NATIONAL GRID IN THE FORM OF AMERICAN DEPOSITARY SHARES OR
AS A COMBINATION OF BOTH, SUBJECT TO THE AGGREGATE CASH CONSIDERATION PAID TO
ALL NIAGARA MOHAWK SHAREHOLDERS BEING $1.015 BILLION. IF CASH ELECTIONS RECEIVED
FROM ALL NIAGARA MOHAWK SHAREHOLDERS EXCEED $1.015 BILLION, NATIONAL GRID GROUP
MAY, AT ITS SOLE DISCRETION, INCREASE THE CASH COMPONENT OF THE CONSIDERATION.
The shareholders of Niagara Mohawk must adopt the merger agreement at their
meeting for the merger to occur. The date, time and place of the Niagara Mohawk
special meeting is as follows: January 19, 2001 at 10:30 a.m. local time, at the
Onondaga Convention Center, 800 South State Street, Syracuse, New York. The
merger is also subject to the approval of National Grid Group's shareholders.
THE NIAGARA MOHAWK BOARD OF DIRECTORS HAS, BY A UNANIMOUS VOTE OF DIRECTORS
PRESENT, ADOPTED AND APPROVED THE MERGER AGREEMENT AND THE TRANSACTIONS
CONTEMPLATED BY THE MERGER AGREEMENT, INCLUDING THE MERGER, AND HAS CONCLUDED
THAT THE TERMS OF THE MERGER ARE IN YOUR BEST INTERESTS. THE NIAGARA MOHAWK
BOARD OF DIRECTORS RECOMMENDS YOU TO VOTE "FOR" ADOPTION OF THE MERGER
AGREEMENT.
Niagara Mohawk's common stock is traded on the New York Stock Exchange under
the symbol "NMK." National Grid Group's ordinary shares are, and New National
Grid's ordinary shares will be, traded on the London Stock Exchange plc under
the symbol "NGG." National Grid Group's ADSs are, and New National Grid's ADSs
will be, traded on the New York Stock Exchange under the symbol "NGG."
PLEASE SEE THE SECTION ENTITLED "RISK FACTORS" BEGINNING ON PAGE 9 FOR A
DISCUSSION OF POTENTIAL RISKS INVOLVED IN THE MERGER.
THIS PROXY STATEMENT/PROSPECTUS PROVIDES YOU WITH DETAILED INFORMATION ABOUT
THE PROPOSED MERGER. WE URGE YOU TO READ THIS ENTIRE DOCUMENT CAREFULLY BEFORE
VOTING.
--------------------------------------------------------------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY BODY
HAS APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED IF THIS PROXY
STATEMENT/PROSPECTUS IS ACCURATE OR ADEQUATE. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
--------------------------------------------------------------------------------
This proxy statement/prospectus is dated December 6, 2000 and is first being
mailed to Niagara Mohawk shareholders on or about December 8, 2000.
<PAGE>
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
This proxy statement/prospectus incorporates important business and
financial information about each of Niagara Mohawk and National Grid Group that
is not included in or delivered with this proxy statement/prospectus. This
information is available without charge to you upon your written or oral request
to (1) Niagara Mohawk Holdings, Inc., 300 Erie Boulevard West, Syracuse, New
York 13202, Attention: Leon T. Mazur, Director, Investor Relations, Telephone
number: (315) 428-5876 or (2) National Grid Group plc, 15 Marylebone Road,
London NW1 5JD, United Kingdom, Attention: David Forward, Telephone number: 011
44 207 312 5860 or National Grid USA, 25 Research Drive, Westborough,
Massachusetts 01582, Attention: Corporate Communications, Telephone number:
(508) 389-2591. IN ORDER TO OBTAIN TIMELY DELIVERY OF THIS INFORMATION, YOU
SHOULD REQUEST THIS INFORMATION NO LATER THAN JANUARY 12, 2001. See "Where You
Can Find More Information" beginning on page 21.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE........... i
CURRENCIES AND EXCHANGE RATES............................... ii
QUESTIONS AND ANSWERS ABOUT THE MERGER...................... 1
SUMMARY..................................................... 3
RISK FACTORS................................................ 9
SELECTED HISTORICAL FINANCIAL INFORMATION OF NATIONAL GRID
GROUP..................................................... 10
SELECTED HISTORICAL FINANCIAL INFORMATION OF NIAGARA
MOHAWK.................................................... 12
SELECTED UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL
INFORMATION............................................... 13
COMPARATIVE PER SHARE DATA.................................. 15
COMPARATIVE MARKET PRICE AND DIVIDEND DATA.................. 18
WHERE YOU CAN FIND MORE INFORMATION......................... 21
NIAGARA MOHAWK SPECIAL MEETING, VOTING AND PROXIES.......... 23
THE MERGER.................................................. 25
THE MERGER AGREEMENT........................................ 48
SCHEME OF ARRANGEMENT....................................... 66
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL
INFORMATION............................................... 67
DESCRIPTION OF ORDINARY SHARES.............................. 88
DESCRIPTION OF AMERICAN DEPOSITARY SHARES................... 96
COMPARISON OF RIGHTS OF NIAGARA MOHAWK SHAREHOLDERS AND NEW
NATIONAL GRID SHAREHOLDERS................................ 103
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE..... 116
OTHER MATTERS............................................... 116
UK CIRCULAR................................................. 116
LEGAL MATTERS............................................... 116
EXPERTS..................................................... 116
</TABLE>
<TABLE>
<S> <C>
ANNEX A Agreement and Plan of Merger and Scheme of Arrangement as
amended
ANNEX B Opinion of Donaldson, Lufkin & Jenrette Securities
Corporation
</TABLE>
i
<PAGE>
CURRENCIES AND EXCHANGE RATES
National Grid Group publishes its consolidated financial statements in
pounds sterling. References in this proxy statement/prospectus to "US dollars,"
"US$," "$" or " CENTS" are to US currency and references to "pounds sterling,"
"L," "pounds," "pence" or "p" are to UK currency (there are 100 pence to each
pound).
The following table sets forth, for each period indicated, the high and low
noon buying rates in New York City for cable transfers, as certified for customs
purposes by the Federal Reserve Bank of New York (the "Noon Buying Rate"), for
one pound sterling expressed in US dollars, the average Noon Buying Rate during
the period, and the Noon Buying Rate at the end of the period:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED FISCAL YEAR ENDED MARCH 31,
SEPTEMBER 30, ----------------------------------------------------
2000 2000 1999 1998 1997 1996
------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
High................................................ $1.60 $1.68 $1.72 $1.70 $1.71 $1.62
Low................................................. 1.40 1.55 1.60 1.58 1.49 1.50
Average............................................. 1.50 1.61 1.65 1.65 1.60 1.56
Period End.......................................... 1.48 1.59 1.61 1.68 1.64 1.53
</TABLE>
On December 1, 2000, the Noon Buying Rate was L1.00 = $1.44.
ii
<PAGE>
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: WHAT IS NATIONAL GRID GROUP?
A: National Grid Group is a holding company based in the United Kingdom.
National Grid Group, through its principal subsidiary, The National Grid
Company plc ("NGC"), owns and operates the high voltage transmission system
in England and Wales. National Grid Group, through another subsidiary,
National Grid USA, also has substantial transmission and distribution
operations in the United States following its acquisitions of New England
Electric System and Eastern Utilities Associates in early 2000. National
Grid Group also has various telecommunications interests in Europe, the
United States and Latin America, the most significant of which is a 34.6%
interest in Energis plc, a company providing advanced broadband national
communications and internet services to the UK business market and
connecting most of the major cities in England and Wales.
Q: WHY ARE THE COMPANIES PROPOSING TO MERGE? HOW WILL I BENEFIT?
A: The combination of Niagara Mohawk and National Grid Group will more than
double the size of National Grid Group's US operations and will create the
ninth largest electric utility in the United States with an electric
customer base of approximately 3.3 million. The combined group will own and
operate the most extensive transmission network (by miles) and be the second
largest distribution business (by power delivered) in the New England/New
York market. Building on National Grid Group's experience operating a
transmission system in the competitive UK environment and integration skills
demonstrated in the acquisition of New England Electric System and Eastern
Utilities Associates, the combined group will focus on reducing costs,
increasing the efficiency of Niagara Mohawk's core transmission and
distribution operations and working with regulators to structure long term
rate plans that benefit customers and shareholders.
At the time the merger was announced, the merger consideration represented a
37% premium over the market price of Niagara Mohawk common stock on the last
trading day on the New York Stock Exchange before announcement and a 36%
premium to the three-month average closing price of Niagara Mohawk's common
stock. You particularly should note that the extent of any premium at the
time of the completion of the merger will depend on the market prices of
Niagara Mohawk's common stock and National Grid Group's ordinary shares,
which fluctuate on a daily basis.
Q: WHAT IS NEW NATIONAL GRID?
A: National Grid Group will propose to its shareholders that New National Grid,
a newly formed company, become its holding company. In order to achieve this
result, National Grid Group will implement a restructuring process known in
the United Kingdom as a scheme of arrangement. The scheme of arrangement
will be implemented prior to completion of the merger. Adoption of the
holding company structure is subject to the approval of National Grid
Group's shareholders and the sanction of the High Court in London, England.
Consent must also be obtained from the Secretary of State for Trade and
Industry in the United Kingdom as holder of the special share in National
Grid Group. Following the merger, Niagara Mohawk will become a wholly owned
subsidiary of New National Grid.
Q: WHAT HAPPENS IF NATIONAL GRID GROUP DOES NOT ADOPT THE HOLDING COMPANY
STRUCTURE?
A: It is a condition to the completion of the merger that the holding company
structure be implemented. However, the merger agreement provides that if
National Grid Group determines that a structure that does not involve
establishing a holding company through a scheme of arrangement would be
preferable, or that the approval of the scheme of arrangement is uncertain,
National Grid Group and Niagara Mohawk will negotiate in good faith to
restructure the transaction, provided that the restructuring preserves the
economic and tax benefits of the transaction for both parties.
Q: WHAT IS AN ADS?
A: An ADS, which stands for "American depositary share," is a security created
to allow you to hold and trade more easily your ownership interest in New
National Grid in the United States. New National
1
<PAGE>
Grid's ADSs will be quoted and traded in US dollars. Likewise, dividends on
the ordinary shares underlying New National Grid's ADSs will be paid in US
dollars. Each ADS you will receive will represent ownership of five ordinary
shares of New National Grid.
If you want to convert your ADSs into the underlying ordinary shares, this
can be done at any time. Conversion can occur by contacting your broker or
the financial institution which acts as depositary for the ADSs. A fee is
charged by the depositary, initially $5.00 (or less) for every 100 ADSs you
surrender, together with any transaction expenses, taxes or other
governmental charges for any conversion.
Q: WHAT DO I NEED TO DO NOW?
A: After you have carefully read this proxy statement/prospectus, please
indicate on your proxy card how you want to vote and mail your signed and
dated form in the enclosed postage-prepaid return envelope marked "Proxy" as
soon as possible, or vote by telephone or on the Internet, so that your
shares may be represented and voted at the Niagara Mohawk special meeting.
Q: WHEN WILL I ELECT TO RECEIVE CASH OR ADSS?
A: You cannot make your election at this time. A form of election and complete
instructions for properly making an election to receive cash, ADSs or a
combination of cash and ADSs will be mailed to you at a later date not more
than 90 days nor less than 30 days before the anticipated day of the closing
of the merger, which is currently expected to be in late 2001.
Q: IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER VOTE MY
SHARES FOR ME?
A: Your broker will vote your shares only if you provide instructions on how to
vote. You should follow the directions provided by your broker regarding how
to instruct your broker to vote your shares. If you do not provide these
instructions, your shares will not be voted on the merger, which will have
the same effect as voting against the merger.
Q: CAN I CHANGE MY VOTE AFTER HAVING SUBMITTED A VOTE?
A: Yes. There are three ways in which you may revoke your proxy and change your
vote. First, you may send a written notice to Niagara Mohawk stating that
you would like to revoke your proxy. Second, you may complete and submit a
new proxy card (or vote by telephone or on the Internet). Third, you may
attend the Niagara Mohawk special meeting and vote in person.
Q: SHOULD I SEND IN MY STOCK CERTIFICATES NOW?
A: No. After the merger is completed we will send you written instructions
explaining how to exchange your Niagara Mohawk common stock certificates.
Q: WILL I RECEIVE THE SPECIFIC AMOUNTS OF CASH AND SHARES THAT I ELECT?
A: You can elect to receive your consideration either in cash or ADSs, or a
combination of both, subject to the aggregate cash consideration elected
being $1.015 billion. If cash elections received from all Niagara Mohawk
shareholders exceed $1.015 billion, National Grid Group may, at its sole
discretion, increase the cash element of the consideration. If elections for
one form of consideration exceed the amount of such form of consideration to
be issued in the merger, all shareholders electing the oversubscribed form
of consideration will receive, on a pro rata basis, some of the
undersubscribed form of consideration.
Q: WHO CAN HELP ANSWER QUESTIONS?
A: If you have more questions about the special meeting, you should contact our
Proxy Solicitor:
D.F. King & Co., Inc.
77 Water Street
New York, NY 10005
Call toll free: 1-800-928-0153
2
<PAGE>
SUMMARY
THIS SUMMARY HIGHLIGHTS THE INFORMATION MOST SIGNIFICANT TO SHAREHOLDERS,
BUT DOES NOT CONTAIN ALL OF THE INFORMATION THAT IS IMPORTANT TO YOU. TO
UNDERSTAND THE MERGER FULLY AND FOR A COMPLETE DESCRIPTION OF THE LEGAL TERMS OF
THE MERGER, YOU SHOULD READ CAREFULLY THIS ENTIRE DOCUMENT AND THE DOCUMENTS WE
HAVE REFERRED YOU TO. SEE "WHERE YOU CAN FIND MORE INFORMATION." THE MERGER
AGREEMENT AS AMENDED IS ATTACHED AS ANNEX A TO THIS DOCUMENT. WE ENCOURAGE YOU
TO READ THE MERGER AGREEMENT. IT IS THE LEGAL DOCUMENT THAT GOVERNS THE MERGER.
THE COMPANIES
NATIONAL GRID GROUP PLC
15 Marylebone Road
London NW1 5JD
United Kingdom
011 44 20 7312 5600
National Grid Group was incorporated in England and Wales on April 1, 1989.
Through its wholly owned subsidiary, NGC, National Grid Group's principal
business in the United Kingdom is the transmission of electricity in England and
Wales. National Grid Group derives the vast majority of its UK turnover (which
is the US equivalent of operating revenues), and profit from charges for
services provided by the transmission business. NGC owns and operates a
transmission system consisting of approximately 4,500 miles of overhead lines
and approximately 400 miles of underground cable together with substations at
some 220 sites.
NGC also owns and operates interconnectors which enable electricity to be
transferred between England and Wales on the one hand, and Scotland and France
on the other. In addition, NGC is responsible for the procurement of ancillary
services which enable satisfactory voltage and frequency to be maintained on the
transmission system.
National Grid USA is a wholly owned subsidiary of National Grid Group.
National Grid USA owns companies which deliver electricity to approximately
1.7 million customers in Massachusetts, Rhode Island and New Hampshire. These
electricity delivery companies own and operate approximately 31,000 miles of
transmission and distribution lines in New England.
National Grid Group is a registered holding company under the US Public
Utility Holding Company Act of 1935.
National Grid Group also has various telecommunications interests in Europe,
the United States and Latin America, the most significant of which is a 34.6%
interest in Energis plc which, through its subsidiary Energis Communications
Limited, provides advanced broadband national communications and internet
services to the UK business market and connects most of the major cities in
England and Wales.
NEW NATIONAL GRID PLC
15 Marylebone Road
London NW1 5JD
United Kingdom
011 44 20 7312 5600
New National Grid was incorporated in England and Wales on July 11, 2000.
New National Grid does not currently conduct any business activities. Following
the approval and implementation of the scheme of arrangement, New National Grid
will be the holding company for National Grid Group. New National Grid's
ordinary shares will be admitted to the Official List of the UK Listing
Authority and traded on the London Stock Exchange and its ADSs will be listed on
the New York Stock Exchange. Following the merger, New National Grid will also
be the holding company for Niagara Mohawk. Upon completion of the scheme of
arrangement, New National Grid will be a registered holding company under the US
Public Utility Holding Company Act of 1935.
3
<PAGE>
NIAGARA MOHAWK HOLDINGS, INC.
300 Erie Boulevard West
Syracuse, New York 13202
(315) 474 1511
In March 1999, Niagara Mohawk Power Corporation ("NMPC") was reorganized
into a holding company structure, under which Niagara Mohawk became its holding
company. As a result, Niagara Mohawk has two subsidiaries, (1) NMPC, which is
primarily a regulated electric and gas utility, and (2) Opinac North
America, Inc. ("Opinac"), which is mainly involved in unregulated activities in
the energy business. NMPC was organized in 1937 under the laws of New York State
and is engaged principally in the regulated energy delivery business in New York
State. NMPC provides electric service to more than 1,500,000 electric customers
in upstate New York and sells, distributes, and transports natural gas to more
than 540,000 gas customers in areas of central, northern and western New York
State. NMPC comprises 98% of Niagara Mohawk's total assets and 94% of Niagara
Mohawk's total revenues. Opinac and its subsidiaries consist of an energy
marketing company and have investments in energy related and services
businesses, a development stage telecommunications company (Telergy, Inc.) and a
research and development company that has developed and intends to commercialize
new fuel cell and battery technology (EVonyx, Inc.).
THE MERGER
The merger will occur only if National Grid Group shareholders approve the
merger, Niagara Mohawk shareholders adopt the merger agreement and all other
requirements in the merger agreement are satisfied or waived. In the merger,
Grid Delaware, Inc., a wholly owned subsidiary of New National Grid, will merge
into Niagara Mohawk. As a result, Niagara Mohawk and National Grid Group will
become wholly owned subsidiaries of New National Grid.
WHAT YOU WILL RECEIVE IN THE MERGER (SEE PAGE 25)
In exchange for each share of Niagara Mohawk common stock, Niagara Mohawk
shareholders will receive in the merger consideration of $19.00 per share, if
the dollar value of the average closing price of five National Grid Group's
ordinary shares on the London Stock Exchange for 20 trading days selected at
random in the period of 40 consecutive trading days ending on the tenth trading
day prior to the election deadline is between $32.50 and $51.00. In the event
that the dollar value of the average closing price of five National Grid Group
ordinary shares on the London Stock Exchange during that period is greater than
$51.00, the per share consideration received by Niagara Mohawk shareholders will
increase by two-thirds of the percentage of the increase in value over $51.00.
In the event that the dollar value of the average closing price of five National
Grid Group ordinary shares on the London Stock Exchange during that period is
less than $32.50, the per share consideration received by Niagara Mohawk
shareholders will decrease by two-thirds of the percentage of the decrease in
value below $32.50. Niagara Mohawk shareholders will be able to elect to receive
their consideration in cash, ADSs or as a combination of both, subject to the
aggregate cash consideration paid being $1.015 billion. If cash elections
received from Niagara Mohawk shareholders exceed $1.015 billion, National Grid
Group may, at its sole discretion, increase the cash component of the
consideration. If elections for one form of consideration exceed the amount of
such form of consideration to be issued in the merger, all shareholders electing
the oversubscribed form of consideration will receive, on a pro rata basis, some
of the undersubscribed form of consideration.
THE NIAGARA MOHAWK SPECIAL MEETING (SEE PAGE 23)
The Niagara Mohawk special meeting will be held at the Onondaga Convention
Center, 800 South State Street, Syracuse, New York on Friday, January 19, 2001,
at 10:30 a.m., local time. At the Niagara Mohawk special meeting, holders of
record of shares of Niagara Mohawk's common stock will be asked to adopt the
merger agreement.
4
<PAGE>
THE RECORD DATE FOR VOTING (SEE PAGE 23)
The close of business on November 29, 2000 has been fixed as the record date
for determining if you are entitled to vote at the Niagara Mohawk special
meeting. As of the record date, there were 160,239,818 shares of Niagara
Mohawk's common stock outstanding.
REQUIRED VOTE; VOTING AND REVOCATION OF PROXIES (SEE PAGE 23)
The approval by the holders of a majority of the shares of Niagara Mohawk's
common stock outstanding on the record date is required to adopt the merger
agreement. Each share outstanding on the record date is entitled to one vote.
Shares represented by properly signed proxies (or voted by telephone or on the
Internet) received in time for the Niagara Mohawk special meeting will be voted
in the manner specified on the proxies. Properly signed proxies with no
instructions will be voted "FOR" adoption of the merger agreement. A proxy may
be revoked before it is voted by delivering a written statement of revocation to
the Niagara Mohawk corporate secretary, submitting a later dated properly signed
proxy (or voting later by telephone or on the Internet) or attending the Niagara
Mohawk special meeting and voting in person.
NATIONAL GRID GROUP EXTRAORDINARY GENERAL MEETING IN RESPECT OF THE MERGER
National Grid Group will convene an extraordinary general meeting in early
2001. At the meeting, a resolution will be proposed to approve the merger. To be
passed, the resolution will require the approval of a majority of the votes cast
in person or on a poll at the meeting.
NATIONAL GRID GROUP COURT MEETING AND EXTRAORDINARY GENERAL MEETING IN RESPECT
OF THE SCHEME OF ARRANGEMENT
A court meeting will be convened pursuant to an order of the High Court in
London, England to enable National Grid Group shareholders to consider and
approve the scheme of arrangement, which is the process under which New National
Grid will be put in place as the holding company of National Grid Group.
National Grid Group will also convene an extraordinary general meeting to enable
its shareholders to consider and pass special resolutions to approve and
implement the scheme of arrangement. National Grid Group anticipates that the
court meeting and extraordinary general meeting will be held by the Fall of
2001.
New National Grid will change its name to National Grid Group plc when the
scheme of arrangement becomes effective.
HOW TO ELECT TO RECEIVE ADSS OR CASH IN EXCHANGE FOR YOUR NIAGARA MOHAWK SHARES
(SEE PAGE 48)
Holders of shares of Niagara Mohawk's common stock issued and outstanding
immediately prior to the election deadline will be entitled to choose one of the
options listed below:
(1) to receive cash consideration for each share;
(2) to receive ADS consideration for each share;
(3) to exchange some of their shares for cash and some for ADSs; or
(4) to indicate no preference as to the type of consideration.
Niagara Mohawk shares for which no election as to the form of consideration
has been made will be deemed to have elected cash or ADSs as determined by
National Grid Group.
A FORM OF ELECTION (AS DESCRIBED IN THIS DOCUMENT) AND COMPLETE INSTRUCTIONS
FOR PROPERLY MAKING AN ELECTION TO RECEIVE CASH, ADSS OR A COMBINATION OF CASH
AND ADSS WILL BE MAILED TO NIAGARA MOHAWK SHAREHOLDERS UNDER SEPARATE COVER NOT
MORE THAN 90 DAYS NOR LESS THAN 30 DAYS BEFORE THE ANTICIPATED DAY OF THE
CLOSING OF THE MERGER, WHICH IS CURRENTLY EXPECTED TO BE IN LATE 2001.
5
<PAGE>
RECOMMENDATIONS OF THE NIAGARA MOHAWK BOARD OF DIRECTORS CONCERNING THE MERGER
(SEE PAGE 27)
THE NIAGARA MOHAWK BOARD OF DIRECTORS HAS, BY A UNANIMOUS VOTE OF DIRECTORS
PRESENT, ADOPTED AND APPROVED THE MERGER AGREEMENT AND THE TRANSACTIONS
CONTEMPLATED BY THE MERGER AGREEMENT, INCLUDING THE MERGER, AND HAS CONCLUDED
THAT THE TERMS OF THE MERGER ARE IN YOUR BEST INTERESTS. THE NIAGARA MOHAWK
BOARD OF DIRECTORS RECOMMENDS YOU TO VOTE "FOR" ADOPTION OF THE MERGER
AGREEMENT.
OPINION OF NIAGARA MOHAWK FINANCIAL ADVISOR (SEE PAGE 28)
Donaldson, Lufkin & Jenrette Securities Corporation, or DLJ, has acted as
financial advisor to Niagara Mohawk in connection with the merger and has
delivered to the Niagara Mohawk board of directors a written opinion, dated
September 4, 2000, to the effect that, as of the date of the opinion, based on
the matters stated in the opinion, and subject to the assumptions, limitations
and qualifications set forth in its opinion, the consideration to be received by
the shareholders of Niagara Mohawk pursuant to the merger agreement was fair to
the shareholders from a financial point of view.
INTERESTS OF NIAGARA MOHAWK'S OFFICERS AND DIRECTORS (SEE PAGE 38)
In considering the recommendation of the Niagara Mohawk board of directors
that you vote in favor of the merger, you should be aware that certain Niagara
Mohawk directors and officers have interests that provide them with interests in
the merger that are different from the interests of Niagara Mohawk shareholders.
In addition, directors and officers of Niagara Mohawk own shares and will be
entitled to receive the merger consideration for their shares. See the
discussion under "The Merger--Interests of Niagara Mohawk's Officers and
Directors" on page 38. As of the record date, directors and executive officers
of Niagara Mohawk and their affiliates owned less than 1% of the shares of
Niagara Mohawk's common stock outstanding.
CONDITIONS TO THE COMPLETION OF THE MERGER (SEE PAGE 58)
We will only complete the merger if the conditions described in the merger
agreement are satisfied or waived. These conditions include, among other things:
- the adoption of the merger agreement by Niagara Mohawk's shareholders and
the approval of the merger by National Grid Group's shareholders;
- the approval of the scheme of arrangement by National Grid Group's
shareholders and the sanction by the High Court of Justice, London,
England, of the scheme of arrangement on terms contemplated by the merger
agreement;
- the absence of any law or order restricting or prohibiting completion of
the scheme of arrangement, the merger or related transactions;
- the agreement by the UK Listing Authority to admit to its Official List
the New National Grid ordinary shares represented by the ADSs and the
approval for listing on the New York Stock Exchange of the ADSs;
- the completion of the sale by Niagara Mohawk of its nuclear facilities or
agreement by the parties with respect to an alternative arrangement and
the receipt of all necessary approvals for that arrangement;
- the receipt of all necessary governmental approvals;
- the material accuracy of the representations and warranties and material
performance of the covenants contained in the merger agreement; and
- the delivery of written tax opinions from PricewaterhouseCoopers LLP and
Bryan Cave LLP.
6
<PAGE>
TERMINATION OF THE MERGER AGREEMENT (SEE PAGE 60)
We can jointly agree to terminate the merger agreement at any time before
completing the merger. Subject to certain conditions, either National Grid Group
or Niagara Mohawk may also terminate the merger agreement if:
- we do not complete the merger by December 31, 2001, subject to an
extension until March 31, 2002 if the merger is delayed solely because the
required regulatory approvals (including approvals relating to sale or
other arrangement for Niagara Mohawk's nuclear facilities) have not yet
been obtained but Niagara Mohawk has entered into a binding definitive
agreement for the sale of its nuclear facilities or the parties have
agreed to consider an alternative arrangement with respect to these
facilities; the termination date may be further extended to August 31,
2002 if the merger is delayed solely because the required nuclear
approvals have not yet been obtained and the agreement for sale of the
nuclear facilities or other arrangement remains in effect;
- the shareholders of National Grid Group do not approve the merger or the
shareholders of Niagara Mohawk do not adopt the merger agreement at their
respective meetings;
- legal restraints or prohibitions prevent the completion of the merger;
- the other party commits a material breach of any of the representations,
warranties or covenants it made or obligations it has under the merger
agreement and the breaching party has not remedied the breach within 20
business days of written notice from the party seeking termination;
- the other party's board of directors withdraws or modifies in any manner
adverse to the terminating party its approval of the merger agreement, the
merger, the scheme of arrangement or its recommendation to its
shareholders; or
- Niagara Mohawk's board of directors, based upon the written opinion of
outside counsel and the written advice of its financial advisors,
determines in good faith that, among other things, its fiduciary
obligations make it necessary to accept a third-party acquisition proposal
and the proposal is materially more favorable from a financial point of
view to its shareholders, and Niagara Mohawk and its legal and financial
advisors have given National Grid Group a reasonable opportunity to adjust
the terms of the merger agreement so that the parties can proceed with the
merger and have negotiated in good faith with National Grid Group with
respect to any such adjustments; and concurrently with the termination,
Niagara Mohawk pays certain termination fees required by the merger
agreement.
A termination fee of $150 million and expense reimbursements of up to
$10 million may be payable if the merger agreement is terminated because a
party's board of directors withdraws or modifies its recommendation to its
shareholders that they adopt or approve the merger agreement, or Niagara Mohawk
accepts an alternative acquisition proposal under certain circumstances. See
pages 60 and 61 for further discussion.
ABSENCE OF DISSENTERS' RIGHTS (SEE PAGE 24)
Under New York law, holders of shares of common stock of Niagara Mohawk are
not entitled to exercise dissenters' rights with respect to the merger.
NEW YORK STOCK EXCHANGE, UK LISTING AUTHORITY AND LONDON STOCK EXCHANGE LISTING
(SEE PAGE 42)
New National Grid will apply to list the ADSs to be issued in the merger on
the New York Stock Exchange. The approval of the ADSs for listing on the New
York Stock Exchange is a condition to the completion of the merger. It is also a
condition to the completion of the merger that the UK Listing Authority admit
both the New National Grid ordinary shares represented by the ADSs and the New
National Grid ordinary shares to be issued under the scheme of arrangement to
listing on the Official List of the UK Listing Authority. New National Grid will
also apply for the New National Grid ordinary shares to be admitted to trading
on the London Stock Exchange.
7
<PAGE>
REGULATORY MATTERS (SEE PAGE 62)
Before the merger and the scheme of arrangement are completed, we must
obtain a number of regulatory approvals. At the federal level in the United
States, these approvals include approval of the Securities and Exchange
Commission, the Federal Energy Regulatory Commission, and the Federal
Communications Commission. Additionally, the merger must receive antitrust
clearance from the Department of Justice and the Federal Trade Commission. At
the state level in the United States, the required approvals include the New
York Public Service Commission for the merger and the Vermont Public Service
Board for the scheme of arrangement. Additionally, either or both of the
Connecticut Department of Public Utility Control and the New Hampshire Public
Utilities Commission may take jurisdiction over the transactions under certain
circumstances. The scheme of arrangement requires the consent of the UK
Secretary of State for Trade and Industry. Upon completion of the scheme of
arrangement, New National Grid will register and be subject to regulation as a
holding company under the US Public Utility Holding Company Act of 1935.
MATERIAL TAX CONSEQUENCES (SEE PAGE 42)
ALL NIAGARA MOHAWK SHAREHOLDERS SHOULD READ CAREFULLY THE DISCUSSION UNDER
"THE MERGER--MATERIAL TAX CONSEQUENCES" BEGINNING ON PAGE 42 AND ARE URGED TO
CONSULT THEIR OWN TAX ADVISORS AS TO SPECIFIC CONSEQUENCES TO THEM OF THE MERGER
UNDER FEDERAL, STATE, LOCAL OR ANY OTHER APPLICABLE TAX LAWS.
COMPARISON OF RIGHTS OF NIAGARA MOHAWK SHAREHOLDERS AND NATIONAL GRID
SHAREHOLDERS (SEE PAGE 103)
In the merger, holders of Niagara Mohawk's common stock (other than holders
who will receive only cash for their Niagara Mohawk common stock) will receive
ADSs representing ordinary shares of New National Grid. There are many
differences between the rights of a shareholder in Niagara Mohawk, a New York
corporation, and the rights of a shareholder in New National Grid, an English
corporation. We urge you to review the discussion under "Comparison of Rights of
Niagara Mohawk Shareholders and New National Grid Shareholders" beginning on
page 103 for a summary of these differences.
8
<PAGE>
RISK FACTORS
YOU MAY RECEIVE LESS THAN $19.00 WORTH OF NEW NATIONAL GRID ADSS AND/OR CASH FOR
EACH SHARE OF NIAGARA MOHAWK COMMON STOCK YOU OWN.
Under the merger agreement, the consideration you will receive for your
Niagara Mohawk shares depends on the dollar value of the average closing price
of National Grid Group's ordinary shares during a specified period shortly
before closing. If the dollar value of the average closing price of five
National Grid Group's ordinary shares on the London Stock Exchange during that
period is between $32.50 and $51.00, you will receive $19.00 worth of
consideration for each Niagara Mohawk share. However, volatility and price
fluctuations in the stock market as a whole or changes in National Grid Group's
results of operations may adversely affect the value of National Grid Group's
shares. In addition, fluctuations in the exchange rate of the pound sterling
against the dollar will affect the dollar value of the average closing price of
National Grid Group's ordinary shares during the applicable time period. As a
result, the dollar value of the average closing price of National Grid Group's
ordinary shares may be significantly different during the applicable time period
from its value today. If the dollar value of the average closing price of five
National Grid Group ordinary shares during the applicable time period is below
$32.50, the consideration you will receive for each Niagara Mohawk share you own
will be decreased by two-thirds of the percentage of the decrease in value below
$32.50.
9
<PAGE>
SELECTED HISTORICAL FINANCIAL INFORMATION OF NATIONAL GRID GROUP
The following table sets forth selected financial information of National
Grid Group for: (1) each of the five years ended March 31, 2000, which has been
extracted or derived from the audited consolidated accounts of National Grid
Group; and (2) the six months ended September 30, 2000 and September 30, 1999,
which has been extracted or derived from the unaudited interim financial
statements of National Grid Group. This selected financial information should be
read in conjunction with the audited consolidated accounts of National Grid
Group included in National Grid Group's annual report on Form 20-F for the year
ended March 31, 2000 and the unaudited interim accounts of National Grid Group
for the six months ended September 30, 2000 furnished on Form 6-K incorporated
by reference in this proxy statement/prospectus.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
SEPTEMBER 30, YEAR ENDED MARCH 31,
------------------- ------------------------------------------------------------
2000 1999 2000 1999(2) 1998(2) 1997(2) 1996(2)(3)
-------- -------- -------- ---------- ---------- ---------- ----------
(RESTATED) (RESTATED) (RESTATED) (RESTATED)
LM LM LM LM LM LM LM
<S> <C> <C> <C> <C> <C> <C> <C>
AMOUNTS IN ACCORDANCE WITH UK GAAP
GROUP PROFIT AND LOSS ACCOUNT
Group turnover--Continuing operations........ 1,792.8 741.7 1,578.5 1,514.2 1,519.3 1,369.5 1,381.8
--Acquisition................... --(1) -- 36.2 -- -- -- --
--Discontinued operations....... -- -- -- -- 90.1 88.0 105.2
1,792.8 741.7 1,614.7 1,514.2 1,609.4 1,457.5 1,487.0
Operating costs.............................. (1,456.6) (462.6) (1,042.6) (937.5) (1,074.9) (801.1) (810.1)
Operating profit/(loss)--Continuing
operations................................. 336.2 279.1 569.4 576.7 562.9 710.6 724.3
--Acquisition............. --(1) -- 2.7 -- -- -- --
--Discontinued
operations................................. -- -- -- -- (28.4) (54.2) (47.4)
Operating profit of Group undertakings....... 336.2 279.1 572.1 576.7 534.5 656.4 676.9
Share of joint ventures' and associate's
operating
(loss)/profit.............................. (59.1) (0.6) (33.5) 0.7 1.3 -- --
Total operating profit-- Before exceptional
integration
costs and goodwill
amortization................................. 358.6 281.0 546.5 579.9 535.8 656.4 676.9
--Exceptional integration
costs...................................... (46.8) -- -- -- -- -- --
--Goodwill amortization... (34.7) (2.5) (7.9) (2.5) -- -- --
277.1 278.5 538.6 577.4 535.8 656.4 676.9
Other exceptional items...................... 132.1 -- 1,027.3 839.2 107.1 -- (24.6)
Net interest................................. (98.7) (30.3) (64.9) (118.5) (61.7) (59.1) (26.4)
-------- -------- -------- -------- -------- ------- --------
Profit before taxation....................... 310.5 248.2 1,501.0 1,298.1 581.2 597.3 625.9
Taxation--Excluding exceptional items........ (38.5) (64.6) (123.1) (120.3) (133.5) (176.2) (194.2)
--Exceptional items................... 143.3 -- (229.5) (162.8) -- -- --
104.8 (64.6) (352.6) (283.1) (133.5) (176.2) (194.2)
-------- -------- -------- -------- -------- ------- --------
Profit after taxation........................ 415.3 183.6 1,148.4 1,015.0 447.7 421.1 431.7
Minority interests........................... (2.7) -- -- -- -- -- --
-------- -------- -------- -------- -------- ------- --------
Profit for the period........................ 412.6 183.6 1,148.4 1,015.0 447.7 421.1 431.7
Dividends--Ordinary.......................... (89.5) (82.5) (205.5) (192.0) (189.2) (190.7) (175.0)
--Other.............................. -- -- -- -- (768.6) -- (1,560.8)
(89.5) (82.5) (205.5) (192.0) (957.8) (190.7) (1,735.8)
-------- -------- -------- -------- -------- ------- --------
Retained profit/(loss)....................... 323.1 101.1 942.9 823.0 (510.1) 230.4 (1,304.1)
-------- -------- -------- -------- -------- ------- --------
</TABLE>
------------------------------
(1) The operations of Eastern Utilities Associates (EUA), which was acquired on
April 19, 2000, were integrated with the operations of New England Electric
System on May 1, 2000. As a consequence, it is not possible to provide an
indication of EUA's contribution to National Grid Group's results for the
period.
(2) The UK GAAP figures have been restated for the change in accounting policy
relating to the capitalization of interest.
(3) The UK GAAP figures have not been adjusted to reflect the adoption of
Financial Reporting Standard 12, ``Provisions, Contingent Liabilities and
Contingent Assets," during the year ended March 31, 1999.
10
<PAGE>
SELECTED HISTORICAL FINANCIAL INFORMATION OF NATIONAL GRID GROUP (CONTINUED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
SEPTEMBER 30, YEAR ENDED MARCH 31,
------------------- ---------------------------------------------------------------
2000 1999 2000 1999(1) 1998(1) 1997(1)(3) 1996(1)(2)(3)
-------- -------- -------- ---------- ---------- ---------- -------------
AMOUNTS IN ACCORDANCE WITH UK GAAP (RESTATED) (RESTATED) (RESTATED) (RESTATED)
LM LM LM LM LM LM LM
<S> <C> <C> <C> <C> <C> <C> <C>
SUMMARY GROUP BALANCE SHEET
Fixed assets.............................. 7,499.1 3,431.2 6,302.0 3,347.6 3,233.3 3,165.5 2,989.3
Current assets............................ 2,499.5 1,744.1 2,464.8 1,746.3 384.0 368.2 385.8
-------- -------- -------- -------- -------- ------- --------
Total assets.............................. 9,998.6 5,175.3 8,766.8 5,093.9 3,617.3 3,533.7 3,375.1
Current liabilities....................... (2,138.5) (1,436.5) (1,861.1) (1,414.9) (1,097.2) (963.4) (811.0)
Long-term creditors and provisions........ (4,572.0) (1,680.5) (3,961.6) (1,726.5) (1,395.7) (952.0) (1,281.7)
-------- -------- -------- -------- -------- ------- --------
Net assets employed....................... 3,288.1 2,058.3 2,944.1 1,952.5 1,124.4 1,618.3 1,282.4
======== ======== ======== ======== ======== ======= ========
AMOUNTS IN ACCORDANCE WITH US GAAP
Net income................................ 447.4 183.2 1,009.8 1,002.8 458.9
Total assets.............................. 10,425.4 5,273.0 9,105.7 5,189.7 3,677.5
Long-term liabilities..................... 5,605.9 2,402.9 4,872.8 2,420.1 2,035.8
Shareholders' funds....................... 2,663.3 1,533.9 2,345.7 1,464.1 619.5
-------- -------- -------- -------- --------
</TABLE>
------------------------------
(1) The UK GAAP figures have been restated for the change in accounting policy
relating to the capitalization of interest.
(2) The UK GAAP figures have not been adjusted to reflect the adoption of
Financial Reporting Standard 12, "Provisions, Contingent Liabilities and
Contingent Assets", during the year ended March 31, 1999.
(3) US GAAP figures for 1996 and 1997 are not available.
11
<PAGE>
SELECTED HISTORICAL FINANCIAL INFORMATION OF NIAGARA MOHAWK
The following table sets forth selected financial information of Niagara
Mohawk for 1999 and of NMPC for each of the five years during the period ended
December 31, 1999, which has been extracted or derived from the audited
consolidated financial statements of Niagara Mohawk and NMPC and in respect of
Niagara Mohawk, for the nine months ended September 30, 2000 and September 30,
1999, from the unaudited accounts of Niagara Mohawk for the nine months ended
September 30, 2000 (Niagara Mohawk became the new holding company of NMPC in
1999). This selected historical financial information should be read in
conjunction with, and is qualified in its entirety by reference to, such
consolidated financial statements and their accompanying notes included in the
annual report on Form 10-K of Niagara Mohawk and NMPC for the year ended
December 31, 1999 and the unaudited interim accounts of Niagara Mohawk for the
nine months ended September 30, 2000 filed on Form 10-Q, both of which are
incorporated into this proxy statement/prospectus by reference. See "Where You
Can Find More Information."
<TABLE>
<CAPTION>
NIAGARA MOHAWK NIAGARA
------------------------- MOHAWK NIAGARA MOHAWK POWER CORPORATION
NINE MONTHS ENDED ----------- ----------------------------------------
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
------------------------- -------------------------------------------------------
2000 1999 1999(2) 1999(2) 1998 1997
----------- ---------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS: (000's)
Operating revenues.......... $ 3,339,683 $3,067,682 $ 4,084,186 $ 3,827,340 $ 3,826,373 $3,966,404
Net income (loss)........... (2,520) (16,922) (35,088) (2,061) (120,825) 183,335
----------- ---------- ----------- ----------- ----------- ----------
COMMON STOCK DATA:
Book value per share at
period end................ $ 16.98 $ 16.78 (3) $ 16.92 $ 18.89
Market price at period
end....................... 15 3/4 13 15/16 (3) 16 1/8 10 1/2
Ratio of market price to
book value at period
end....................... 92.8% 83.1% (3) 95.3% 55.6%
Basic and diluted earnings
(loss) per average common
share..................... $ (0.01) $ 0.04 $ (0.19) (3) $ (0.95) $ 1.01
Rate of return on common
equity.................... (0.09)% (1.1)% (3) (5.3)% 5.5%
Dividends paid per common
share..................... -- -- -- (3) -- --
CAPITALIZATION: (000's)
Common equity............... $ 2,721,282 $ 2,976,089 $ 2,785,171 $ 3,170,142 $2,727,527
Non-redeemable preferred
stock..................... 440,000 440,000 440,000 440,000 440,000
Mandatorily redeemable
preferred stock........... 53,750 61,370 61,370 68,990 76,610
Long-term debt.............. 4,712,280 5,042,588 5,042,588 6,417,225 3,417,381
----------- ----------- ----------- ----------- ----------
Total....................... 7,927,312 8,520,047 8,329,129 10,096,357 6,661,518
Long-term debt maturing
within one year........... 865,167 613,740 613,740 312,240 67,095
----------- ----------- ----------- ----------- ----------
Total....................... $ 8,792,479 $ 9,133,787 $ 8,942,869 $10,408,597 $6,728,613
----------- ----------- ----------- ----------- ----------
OTHER BALANCE SHEET DATA:
(000's)
Total assets................ $12,651,135 $12,670,435 $12,445,608 $13,861,187 $9,584,141
FINANCIAL RATIOS:
EBITDA(4) (000's)........... $ 1,259,500 $ 1,262,500 $ 990,500 $ 961,500
<CAPTION>
NIAGARA MOHAWK POWER CORPORATION
------------------------
YEAR ENDED DECEMBER 31,
------------------------
1996(1) 1995
---------- ----------
<S> <C> <C>
OPERATIONS: (000's)
Operating revenues.......... $3,990,653 $3,917,338
Net income (loss)........... 110,390 248,036
---------- ----------
COMMON STOCK DATA:
Book value per share at
period end................ $ 17.91 $ 17.42
Market price at period
end....................... 9 7/8 9 1/2
Ratio of market price to
book value at period
end....................... 55.1% 54.5%
Basic and diluted earnings
(loss) per average common
share..................... $ 0.50 $ 1.44
Rate of return on common
equity.................... 2.8% 8.4%
Dividends paid per common
share..................... -- $ 1.12
CAPITALIZATION: (000's)
Common equity............... $2,585,572 $2,513,952
Non-redeemable preferred
stock..................... 440,000 440,000
Mandatorily redeemable
preferred stock........... 86,730 96,850
Long-term debt.............. 3,477,879 3,582,414
---------- ----------
Total....................... 6,590,181 6,633,216
Long-term debt maturing
within one year........... 48,084 65,064
---------- ----------
Total....................... $6,638,265 $6,698,280
---------- ----------
OTHER BALANCE SHEET DATA:
(000's)
Total assets................ $9,427,635 $9,477,869
FINANCIAL RATIOS:
EBITDA(4) (000's)........... $ 957,500 $ 929,100
</TABLE>
------------------------------
(1) Amounts include extraordinary item for the discontinuance of regulatory
accounting principles.
(2) Amounts include extraordinary item for the early extinguishment of debt.
See Note 4 to the Niagara Mohawk consolidated financial statements, which
are incorporated herein by reference.
(3) Niagara Mohawk owns all of NMPC's shares of common stock.
(4) A measure of cash flow which is calculated as: earnings before interest
charges, interest income, income taxes, depreciation and amortization,
amortization of nuclear fuel, allowance for funds used during construction,
MRA regulatory asset amortization and extraordinary items.
12
<PAGE>
SELECTED UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
National Grid Group, National Grid USA and Niagara Mohawk (the "Combined
Group") have prepared the following Selected Unaudited Pro Forma Condensed
Combined Financial Information to provide an indication of what the results of
operations and financial position of the Combined Group might have looked like
had the merger occurred on an earlier date. This information is provided for
illustrative purposes only and does not show what the results of operations or
financial position of the Combined Group would have been if the merger had
actually occurred on the dates indicated. This information also does not
indicate what the Combined Group's future operating results or consolidated
financial position will be. See "Unaudited Pro Forma Condensed Combined
Financial Information" for a more detailed explanation of this analysis.
BASIS OF PREPARATION
Niagara Mohawk's financial statements will continue to be prepared in
accordance with US GAAP. The Selected Unaudited Pro Forma Condensed Combined
Financial Information has been prepared in accordance with UK GAAP which differs
in some significant respects from US GAAP. In the pro forma financial
information, Niagara Mohawk's financial position and results of operations have
been adjusted to UK GAAP and translated into pounds sterling, as described in
the Notes to the Unaudited Pro Forma Condensed Combined Financial Information
contained under "Unaudited Pro Forma Condensed Combined Financial Information".
National Grid Group intends to account for the merger using the acquisition
method of accounting under UK GAAP and the merger qualifies for the purchase
method of accounting under US GAAP. The pro forma financial information has been
prepared on that basis.
SELECTED UNAUDITED PRO FORMA CONDENSED COMBINED INCOME STATEMENT INFORMATION
The Selected Unaudited Pro Forma Condensed Combined Income Statement
Information assumes that the merger took place on April 1, 1999, the first day
of the earliest financial period of National Grid Group presented in the
Unaudited Pro Forma Condensed Combined Financial Information, and reflects
continuing operations only. The Selected Unaudited Pro Forma Condensed Combined
Income Statement Information for the year ended March 31, 2000 is derived from
the audited historical consolidated profit and loss account of National Grid
Group for the year then ended and the audited historical consolidated income
statements of National Grid USA and Niagara Mohawk for the year ended
December 31, 1999, after giving effect to the pro forma adjustments described in
the Notes to the Unaudited Pro Forma Condensed Combined Financial Information
under "Unaudited Pro Forma Condensed Combined Financial Information." The
Selected Unaudited Pro Forma Condensed Combined Income Statement Information for
the six months ended September 30, 2000 is derived from the unaudited historical
consolidated profit and loss account of National Grid Group for the six months
then ended and the unaudited historical cost income statement of Niagara Mohawk
for the six months ended June 30, 2000 after giving effect to the pro forma
adjustments described in the Notes to the Unaudited Pro Forma Condensed Combined
Financial Information under "Unaudited Pro Forma Condensed Combined Financial
Information."
SELECTED UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET INFORMATION
The Selected Unaudited Pro Forma Condensed Combined Balance Sheet
Information assumes that the merger took place on September 30, 2000. The
Selected Unaudited Pro Forma Condensed Combined Balance Sheet Information as at
September 30, 2000 is derived from the unaudited historical consolidated balance
sheets of National Grid Group and Niagara Mohawk as at September 30, 2000 and
has been prepared to reflect the acquisition of Niagara Mohawk after giving
effect to the pro forma adjustments described in the Notes to the Unaudited Pro
Forma Condensed Combined Financial Information under "Unaudited Pro Forma
Condensed Combined Financial Information."
13
<PAGE>
SELECTED UNAUDITED PRO FORMA CONDENSED COMBINED INCOME STATEMENT INFORMATION
<TABLE>
<CAPTION>
COMBINED GROUP
PRO FORMA
SIX MONTHS COMBINED GROUP
ENDED PRO FORMA
SEPTEMBER 30, YEAR ENDED
2000 MARCH 31, 2000
-------------- --------------
LM LM
<S> <C> <C>
UK GAAP
Turnover.................................................... 3,219.6 5,445.6
Total operating profit...................................... 442.1 1,018.6
Profit for the period....................................... 395.0 1,049.6
Basic earnings per National Grid Group ordinary share....... 23.0p 61.1p
Basic earnings per National Grid Group ordinary share
(adjusted)(1)............................................. 11.6p 17.2p
US GAAP
Profit for the period....................................... 419.7 912.7
Basic earnings per National Grid Group ordinary share....... 24.4p 53.1p
Basic earnings per National Grid Group ADS.................. 122.0p 265.7p
</TABLE>
SELECTED UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET INFORMATION
<TABLE>
<CAPTION>
COMBINED GROUP
PRO FORMA AT
SEPTEMBER 30,
2000
------------------
LM
<S> <C>
UK GAAP
Fixed assets................................................ 11,881.0
Current assets.............................................. 6,845.5
------------------
Total assets................................................ 18,726.5
Current liabilities......................................... (3,177.2)
Long-term creditors and provisions.......................... (10,556.2)
------------------
Net assets.................................................. 4,993.1
==================
US GAAP
Total assets................................................ 19,829.1
Long-term liabilities....................................... 12,265.9
Shareholders' funds......................................... 4,034.7
------------------
</TABLE>
------------------------
(1) As permitted under UK GAAP, an adjusted earnings per share has also been
presented (which excludes exceptional items and goodwill amortization), in
order to provide an additional measure of underlying performance. In
accordance with US GAAP, earnings per share has been presented without
adjustment for exceptional items or goodwill amortization.
14
<PAGE>
COMPARATIVE PER SHARE DATA
The following table sets forth certain per share data of the Combined Group,
National Grid Group, and Niagara Mohawk on both historical and pro forma
combined bases and on a pro forma equivalent basis for Niagara Mohawk. The
historical data as of September 30, 2000 and for the six months then ended in
respect of National Grid Group, the historical data as of September 30, 2000 and
for the six months ended June 30, 2000 in respect of Niagara Mohawk, the Niagara
Mohawk pro forma equivalent per share data and the Combined Group Pro forma
amounts for all periods presented below are unaudited. The pro forma equivalent
per share data for Niagara Mohawk has been determined based on the ADS portion
of the merger consideration (assuming all shares of Niagara Mohawk receive equal
proration of cash and ADSs) of 0.31 National Grid Group ADSs, representing 1.529
National Grid Group ordinary shares (based upon an assumed per share merger
consideration equal to $19.00 and assuming a price per National Grid Group
ordinary share of L5.60, the closing price of National Grid Group's ordinary
shares on September 4, 2000, and an exchange rate of $1.48 to L1.00, the Noon
Buying Rate on September 30, 2000) for each share of Niagara Mohawk common
stock.
This table should be read in conjunction with the historical financial
statements and pro forma financial information, and the related notes thereto,
incorporated by reference in this proxy statement/ prospectus or appearing
elsewhere herein. See "Where You Can Find More Information" and "Unaudited Pro
Forma Condensed Combined Financial Information." Unaudited pro forma condensed
combined data and Niagara Mohawk pro forma equivalent per share data reflect the
combined results, in respect of continuing operations only, for the Combined
Group, after giving effect to the merger (including the issuance of the merger
consideration), as if it had occurred on September 30, 2000, in the case of book
value data, and on April 1, 1999, in the case of earnings and dividend data.
The pro forma data does not reflect potential cost savings or potential
synergistic benefits and enhancements anticipated by National Grid Group's
management as a result of the merger. See "Unaudited Pro Forma Condensed
Combined Financial Information." The unaudited pro forma financial data is
presented for informational purposes only, and is not necessarily indicative of
the operating results or financial position that would have occurred had the
merger presented in the Unaudited Pro Forma Condensed Combined Financial
Information been completed on the dates indicated, nor are they indicative of
future operating results or financial position. Pro forma dividend per share
amounts represent the aggregate of the actual historical dividends paid by
National Grid Group and Niagara Mohawk divided by the estimated pro forma number
of outstanding ordinary shares following the merger. The pro forma dividend per
share amounts are not necessarily indicative of the actual dividends that will
be paid following the merger.
In the following table, as permitted under UK GAAP, a pro forma earnings per
share has also been presented, which excludes the impact of exceptional items
and goodwill amortization, to provide an additional measure of underlying
performance. In accordance with US GAAP, earnings per share has been presented
based on US GAAP earnings of the Combined Group, without adjustment for the
impact of the exceptional items or goodwill amortization. The inclusion of the
exceptional items (as defined under
15
<PAGE>
COMPARATIVE PER SHARE DATA (CONTINUED)
UK GAAP) and goodwill amortization has resulted in US GAAP basic earnings per
share being increased or (decreased) by the following amounts:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED MARCH 31, 2000 SEPTEMBER 30, 2000
---------------------------- ----------------------------
COMBINED NATIONAL GRID COMBINED NATIONAL GRID
GROUP GROUP GROUP GROUP
PRO FORMA(1) HISTORICAL PRO FORMA(1) HISTORICAL
------------ ------------- ------------ -------------
P $ P P $ P
<S> <C> <C> <C> <C> <C> <C>
Per ordinary share
Exceptional items....... 46.3 0.75 54.0 15.6 0.23 18.1
Goodwill amortization... (4.2) (0.07) (0.5) (2.7) (0.04) (2.8)
</TABLE>
------------------------
(1) The Combined Group Pro forma amounts have been translated into US dollars
for convenience at rates of $1.61 to L1.00 for the year ended March 31, 2000
and $1.50 to L1.00 for the six months ended September 30, 2000, the average
Noon Buying Rate for the respective periods.
<TABLE>
<CAPTION>
COMBINED NIAGARA
GROUP MOHAWK NIAGARA NATIONAL GRID
PRO FORMA(3) PRO FORMA MOHAWK GROUP
------------- EQUIVALENT HISTORICAL HISTORICAL
MARCH 31, ------------------ ------------------ ---------------
YEAR ENDED: 2000 DECEMBER 31, 1999 DECEMBER 31, 1999 MARCH 31, 2000
----------- ------------- ------------------ ------------------ ---------------
P $ $ $ P
<S> <C> <C> <C> <C> <C>
AMOUNTS UNDER UK GAAP
Earnings per ordinary/common share
Basic............................... 61.1 0.98 1.50 (0.38) 78.0
Diluted............................. 58.2 0.94 1.43 (0.38) 73.4
Earnings per ordinary/common share
(adjusted)(1)
Basic............................... 17.2 0.28 0.42 (0.38) 24.3
Diluted............................. 17.2 0.28 0.42 (0.38) 23.8
Dividends per ordinary/common share... 11.88 0.19 -- -- 13.94
Book value per ordinary/common
share............................... 195.9
AMOUNTS UNDER US GAAP
Earnings per ordinary/common share
Basic............................... 53.1 0.85 1.31 (0.19)(2) 68.6
Diluted............................. 50.8 0.82 1.25 (0.19)(2) 64.7
Earnings per ADS
Basic............................... 265.7 4.28 6.54 342.8
Diluted............................. 253.9 4.09 6.25 323.4
Book value per ordinary/common
share............................... 16.78 158.0
</TABLE>
------------------------
(1) As permitted under UK GAAP, an adjusted earnings per share has also been
presented (which excludes exceptional items and goodwill amortization), in
order to provide an additional measure of underlying performance. In
accordance with US GAAP, earnings per share has been presented without
adjustment for exceptional items or goodwill amortization.
(2) Under US GAAP, the Niagara Mohawk basic and diluted earnings per share
figures are shown after the effect of the extraordinary item.
(3) The Combined Group Pro forma amounts have been translated into US dollars
for convenience, at a rate of $1.61 to L1.00, the average Noon Buying Rate
during the year ended March 31, 2000.
16
<PAGE>
COMPARATIVE PER SHARE DATA (CONTINUED)
<TABLE>
<CAPTION>
NIAGARA
COMBINED MOHAWK NIAGARA NATIONAL GRID
GROUP PRO FORMA MOHAWK GROUP
PRO FORMA(4) EQUIVALENT HISTORICAL HISTORICAL
--------------- ---------- ---------- --------------
SEPTEMBER 30, JUNE 30, JUNE 30, SEPTEMBER 30,
SIX MONTHS ENDED: 2000 2000 2000 2000
----------------- --------------- ---------- ---------- --------------
P $ $ $ P
<S> <C> <C> <C> <C> <C>
AMOUNTS UNDER UK GAAP
Earnings per ordinary/common share
Basic................................... 23.0 0.35 0.53 (0.02) 28.0
Diluted................................. 22.0 0.33 0.50 (0.02) 26.5
Earnings per ordinary/common share
(adjusted)(1)
Basic................................... 11.6 0.17 0.26 (0.02) 14.8
Diluted................................. 11.3 0.17 0.26 (0.02) 14.3
Dividends per ordinary/common share....... 5.17 0.08 0.12 -- 6.05
Book value per ordinary/common share...... 266.2 3.99 6.10 20.22(3) 217.8
AMOUNTS UNDER US GAAP
Earnings per ordinary/common share
Basic................................... 24.4 0.37 0.56 (0.03)(2) 30.3
Diluted................................. 23.3 0.35 0.53 (0.03)(2) 28.7
Earnings per ADS
Basic................................... 122.0 1.83 2.80 151.7
Diluted................................. 116.7 1.75 2.68 143.3
Book value per ordinary/common share...... 233.3 3.50 5.35 16.98(3) 179.4
</TABLE>
------------------------
(1) As permitted under UK GAAP, an adjusted earnings per share has also been
presented (which excludes exceptional items and goodwill amortization), in
order to provide an additional measure of underlying performance. In
accordance with US GAAP, earnings per share has been presented without
adjustment for exceptional items or goodwill amortization.
(2) Under US GAAP, the Niagara Mohawk basic and diluted earnings per share
figures are shown after the effect of the extraordinary item.
(3) The book values per share given for Niagara Mohawk are as at September 30,
2000.
(4) The Combined Group Pro forma amounts have been translated into US dollars
for convenience at a rate of $1.50 to L1.00, the average Noon Buying Rate
during the six months ended September 30, 2000.
17
<PAGE>
COMPARATIVE MARKET PRICE AND DIVIDEND DATA
MARKET PRICE DATA
National Grid Group's ADSs are listed for trading on the New York Stock
Exchange, and New National Grid ADSs will be listed for trading on the New York
Stock Exchange, under the symbol "NGG." National Grid Group's ordinary shares
are listed on the Official List of the UK Listing Authority and traded on the
London Stock Exchange, and New National Grid ordinary shares will be listed on
the Official List of the UK Listing Authority and traded on the London Stock
Exchange, under the symbol "NGG." Niagara Mohawk's common stock is listed for
trading on the New York Stock Exchange under the symbol "NMK."
The table below sets forth for the calendar quarters indicated, (1) the
highest and lowest closing middle-market quotations for National Grid Group
ordinary shares, as derived from the Daily Official List of the London Stock
Exchange, and the ADS equivalent of these prices, or where available the actual
ADS high and low closing sale price on the New York Stock Exchange, and (2) the
range of high and low closing sale prices for Niagara Mohawk's common stock on
the New York Stock Exchange.
<TABLE>
<CAPTION>
NATIONAL NIAGARA
NATIONAL GRID GROUP NATIONAL MOHAWK
GRID GROUP ADS GRID GROUP COMMON
ORDINARY SHARES EQUIVALENT(1) ADS ACTUAL(2) STOCK(4)
------------------- ------------------- ------------------- -------------------
HIGH LOW HIGH LOW HIGH LOW HIGH LOW
P P $ $ $ $ $ $
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1997
First quarter..................... 217.00 202.00 17.43 16.88 -- -- 11.13 8.38
Second quarter.................... 233.50 206.50 18.92 17.02 -- -- 9.00 8.13
Third quarter..................... 286.50 233.00 23.09 19.31 -- -- 10.06 8.31
Fourth quarter.................... 302.00 277.00 25.38 23.07 -- -- 10.50 9.19
1998
First quarter(3).................. 353.00 268.00 29.59 21.85 -- -- 13.50 10.25
Second quarter.................... 404.00 359.00 33.73 29.29 -- -- 14.94 11.19
Third quarter..................... 462.50 403.00 39.19 33.78 -- -- 16.13 15.00
Fourth quarter.................... 505.50 375.75 42.14 31.93 -- -- 16.38 14.06
1999
First quarter..................... 552.75 416.00 45.51 33.78 -- -- 16.44 13.38
Second quarter.................... 468.00 416.50 37.56 33.23 -- -- 16.06 13.25
Third quarter..................... 451.00 388.50 35.23 31.29 -- -- 16.06 14.81
Fourth quarter (to October 7,
1999)........................... 464.25 419.50 38.42 34.71 -- -- 15.75 15.19
Fourth quarter (from October 8,
1999)........................... 514.50 423.75 -- -- 41.00 36.00 16.19 13.44
2000
First quarter..................... 597.00 422.00 -- -- 48.13 34.25 13.88 11.00
Second quarter.................... 557.00 479.50 -- -- 43.75 37.50 14.75 13.38
Third quarter..................... 594.50 517.50 -- -- 43.25 37.75 15.88 12.56
Fourth quarter (through
December 1, 2000)............... 646.00 568.00 -- -- 47.88 41.75 16.69 15.44
</TABLE>
------------------------
(1) To obtain the ADS equivalent prices, the reported high and low prices for
National Grid Group ordinary shares expressed in pence per National Grid
Group ordinary share have been translated into US dollars per ADS (each
representing five ordinary shares) by multiplying the pence per ordinary
share by five and converting that amount in dollars at the Noon Buying Rate
(divided by 100 and rounded to the second decimal place) on the dates of
such respective high and low prices.
18
<PAGE>
(2) National Grid Group ADSs were listed on the New York Stock Exchange on
October 7, 1999 and actual ADS prices are given from that date.
(3) In February 1998, National Grid Group completed a 17 for 20 share
consolidation as part of a capital restructuring.
(4) Niagara Mohawk common stock has been traded on the New York Stock Exchange
since March 19, 1999. Prior to that date, the market prices refer to NMPC's
common stock.
SHARE AND EQUIVALENT PER ADS DATA
The information presented in the table below shows, as of the dates
indicated, closing prices for National Grid Group ordinary shares, National Grid
Group's ADSs and Niagara Mohawk common stock, as well as the ADS equivalent
value of each share of Niagara Mohawk's common stock.
<TABLE>
<CAPTION>
NATIONAL NATIONAL
GRID GROUP GRID GROUP NIAGARA MOHAWK NIAGARA MOHAWK
CLOSING CLOSING CLOSING ADS
SHARE PRICE ADS PRICE SHARE PRICE EQUIVALENT VALUE(3)
------------ ---------- -------------- -------------------
<S> <C> <C> <C> <C>
Last trading day before announcement(1)..... L5.60 $41.75 $13.88 $19.00
December 1, 2000(2)......................... 6.17 44.25 16.50 19.00
</TABLE>
------------------------
(1) September 1, 2000, the last trading day on the New York Stock Exchange prior
to the public announcement of the merger, for National Grid Group ADSs and
Niagara Mohawk common stock and September 4, 2000, the last trading day on
the London Stock Exchange prior to the public announcement of the merger,
for National Grid Group's ordinary shares.
(2) The most recent date for which it was practicable to obtain market price
data before the printing of this proxy statement/prospectus.
(3) On September 4, 2000, the US dollar value of five National Grid Group's
ordinary shares would have been $40.88 based on the Noon Buying Rate on
September 1, 2000 (the last day prior to September 4, 2000 on which the Noon
Buying Rate was calculated). On December 1, 2000, the US dollar value of
five National Grid Group ordinary shares would have been $44.42 based on the
Noon Buying Rate on that date.
NIAGARA MOHAWK SHAREHOLDERS ARE URGED TO OBTAIN CURRENT MARKET QUOTATIONS
FOR THE NATIONAL GRID GROUP ADSS, NATIONAL GRID GROUP ORDINARY SHARES AND
NIAGARA MOHAWK COMMON STOCK. NO ASSURANCE CAN BE GIVEN AS TO THE MARKET PRICE OF
NATIONAL GRID GROUP ADSS, NATIONAL GRID GROUP ORDINARY SHARES OR NIAGARA MOHAWK
COMMON STOCK AT THE TIME OF THE MERGER.
On the Niagara Mohawk record date, there were approximately 48,194 holders
of record of Niagara Mohawk common stock.
19
<PAGE>
DIVIDENDS
NATIONAL GRID GROUP. The table below shows the amounts of cash dividends in
respect of National Grid Group ordinary shares and ADSs for each of the five
most recent fiscal years, excluding dividends paid as part of the capital
reconstruction which occurred during the fiscal year ended March 31, 1998.
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
---------------------------------------------------------------
2001 2000 1999 1998 1997 1996(1)
PENCE PER SHARE (P) P P P P P P
------------------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Interim........................... 6.05 5.59 5.25 4.83 4.45 4.11
=====
Final............................. 8.35 7.82 7.24 6.68 6.16
----- ----- ----- ----- -----
Total ordinary dividends.......... 13.94 13.07 12.07 11.13 10.27
Special dividend.................. -- -- 44.70 -- --
----- ----- ----- ----- -----
13.94 13.07 56.77 11.13 10.27
===== ===== ===== ===== =====
US DOLLAR PER ADS(2) $ $ $ $ $ $
----------------------------------
Interim........................... 0.45 0.46 0.43 0.39 0.36 0.31
=====
Final............................. 0.63 0.63 0.62 0.54 0.48
----- ----- ----- ----- -----
Total ordinary dividends.......... 1.09 1.06 1.01 0.90 0.79
Special dividend.................. -- -- 3.64 -- --
----- ----- ----- ----- -----
Total dividends................... 1.09 1.06 4.65 0.90 0.79
===== ===== ===== ===== =====
</TABLE>
------------------------
(1) In addition to the cash dividends paid which are shown in the above table,
cash and demerger dividends totaling L1,110.8 million and L450.0 million
respectively were paid as part of the capital reconstruction which occurred
during the year ended March 31, 1996.
(2) Translated into US dollars per ADS (each ADS representing five ordinary
shares) at the Noon Buying Rate on the dates the dividends were paid, or at
L1=$1.48 in respect of the 2001 interim dividend which has not yet been
paid.
National Grid Group announced a new dividend policy on November 21, 2000.
Under the new dividend policy, National Grid Group aims to increase dividends
per share by 5% real in each of the next five years.
As dividends paid by New National Grid will be in pounds sterling, exchange
rate fluctuations will affect the US dollar amounts received by holders of ADSs
on conversion by The Bank of New York, the Depositary, of such cash dividends.
See "Currencies and Exchange Rate," "The Merger--Material Tax Consequences,"
"Description of Ordinary Shares--Dividends and Other Distributions" and
"Description of American Depositary Shares--Share Dividends and Other
Distributions."
NIAGARA MOHAWK. Niagara Mohawk has never paid a dividend on its common
stock. Prior to the formation of the holding company, NMPC has not paid a
dividend on its common stock since December 31, 1995.
20
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
Niagara Mohawk and National Grid Group are, and upon completion of the
scheme of arrangement New National Grid will be, subject to the informational
requirements of the Securities Exchange Act of 1934.
Niagara Mohawk files annual, quarterly and special reports, proxy statements
and other information with the SEC. National Grid Group files annual reports and
other information with the SEC. You may read and copy any reports, statements or
other information filed by Niagara Mohawk or National Grid Group at the SEC's
public reference rooms in Washington, D.C., New York, New York and Chicago,
Illinois. Please call the SEC at 1-800-SEC-0330 for further information on the
public reference rooms. Niagara Mohawk's SEC filings are also available to the
public at the web site maintained by the SEC at http://www.sec.gov. National
Grid Group ADSs and Niagara Mohawk common stock are listed on the New York Stock
Exchange, and consequently, the periodic reports and other information filed by
National Grid Group and periodic reports and other information filed by Niagara
Mohawk with the SEC can be inspected at the offices of the New York Stock
Exchange, 20 Broad Street, New York, New York 10005. The primary market for
National Grid Group ordinary shares is the London Stock Exchange.
New National Grid has filed with the SEC a registration statement on
Form F-4 to register the ordinary shares to be issued by it to holders of
Niagara Mohawk common stock in the merger. This proxy statement/prospectus is a
part of the registration statement and constitutes a prospectus of New National
Grid, as well as being a proxy statement of Niagara Mohawk.
As allowed by SEC rules, this proxy statement/prospectus does not contain
all the information you can find in the registration statement or the exhibits
to the registration statement. Statements contained or incorporated by reference
in this proxy statement/prospectus as to the contents of any contract or other
document filed as an exhibit to the registration statement or otherwise filed
with the SEC are not necessarily complete, and in each instance reference is
made to the copy of such contract or other document so filed, each such
statement being qualified in all respects by the reference.
The SEC allows us to "incorporate by reference" information into this proxy
statement/prospectus, which means that we can disclose important information to
you by referring you to another document filed separately with the SEC. The
information incorporated by reference is deemed to be part of this proxy
statement/prospectus, except for any information superseded by information
contained in this proxy statement/prospectus. This proxy statement/prospectus
incorporates by reference the documents set forth below that we have previously
filed with the SEC. These documents contain important information about our
companies and their financial condition.
<TABLE>
<CAPTION>
NIAGARA MOHAWK SEC FILINGS (FILE NO. 0-25595 AND 1-2987) PERIOD
-------------------------------------------------------- -----------------------------------------------------------
<S> <C>
Annual Report on Form 10-K............................ Fiscal year ended December 31, 1999
Quarterly Reports on Form 10-Q........................ Fiscal quarters ended March 31, 2000, June 30, 2000 and
September 30, 2000
Current Reports on Form 8-K............................ Filed May 1, 2000, June 2, 2000, July 31, 2000,
September 13, 2000 and October 27, 2000
Proxy Statement........................................ Year 2000 Annual Meeting
NATIONAL GRID GROUP SEC FILINGS (FILE NO. 1-4315) PERIOD
------------------------------------------------------ -----------------------------------------------------------
Annual Report on Form 20-F............................ Fiscal year ended March 31, 2000
Reports of Foreign Private Issuer on Form 6-K.......... Furnished on April 4, 2000, May 3, 2000, May 23, 2000,
June 2, 2000, July 7, 2000, July 11, 2000, August 2, 2000,
September 1, 2000, September 5, 2000, September 28, 2000,
September 29, 2000, October 30, 2000, November 21, 2000
and December 4, 2000
</TABLE>
21
<PAGE>
Niagara Mohawk also incorporates by reference into this proxy
statement/prospectus additional documents that may be filed with the SEC from
the date of this proxy statement/prospectus to the date of the Niagara Mohawk
shareholders' meeting. These include periodic reports, such as Annual Reports on
Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, as
well as proxy statements. New National Grid also incorporates by reference into
this proxy statement/prospectus additional documents that may be filed with the
SEC from the date of this proxy statement/prospectus to the date of the
consummation of the transaction. These include periodic reports, such as Annual
Reports on Form 20-F and Reports of Foreign Private Issuer on Form 6-K, of
National Grid Group filed with the SEC.
Any statement contained in an incorporated document shall be deemed to be
modified or superseded for purposes of this proxy statement/prospectus to the
extent that a statement contained in this proxy statement/prospectus or in any
other subsequently filed incorporated document modifies or supersedes such
statement. Any statement that is modified or superseded shall not be deemed,
except as modified or superseded, to constitute a part of this proxy
statement/prospectus.
EACH OF NIAGARA MOHAWK AND NATIONAL GRID GROUP HEREBY UNDERTAKES TO PROVIDE
WITHOUT CHARGE TO EACH PERSON, INCLUDING ANY BENEFICIAL OWNER, TO WHOM A COPY OF
THIS PROXY STATEMENT/PROSPECTUS IS DELIVERED, ON THE WRITTEN OR ORAL REQUEST OF
ANY SUCH PERSON, A COPY OF ANY OR ALL OF THE INCORPORATED DOCUMENTS, OTHER THAN
EXHIBITS TO SUCH DOCUMENTS, UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED
BY REFERENCE THEREIN. REQUESTS SHOULD BE DIRECTED TO (1) NIAGARA MOHAWK
HOLDINGS, INC., 300 ERIE BOULEVARD WEST, SYRACUSE, NEW YORK 13202, ATTENTION:
LEON T. MAZUR, DIRECTOR, INVESTOR RELATIONS, (315) 428-5876 OR (2) NATIONAL GRID
GROUP PLC, 15 MARYLEBONE ROAD, LONDON NW1 5JD, UNITED KINGDOM, ATTENTION: DAVID
FORWARD, TELEPHONE NUMBER: 011 44 207 312 5860 OR NATIONAL GRID USA,
25 RESEARCH DRIVE, WESTBOROUGH, MASSACHUSETTS 01582, ATTENTION: CORPORATE
COMMUNICATIONS, TELEPHONE NUMBER: (508) 389-2591. IN ORDER TO ENSURE TIMELY
DELIVERY OF ANY SUCH DOCUMENTS IN ADVANCE OF THE NIAGARA MOHAWK SPECIAL MEETING,
ANY REQUEST SHOULD BE MADE BY JANUARY 12, 2001.
------------------------
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROXY STATEMENT/ PROSPECTUS TO VOTE ON THE TRANSACTIONS. WE
HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT
FROM WHAT IS CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS. YOU SHOULD NOT ASSUME
THAT THE INFORMATION CONTAINED IN THE PROXY STATEMENT/PROSPECTUS IS ACCURATE AS
OF ANY DATE OTHER THAN THE DATE OF THIS PROXY STATEMENT/PROSPECTUS AS SHOWN ON
THE FRONT COVER, AND NEITHER THE MAILING OF THIS PROXY STATEMENT/PROSPECTUS TO
SHAREHOLDERS NOR THE ISSUANCE OF ADSS IN THE MERGER SHALL CREATE ANY IMPLICATION
TO THE CONTRARY.
------------------------
FORWARD-LOOKING STATEMENTS
This proxy statement/prospectus contains certain statements that are neither
reported financial results nor other historical information. These statements
are forward-looking statements within the meaning of the safe-harbor provisions
of the US federal securities laws. Because these forward-looking statements are
subject to risks and uncertainties, actual future results may differ materially
from those expressed in or implied by the statements. Many of these risks and
uncertainties relate to factors that are beyond the companies' ability to
control or estimate precisely, such as the ability to obtain expected synergies
from the merger, delays in obtaining or adverse conditions contained in
regulatory approvals, competition and industry restructuring, changes in
economic conditions, changes in energy market prices, changes in historical
weather patterns, changes in laws, regulations or regulatory policies,
developments in legal or public policy doctrines, technological developments,
the availability of new acquisition opportunities, the timing and success of
future acquisition opportunities and other risk factors detailed in National
Grid Group's and Niagara Mohawk's reports filed with the Securities and Exchange
Commission. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date of this document.
The companies do not undertake any obligation to publicly release any revisions
to these forward-looking statements to reflect events or circumstances after the
date of these materials.
22
<PAGE>
NIAGARA MOHAWK SPECIAL MEETING, VOTING AND PROXIES
DATE, TIME AND PLACE; PURPOSE
The special meeting of Niagara Mohawk shareholders will be held at
10:30 a.m. local time, on Friday, January 19, 2001 at the Onondaga Convention
Center, 800 South State Street, Syracuse, New York. At the special meeting,
Niagara Mohawk shareholders of record will be asked to consider and vote upon a
proposal to adopt the merger agreement.
RECORD DATE
The close of business on November 29, 2000 has been fixed as the record date
for the determination of Niagara Mohawk shareholders entitled to notice of, and
to vote at, the special meeting. Only Niagara Mohawk shareholders of record at
the close of business on the record date are entitled to notice of and to vote
at the special meeting and at any adjournment thereof. As of the record date,
there were 160,239,818 outstanding shares of Niagara Mohawk common stock held by
approximately 48,194 Niagara Mohawk shareholders of record. Any person who owns
shares in the name of a bank, broker or other holder of record must obtain a
proxy from the holder of record to be able to vote at the meeting. As of the
record date, directors and executive officers of Niagara Mohawk and their
affiliates owned less than 1% of the shares outstanding.
SPECIAL MEETING ATTENDANCE
Attendance will be limited to shareholders of record, beneficial owners of
shares entitled to vote at the meeting having evidence of ownership, the
authorized representative of an absent shareholder, and invited guests of the
management.
Any person who owns shares in the name of a bank, broker or other holder of
record must show proof of ownership. Proof of ownership may be in the form of a
letter or a recent statement from the bank or broker showing ownership of
Niagara Mohawk or NMPC common stock.
Any person claiming to be an authorized representative of a shareholder
must, upon request, produce written evidence of the authorization.
In order to assure a fair and orderly meeting and to accommodate as many
shareholders as possible who may wish to speak at the meeting, management will
permit only shareholders or their authorized representatives to address the
meeting. Management will also require that any signs, banners, placards and
similar materials be left outside the meeting room.
VOTING AND REVOCATION OF PROXIES
Shares represented by properly signed proxies received in time for the
special meeting will be voted at the special meeting in the manner specified on
the proxies. Proxies that are properly signed but do not contain instructions
will be voted "FOR" adoption of the merger agreement. A Niagara Mohawk
shareholder may revoke a proxy at any time before it is voted by
(1) delivering, prior to the special meeting, to the Corporate Secretary of
Niagara Mohawk, 300 Erie Boulevard West, Syracuse, New York 13202, a written
statement of revocation having a later date or time than the proxy;
(2) submitting a properly signed proxy bearing a later date or time (or voting
later by telephone or on the Internet) than the previous proxy; or
(3) attending the special meeting and voting in person. Attendance at the
special meeting will not by itself constitute revocation of a proxy.
Niagara Mohawk shareholders may vote by mail, telephone or on-line via the
Internet. The telephone and Internet procedures authenticate shareholders by use
of a control number and permit confirmation that the vote has been properly
recorded. Niagara Mohawk shareholders do not need to return their proxy cards if
they vote by telephone or via the Internet.
BY MAIL: Please mark your vote, sign, date and promptly return your proxy
card in the enclosed postage-paid envelope.
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BY TELEPHONE: Please call the toll-free telephone number on your proxy card
(1-800-250-9081). Once connected, you will be prompted to record and confirm
your vote. Telephone voting is available 24 hours a day, through January 15,
2001, 11.59 p.m. (EDT).
VIA INTERNET: You may vote on-line by using the following Internet address:
http://www.votefast.com. Specific instructions will be available allowing you to
record and confirm your vote. Internet voting is available 24 hours a day,
through January 15, 2001, 11.59 p.m. (EDT).
Whole and fractional shares held in participants' accounts in the Niagara
Mohawk employee savings plan will be voted by such plans' trustees in accordance
with participants' voting directions. Any shares for which voting directions are
not received will be voted in the same proportion as shares as to which
instructions are received.
STOCK CERTIFICATES SHOULD NOT BE SENT WITH THE ENCLOSED PROXY. IF THE MERGER
IS COMPLETED, NIAGARA MOHAWK SHAREHOLDERS WILL BE GIVEN INSTRUCTIONS FOR
EXCHANGING THEIR SHARES FOR CASH OR NEW NATIONAL GRID ADSS AT THAT TIME.
Niagara Mohawk will bear the costs of the special meeting and of soliciting
proxies therefor. Niagara Mohawk and National Grid Group will share equally the
amount of the filing fees and the other expenses incurred in connection with the
cost of filing, printing and distributing this proxy statement/prospectus. D.F.
King & Co., Inc. will assist in the solicitation of proxies by Niagara Mohawk
for a base fee of $12,000 plus reasonable out-of-pocket expenses.
Additionally, officers and other Niagara Mohawk employees may solicit
proxies by telephone, telegram, fax, other electronic means or in person. Upon
request, Niagara Mohawk will reimburse banks, brokers, nominees and related
fiduciaries for reasonable expenses incurred by them in sending proxy materials
to beneficial owners of shares.
REQUIRED VOTE; QUORUM
New York law requires adoption of the merger agreement by not less than a
majority of all of the votes entitled to be cast at the special meeting by
Niagara Mohawk shareholders. Each share of Niagara Mohawk common stock
outstanding on the record date is entitled to one vote. There are no other
voting securities of Niagara Mohawk outstanding. Brokers and nominees are
precluded from exercising their voting discretion on the adoption of the merger
agreement, and, for this reason, absent specific instructions from the
beneficial owner of the shares, are not permitted to vote such shares. Shares
that are not voted because brokers did not receive instructions are referred to
as "broker non-votes." Holders of a majority of the shares outstanding on the
record date must be present in person or by proxy at the special meeting to
constitute a quorum. Abstentions and broker non-votes are counted as present or
represented for purposes of determining a quorum for the special meeting.
Because the affirmative vote of Niagara Mohawk shareholders holding not less
than a majority of the outstanding shares on the record date is required for
approval of the merger agreement, an abstention, unreturned proxy or broker
non-vote will have the effect of a vote against adoption of the merger
agreement.
THE NIAGARA MOHAWK BOARD RECOMMENDS THAT NIAGARA MOHAWK SHAREHOLDERS VOTE
"FOR" ADOPTION OF THE MERGER AGREEMENT.
ABSENCE OF DISSENTERS' RIGHTS
Under New York law, Niagara Mohawk shareholders are not entitled to exercise
dissenters' rights with respect to the merger.
AVAILABILITY OF INDEPENDENT ACCOUNTANTS
Representatives of PricewaterhouseCoopers LLP, independent accountants of
Niagara Mohawk, will be present at the special meeting, will have the
opportunity to make a statement should they desire to do so and are expected to
be available to respond to appropriate questions.
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THE MERGER
THIS SECTION OF THE PROXY STATEMENT/PROSPECTUS, AS WELL AS THE NEXT SECTION
ENTITLED "THE MERGER AGREEMENT," DESCRIBE CERTAIN ASPECTS OF THE PROPOSED
MERGER. THESE SECTIONS HIGHLIGHT KEY INFORMATION ABOUT THE MERGER, THE SCHEME OF
ARRANGEMENT AND THE MERGER AGREEMENT BUT THEY MAY NOT INCLUDE ALL THE
INFORMATION THAT A SHAREHOLDER WOULD LIKE TO KNOW. THE MERGER AGREEMENT AS
AMENDED IS ATTACHED AS ANNEX A TO THIS PROXY STATEMENT/PROSPECTUS. WE URGE
SHAREHOLDERS TO READ THE MERGER AGREEMENT IN ITS ENTIRETY.
OVERVIEW
The merger agreement contemplates a scheme of arrangement and a merger
which, taken together, will result in the creation of New National Grid, a new
holding company for National Grid Group, and the acquisition by New National
Grid of Niagara Mohawk. The scheme of arrangement involves cancelling and
exchanging National Grid Group's existing shares for shares of New National
Grid, with National Grid Group becoming a wholly owned subsidiary of New
National Grid. The merger contemplates that Grid Delaware, Inc., a wholly owned
subsidiary of New National Grid, will merge into Niagara Mohawk with Niagara
Mohawk surviving as a wholly owned subsidiary of New National Grid. It is
intended that the scheme of arrangement and merger taken together will qualify
as a tax free transaction within the meaning of Section 351 of the Internal
Revenue Code of 1986, as amended. The scheme of arrangement will be implemented
prior to the merger. The merger agreement also provides that in the event that
National Grid Group determines another structure would be preferable, the
parties agree to negotiate in good faith to restructure the transaction
(including a transaction that does not require completion of the scheme of
arrangement in the event National Grid Group determines it is not likely to be
approved); provided that any restructuring must preserve the economic and tax
benefits of the transaction for both parties. In this document, we refer to the
time when the merger is completed as the "Merger Effective Time" and to the time
when the scheme of arrangement is completed as the "Scheme Effective Time."
At the Merger Effective Time, all shares of common stock of Grid
Delaware, Inc. issued and outstanding prior to the merger will be converted into
the right to receive a number of shares of common stock of Niagara Mohawk equal
to the number of issued and outstanding Niagara Mohawk shares at the Merger
Effective Time. Each share of Niagara Mohawk common stock will be converted into
the right to receive the merger consideration in the form of cash, ADSs or a
combination of cash and ADSs.
The per share merger consideration will be $19.00 if the Average Price is
between $32.50 and $51.00. In the event that the Average Price is greater than
$51.00, the per share consideration received by Niagara Mohawk shareholders will
increase by two-thirds of the percentage of the increase in value over $51.00.
In the event that the Average Price is less than $32.50, the per share
consideration received by Niagara Mohawk shareholders will decrease by
two-thirds of the percentage of the decrease in value below $32.50. Niagara
Mohawk shareholders can elect to receive their consideration in cash, ADSs or as
a combination of both, subject to the aggregate cash consideration paid being
$1.015 billion. If cash elections received from Niagara Mohawk shareholders
exceed $1.015 billion, National Grid Group may, at its sole discretion, increase
the cash component of the consideration. If elections for one form of
consideration exceed the amount of such form of consideration to be issued in
the merger, all shareholders electing the oversubscribed form of consideration
will receive, on a pro rata basis, some of the undersubscribed form of
consideration.
"Average Price" means the average of the closing prices of National Grid
Group ordinary shares, as derived from the Daily Official List of the London
Stock Exchange (converted to a US dollar value using the exchange rate for each
date for which the closing price is to be determined as reported in The
Financial Times) for 20 trading days selected at random (using mutually agreed
upon procedures) in the period of 40 consecutive London Stock Exchange trading
days ending on the close of business on the tenth London Stock Exchange trading
day prior to the election deadline, multiplied by five.
An overview of the scheme of arrangement is provided under "Scheme of
Arrangement."
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<PAGE>
BACKGROUND OF THE MERGER
Since Niagara Mohawk entered into its Master Restructuring Agreement in
1998, under which it bought out most of its above-market government-mandated
power purchase agreements, and thereby stabilized its financial condition, the
board of directors and management of Niagara Mohawk have periodically reviewed
Niagara Mohawk's strategic alternatives, including internal growth, growth by
acquisition, the sale of Niagara Mohawk and a combination with another company
in which Niagara Mohawk shareholders would continue to participate.
Consideration was given not only to electric and gas utilities, but also to the
oil and gas and telecommunications industries. During this period, Niagara
Mohawk engaged in preliminary discussions with a number of parties about
potential transactions, but, except as set forth below, no specific proposals
were made and these discussions did not evolve beyond a preliminary stage.
Since 1998, National Grid Group has been pursuing a growth strategy in the
electric transmission and distribution market in the United States, with a
particular focus on the Northeast region where many states have been engaged in
a deregulation process pursuant to which, among other things, the ownership and
operation of generation facilities are being separated from that of transmission
and distribution facilities. Consistent with this strategy, in March 2000,
National Grid Group completed the acquisition of New England Electric System
(currently known as National Grid USA), whose subsidiaries operate electric
transmission and distribution systems in three New England states. In
April 2000, National Grid USA acquired Eastern Utility Associates, whose
subsidiaries operate transmission and distribution systems in two New England
states. Both New England Electric System and Eastern Utilities Associates had
divested the vast majority of their generation assets prior to being acquired by
National Grid Group and are seeking to sell the remainder of their generation
assets. Since the announcement of the New England Electric System and Eastern
Utilities Associates acquisitions, National Grid Group has continued to
investigate the possibility of further strategic transactions with US electric
utility companies, such as Niagara Mohawk, that have or are in the process of
divesting their generation assets in order to expand its transmission and
distribution operations in the United States.
In November 1999, William E. Davis, Chairman of the Board and Chief
Executive Officer of Niagara Mohawk, was called by Richard P. Sergel, President
and Chief Executive Officer of New England Electric System, whose company was
then in the process of merging with National Grid Group. Mr. Sergel suggested
that in light of the favorable experience he felt that the merger presented to
New England Electric System, Niagara Mohawk might be interested in pursuing
talks with National Grid Group. On November 16, 1999, Messrs. Davis and Sergel
and David Jones, Group Chief Executive of National Grid Group, had a dinner
meeting in New York City to determine if there was a mutual interest in
proceeding with preliminary discussions concerning a possible business
combination. As a result, on December 13, 1999, Niagara Mohawk and National Grid
Group entered into a Confidentiality Agreement. Messrs. Davis, Sergel and Jones
met in New York City on December 14, 1999, with a small number of executive
officers from New England Electric System, National Grid Group, and Niagara
Mohawk and their respective financial advisors, but immediately following that
meeting it was decided to delay any further substantive discussions pending the
completion of the New England Electric System acquisition. In April, following
completion of the acquisitions of New England Electric System and Eastern
Utilities Associates, the parties resumed discussions, with due diligence being
performed on both sides for a period of months.
Following a meeting on August 15, 2000 in New Jersey with Messrs. Sergel and
Jones, Mr. Davis felt that the terms of a potential transaction had advanced
sufficiently so that a presentation about National Grid Group and the possible
terms of a transaction could be made to the Niagara Mohawk board of directors at
its regularly scheduled late August off-site meeting. Following that meeting,
negotiations continued, including, without limitation, on the per share price,
the mix of cash and securities, the conditions to the merger and other terms of
the merger agreement. On August 30, 2000, a telephonic board meeting was held to
update the Niagara Mohawk board of directors on the status of the negotiations.
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<PAGE>
On the afternoon of August 31, 2000, the National Grid Group board of
directors met to consider the proposed transaction. At this meeting, the
National Grid Group board of directors discussed the structure of the proposed
transaction and the terms of the merger, including financial terms. As part of
this meeting, the National Grid Group board of directors received advice from
its financial advisor regarding the financial terms of the merger and other
matters relevant to their consideration of the proposed transaction. Following
these deliberations, the National Grid Group board of directors unanimously
approved the proposed transaction and terms of the merger agreement and
established a committee, consisting of any two directors, one of whom had to be
Mr. Jones, Stephen Box, Group Finance Director of National Grid Group or
Mr. Sergel (the "National Grid Special Committee"), to finalize the outstanding
terms of the merger agreement and to authorize the execution and delivery of the
merger agreement.
By September 3, 2000, all remaining issues had been negotiated and on
September 4, 2000, the Niagara Mohawk board of directors and the National Grid
Special Committee comprising David Jones and Stephen Box adopted and approved
the merger agreement, which was then executed by the parties.
RECOMMENDATION OF THE NIAGARA MOHAWK BOARD OF DIRECTORS
At a meeting on September 4, 2000, the Niagara Mohawk board of directors, by
unanimous vote of those present, determined that the merger is fair to and in
the best interests of Niagara Mohawk's shareholders, adopted the merger
agreement, and recommended that Niagara Mohawk shareholders vote in favor of
adoption of the merger agreement. ACCORDINGLY, NIAGARA MOHAWK'S BOARD OF
DIRECTORS RECOMMENDS THAT NIAGARA MOHAWK SHAREHOLDERS VOTE "FOR" ADOPTION OF THE
MERGER AGREEMENT.
In reaching this recommendation, the Niagara Mohawk board of directors took
into account numerous factors, including but not limited to, the following:
1. The familiarity of the Niagara Mohawk board of directors with the
financial condition, results of operations, business and prospects of
Niagara Mohawk, as reflected in Niagara Mohawk's historical and projected
financial information, the current economic and regulatory environment
and the nature of the electric utility industry.
2. The fact that the consideration offered of $19.00 per share (which
assumes that the aggregate dollar value of five National Grid Group's
ordinary shares is between $32.50 and $51.00 during the applicable time
period prior to the election deadline), constitutes a premium of 37% over
the market price of Niagara Mohawk's common stock on the last trading day
on the New York Stock Exchange prior to the announcement of the merger
and a premium of 36% over the average closing price during the twelve
months prior to the announcement of the merger.
3. The opinion of Niagara Mohawk's financial advisor, DLJ, as to the
fairness of the consideration to be received by Niagara Mohawk
shareholders in the merger.
4. The fact that Niagara Mohawk's prospects, together with the present
relatively low trading value of its shares and its highly leveraged
financial condition, makes it unlikely for there to be substantial growth
for Niagara Mohawk, either internally generated or by acquisition, in the
near future.
5. The fact that the receipt of ADSs is tax-free to Niagara Mohawk
shareholders.
6. The opportunity afforded to Niagara Mohawk shareholders, through the
receipt of ADSs, to become equity participants in National Grid Group,
which:
- as a result of the merger, will be the ninth largest electric utility
in the United States, with a US business which contributes more than
half of the National Grid Group's operating profits;
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<PAGE>
- in an era of growing consolidation in the transmission and distribution
business, will be the largest transmission business (by miles) and the
second largest distribution business (by power delivered) in the New
England/New York market;
- has ten years of experience in operating a transmission system in a
deregulated market;
- has a proven track record in accomplishing savings following
acquisitions; and
- has successfully transferred its transmission and distribution skills
to the telecommunications arena.
7. The Board's belief that the merger offered better short and long term
value for the Niagara Mohawk shareholders than any of the available
alternatives, including the possibility of remaining independent and the
possibility of a merger with another company.
8. The fact that under the terms of the merger agreement, as described
under "The Merger Agreement--Termination," the board retains its ability,
if required by its fiduciary duties, to withdraw its recommendation as to
the merger and/or terminate the merger agreement, upon payment of a
termination fee.
9. The fact that, under the terms of the merger agreement, Niagara Mohawk
shareholders will share in the effect of increases or decreases in the
price of five National Grid Group's ordinary shares above $51.00 and
below $32.50.
In view of the wide variety of factors considered by the Niagara Mohawk
board of directors in connection with its evaluation of the merger and the
complexity of such matters, the Niagara Mohawk board did not consider it
practical to, nor did it attempt to, quantify, rank or otherwise assign relative
weights to the specific factors it considered in reaching its decision. The
Niagara Mohawk board conducted a discussion of the factors described above,
including asking questions of Niagara Mohawk's management and Niagara Mohawk's
legal and financial advisors, and reached a general consensus that the merger
was fair to and in the best interests of Niagara Mohawk and its shareholders. In
considering the factors described above, individual members of the Niagara
Mohawk board may have given different weight to different factors. The Niagara
Mohawk board relied on the experience and expertise of its financial advisor for
quantitative analysis of the financial terms of the merger.
OPINION OF FINANCIAL ADVISOR TO NIAGARA MOHAWK
DLJ, in its role as financial advisor, was asked to render an opinion to
Niagara Mohawk's board of directors as to the fairness, from a financial point
of view, to the holders of Niagara Mohawk common stock of the consideration to
be received by such holders in the merger. On September 4, 2000, DLJ delivered
to Niagara Mohawk's board of directors its written opinion, dated September 4,
2000, to the effect that, as of that date, based on and subject to the
assumptions, limitations and qualifications set forth in its written opinion,
the consideration to be received by the holders of Niagara Mohawk common stock
in the merger was fair to such holders from a financial point of view. The full
text of DLJ's opinion is attached as Appendix B to this proxy
statement/prospectus.
DLJ expressed no opinion as to the prices at which Niagara Mohawk common
stock, National Grid Group's ordinary shares or National Grid Group's ADSs, New
National Grid ordinary shares or New National Grid ADSs would actually trade at
any time. DLJ's opinion did not constitute a recommendation to any Niagara
Mohawk shareholder as to how such shareholder should vote on the merger.
Niagara Mohawk and National Grid Group determined the consideration to be
received by the holders of Niagara Mohawk common stock in arm's length
negotiations between Niagara Mohawk and National Grid Group, in which DLJ
advised Niagara Mohawk.
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Niagara Mohawk selected DLJ as its financial advisor because DLJ is an
internationally recognized investment banking firm that has substantial
experience providing strategic advisory services. DLJ has acted as Niagara
Mohawk's financial advisor for a number of years, including in connection with
its Master Restructuring Agreement. DLJ was not retained as an advisor or agent
to the shareholders of Niagara Mohawk or any other person. As part of its
investment banking business, DLJ is regularly engaged in the valuation of
businesses and securities in connection with mergers, acquisitions,
underwritings, sales and distributions of listed and unlisted securities,
private placements and valuations for corporate and other purposes. Niagara
Mohawk did not impose any restrictions or limitations upon DLJ with respect to
the investigations made or the procedures followed by DLJ in rendering its
opinion.
In arriving at its opinion, DLJ:
- reviewed the draft dated September 2, 2000 of the merger agreement and the
exhibits thereto and assumed the final form of the merger agreement would
not vary in any respect material to DLJ's analysis;
- reviewed financial and other information that was publicly available or
furnished to DLJ by Niagara Mohawk and National Grid Group, including
information provided during discussions with their respective management
teams. Included in the information provided during discussions with
management were certain financial projections of Niagara Mohawk for the
period beginning January 1, 2000 and ending December 31, 2007 prepared by
the management of Niagara Mohawk and certain financial projections of
National Grid Group for the period beginning April 1, 2000 and ending
March 31, 2006 prepared by the management of National Grid Group;
- compared certain financial and securities data of Niagara Mohawk with
various other companies whose securities are traded in public markets;
- reviewed the historical stock prices and trading volumes of Niagara Mohawk
common stock;
- reviewed prices and premiums paid in certain other business combinations;
and
- conducted other financial studies, analyses and investigations as DLJ
deemed appropriate for purposes of rendering its opinion.
In rendering its opinion, DLJ relied upon and assumed the accuracy and
completeness of all of the financial and other information that was available to
it from public sources, that was provided to it by Niagara Mohawk, National Grid
Group, or their respective representatives, or that DLJ otherwise reviewed. With
respect to the financial projections supplied to DLJ, DLJ relied on
representations that the projections were reasonably prepared on the basis
reflecting the best currently available estimates and judgments of the
management of Niagara Mohawk and National Grid Group as to the future operating
and financial performance of Niagara Mohawk and National Grid Group,
respectively. DLJ did not assume responsibility for making any independent
evaluation of the assets or liabilities, or for making any independent
verification of the information DLJ reviewed. DLJ relied as to certain legal
matters on advice of counsel to Niagara Mohawk.
DLJ necessarily based its opinion on economic, market, financial and other
conditions as they existed on, and on the information made available to DLJ as
of, the date of its opinion. DLJ states in its opinion that, although subsequent
developments may affect the conclusions reached in its opinion, DLJ does not
have any obligation to update, revise or reaffirm its opinion.
SUMMARY OF FINANCIAL ANALYSES PERFORMED BY DLJ
The following is a summary of the financial analyses DLJ presented to
Niagara Mohawk's board of directors on September 4, 2000 in connection with the
preparation of DLJ's opinion. No company or transaction used in the analyses
described below is directly comparable to Niagara Mohawk, National Grid Group or
the contemplated transaction. In addition, mathematical analysis such as
determining the mean
29
<PAGE>
or median is not in itself a meaningful method of using selected company or
transaction data. The analyses DLJ performed are not necessarily indicative of
actual values or future results, which may be significantly more or less
favorable than suggested by these analyses. The information summarized in the
tables that follow should be read in conjunction with the accompanying text.
ANALYSIS OF NIAGARA MOHAWK
COMMON STOCK TRADING HISTORY. DLJ examined the historical closing prices of
Niagara Mohawk common stock from August 31, 1999 to September 1, 2000. During
this time period, Niagara Mohawk common stock reached a high of $16.19 per share
and a low of $11.00 per share. On September 1, 2000, the price was $13.88.
DISCOUNTED CASH FLOW ANALYSIS. DLJ performed a discounted cash flow, or
DCF, analysis of the projected cash flows of Niagara Mohawk for the fiscal years
ending December 31, 2000 through December 31, 2007, using projections and
assumptions provided by the management of Niagara Mohawk. The DCF value for
Niagara Mohawk was estimated using discount rates ranging from 7.0% to 8.0%,
based on estimates related to the weighted average cost of capital of Niagara
Mohawk, and terminal multiples of estimated EBITDA for Niagara Mohawk's fiscal
year ending December 31, 2007 ranging from 6.5x to 7.5x. The DCF analysis also
took into account Niagara Mohawk's net operating loss or NOL position and the
value associated with such NOLs. Based on this analysis, DLJ estimated a value
per share of Niagara Mohawk common stock ranging from $10.16 to $15.61, compared
to the proposed consideration to be received in the merger of $19.00 per share
(subject to the adjustment mechanism described in the merger agreement).
SUM-OF-THE-PARTS ANALYSIS. DLJ also performed a valuation analysis based on
the sum of the value of each of the segments of Niagara Mohawk, namely the
regulated businesses and the unregulated businesses. The regulated businesses
include electric and gas transmission and distribution and nuclear generation.
The unregulated businesses include Opinac (which has investments in Telergy and
Evonyx) and Canadian Niagara Power. Based on this analysis, DLJ estimated the
value per share of Niagara Mohawk common stock ranging from $11.71 to $18.13,
compared to the proposed consideration to be received in the merger of $19.00
per share (subject to the adjustment mechanism described in the merger
agreement).
Regulated Businesses. For the regulated electric and gas businesses, DLJ
performed a DCF analysis of the projected cash flows for the fiscal years ending
December 31, 2000 through December 31, 2007, using projections and assumptions
provided by the management of Niagara Mohawk. The DCF valuation for the
regulated businesses included the cash flows associated with certain regulatory
assets, which were booked on Niagara Mohawk's balance sheet as intangible
assets, and which provide cash benefits to Niagara Mohawk in the form of tariffs
that offset prior costs incurred by Niagara Mohawk. The DCF value for the
regulated businesses was estimated using discount rates ranging from 7.0% to
8.0%, based on estimates related to the weighted average cost of capital of
Niagara Mohawk's regulated businesses, and terminal multiples of estimated
EBITDA for Niagara Mohawk's fiscal year ending December 31, 2007 ranging from
6.5x to 7.5x. Based on this analysis, DLJ estimated the value of the regulated
businesses to range between $6,765 million and $7,658 million.
Unregulated Businesses. For the unregulated businesses, DLJ used an
analysis of comparable company trading multiples to value Niagara Mohawk's 18%
stake in Telergy, and used book values to estimate the value of Evonyx and
Canadian Niagara Power. Based on these analyses, DLJ estimated the value of the
unregulated businesses to range between $363 million and $462 million.
In valuing Niagara Mohawk's 18% stake in Telergy, DLJ analyzed trading
multiples of selected publicly traded US broadband companies that DLJ believed
were reasonably comparable to Telergy. These companies consisted of:
- 360networks Incorporated
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<PAGE>
- Broadwing Incorporated
- NorthEast Optic Network Incorporated
- Williams Communications Group
In examining these comparable companies, DLJ calculated the enterprise value
of each company as a multiple of its respective: (i) LTM Route Miles,
(ii) Route Miles for the fiscal year 2000, (iii) Route Miles for the fiscal year
2001 and (iv) LTM Net property, plant and equipment, or PP&E.
<TABLE>
<CAPTION>
ENTERPRISE VALUE
ROUTE MILES
------------------------------------------------
LTM 2000 2001 LTM NET PP&E
-------- -------- -------- ---------------
<S> <C> <C> <C> <C>
Average....................... $876,594 $638,311 $501,964 12.7x
Median........................ $783,161 $557,762 $397,794 7.3x
</TABLE>
Based on an analysis of this data and Telergy's actual and projected
results, DLJ estimated the value of Niagara Mohawk's 18% stake in Telergy to
range between $226 million and $325 million.
COMPARABLE PUBLICLY TRADED COMPANY ANALYSIS. DLJ analyzed the market values
and trading multiples of selected publicly traded US utility companies that DLJ
believed were reasonably comparable to Niagara Mohawk on the basis notably of
their business activity and geographic presence. These comparable companies
consisted of:
- Conectiv, Inc.
- Consolidated Edison, Inc.
- Constellation Energy Group, Inc.
- Energy East Corporation
- KeySpan Corporation
- PECO Energy Company
- Potomac Electric Power Company
- PPL Corporation
- Public Service Enterprise Group, Inc.
In examining these comparable companies, DLJ calculated the enterprise value
of each company as a multiple of its respective: (i) LTM EBITDA and (ii) LTM
EBIT. The enterprise value of a company is equal to the value of its
fully-diluted common equity plus debt, minority interests, and the liquidation
value of outstanding preferred stock, if any, minus cash, marketable securities,
and minority investments in other entities. LTM means the last twelve-month
period for which financial data for Niagara Mohawk has been reported. EBITDA
means earnings before interest expense, taxes, depreciation and amortization,
and excluding earnings in equity affiliates. EBIT means earnings before interest
expense and taxes, and excluding earnings in equity affiliates. DLJ also
calculated the price per share of each company as a multiple of its respective
(i) LTM earnings per share or EPS and (ii) projected calendar year 2000 earnings
per share. All historical data was derived from publicly available sources and
all projected data was
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<PAGE>
obtained from First Call Research estimates where available. DLJ's analysis of
the comparable companies yielded the following multiple ranges:
<TABLE>
<CAPTION>
ENTERPRISE
VALUE/LTM PRICE/EPS
------------------- -------------------
EBITDA EBIT LTM 2000
-------- -------- -------- --------
<S> <C> <C> <C> <C>
High................................ 8.4x 12.3x 20.1x 15.7x
Low................................. 5.0x 8.2x 8.8x 9.4x
Average............................. 7.0x 10.1x 12.8x 12.2x
Median.............................. 7.3x 10.1x 12.8x 11.9x
</TABLE>
Based on an analysis of this data and such other matters as DLJ considered
appropriate, DLJ estimated a value per share of Niagara Mohawk common stock
ranging from $16.00 to $18.00, compared to the proposed consideration to be
received in the merger of $19.00 per share (subject to the adjustment mechanism
described in the merger agreement).
PRECEDENT MERGER AND ACQUISITION TRANSACTION ANALYSIS. DLJ reviewed
selected acquisitions involving companies in the utility industry that DLJ
believed are reasonably comparable to the merger. These transactions consisted
of:
- First Energy Corporation/GPU, Inc. (pending as of September 4, 2000)
- FPL Group, Inc./Entergy Corporation (pending as of September 4, 2000)
- AES Corporation/IPALCO Enterprises, Inc. (pending as of September 4, 2000)
- PowerGen plc/LG&E Energy Corporation (pending as of September 4, 2000)
- Consolidated Edison, Inc./Northeast Utilities System (pending as of
September 4, 2000)
- PECO Energy Company/Unicom Corporation (pending as of September 4, 2000)
- Carolina Power & Light Company/Florida Progress Corporation (pending as of
September 4, 2000)
- Energy East Corporation/CMP Group, Inc. (closed September 1, 2000)
- Indiana Energy, Inc./SIGCORP, Inc. (closed March 31, 2000)
- Investor Group/MidAmerican Energy Company (closed March 14, 2000)
- National Grid Group plc/Eastern Utilities Associates (closed April 19,
2000)
- National Grid Group plc/New England Electric System (closed March 22,
2000)
- BEC Energy/Commonwealth Energy System (closed August 24, 1999)
- ScottishPower plc/PacifiCorp (closed December 1, 1999)
- AES Corporation/CILCORP, Inc. (closed October 18, 1999)
In examining these acquisitions, DLJ calculated the enterprise value of the
acquired company implied by each of these transactions as a multiple of (i) LTM
EBITDA and (ii) LTM EBIT. DLJ also calculated
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the equity value of the acquired company implied by each of these transactions
as a multiple of LTM Net Income. DLJ's analysis of these comparable acquisitions
yielded the following multiple ranges:
<TABLE>
<CAPTION>
ENTERPRISE VALUE/ EQUITY
LTM VALUE/LTM
------------------- -----------
EBITDA EBIT NET INCOME
-------- -------- -----------
<S> <C> <C> <C>
High........................................ 9.8x 19.0x 38.8x
Low......................................... 4.2x 5.4x 12.1x
Average..................................... 7.4x 12.4x 19.0x
Median...................................... 7.3x 11.6x 17.1x
</TABLE>
Based on an analysis of this data and Niagara Mohawk's actual operating
results, DLJ estimated a value per share of Niagara Mohawk common stock ranging
from $18.00 to $23.00, compared to the proposed consideration to be received in
the merger of $19.00 per share (subject to the adjustment mechanism described in
the merger agreement).
PREMIUMS PAID ANALYSIS. DLJ determined the premium over the common stock
trading prices for one day, one week and one month prior to the announcement
date in selected merger and acquisition transactions of US utilities that DLJ
believed are reasonably comparable to the merger. The group of transactions
considered was similar to the group used for the "PRECEDENT MERGER AND
ACQUISITION TRANSACTION ANALYSIS." DLJ calculated the premiums for these
transactions based on publicly available data. The median premiums for the
selected transactions over the common stock trading prices for one day, one week
and one month prior to the announcement date were 21.6%, 26.9% and 28.5%,
respectively. The average premiums for the selected transactions over the common
stock trading prices for one day, one week and one month prior to the
announcement date were 25.9%, 29.1% and 29.8%, respectively. Applying the above
premiums to the closing price of Niagara Mohawk common stock on comparable days,
DLJ estimated a value per share of Niagara Mohawk common stock ranging from
$17.00 to $18.50, compared to the proposed consideration to be received in the
merger of $19.00 per share (subject to the adjustment mechanism described in the
merger agreement).
ANALYSIS OF NATIONAL GRID GROUP
COMMON STOCK TRADING HISTORY. DLJ examined the historical closing prices of
National Grid Group's ordinary shares from August 31, 1999 to September 1, 2000.
During this time period, National Grid Group's ordinary shares reached a high of
L5.97 per share and a low of L4.08 per share. On September 1, the price was
L5.73.
RESEARCH ANALYST VIEWS. DLJ reviewed research analysts reports, dated
between February and July 2000, from six large financial institutions that
published a target price for ordinary shares of National Grid Group. The target
prices were in a range of L6.50 to L7.50. The ADS equivalent target prices were
in a range of $48.75 to $56.25. The ADS equivalent price is the product of
(i) the price of National Grid Group's ordinary shares (as quoted in London in
L); (ii) an exchange rate of L1.00 = $1.50; and (iii) five (representing five
ordinary shares per National Grid Group ADS).
SUM-OF-THE-PARTS ANALYSIS. DLJ performed a Sum-of-the-Parts Analysis on the
four significant businesses of National Grid Group: UK Electric, National Grid
USA, Energis and Intelig. Based on this analysis, DLJ estimated a value per
share of National Grid Group's ordinary shares ranging from L6.64 to L8.41.
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<PAGE>
UK Electric. To determine the value of the UK Electric segment of the
National Grid Group business, including its international electric joint
ventures in Argentina, Zambia and Australia ("UK Electric"), DLJ performed a
comparable publicly traded company analysis and a DCF analysis. Based on these
analyses, DLJ estimated the value of UK Electric to range between
L4,374 million and L5,203 million (or $6,561 million and $7,804 million at an
exchange rate of L1.00 = $1.50).
Comparable Publicly Traded Company Analysis. DLJ analyzed the market values
and trading multiples of selected publicly traded electric utility companies in
the United Kingdom that DLJ believed were reasonably comparable to UK Electric.
These comparable companies consisted of:
- British Energy plc
- National Power plc
- PowerGen plc
- Scottish and Southern Energy plc
- ScottishPower plc
- Viridian Group plc
In examining these comparable companies, DLJ calculated the enterprise value
of each company as a multiple of its respective: (i) LTM EBITDA and (ii) LTM
EBIT. Data was derived from publicly available sources. DLJ's analysis of the
comparable companies yielded the following multiple ranges:
<TABLE>
<CAPTION>
ENTERPRISE VALUE/ EQUITY
LTM VALUE/LTM
------------------- -----------
EBITDA EBIT NET INCOME
-------- -------- -----------
<S> <C> <C> <C>
High........................................ 10.3x 15.2x 13.8x
Low......................................... 3.2x 5.1x 8.5x
Median...................................... 6.8x 9.3x 12.3x
</TABLE>
Based on an analysis of this data and UK Electric's actual results, DLJ
estimated the value of the UK Electric segment to range between L4,718 million
and L5,767 million (or $7,077 million and $8,650 million at an exchange rate of
L1.00 = $1.50).
DCF Analysis. DLJ also performed a DCF analysis of the projected cash flows
of UK Electric for the fiscal years ending December 31, 2000 through
December 31, 2005, using projections and assumptions provided by the management
of National Grid Group. The DCF valuation for UK Electric was estimated using
discount rates ranging from 6.0% to 7.0%, based on estimates related to the
weighted average costs of capital of UK Electric, and terminal multiples of
estimated EBITDA ranging from 6.3x to 7.3x on December 31, 2005. Based on this
analysis, DLJ estimated the value of UK Electric, excluding the international
electric joint ventures, to range between L3,844 million and L4,539 million (or
$5,766 million and $6,808 million at an exchange rate of L1.00 = $1.50).
National Grid USA. To determine the value of the National Grid USA segment
of National Grid Group, DLJ performed a comparable publicly traded company
analysis, a DCF analysis and also considered the purchase price of these assets.
DLJ also estimated the value of NEES Communications, Inc. and the present value
of certain operational and tax synergies resulting from National Grid Group's
integration of the businesses of National Grid USA. Based on these analyses, DLJ
estimated the value of National Grid USA to range between $5,058 million and
$6,433 million.
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<PAGE>
Analysis of Purchase Price of National Grid USA by National Grid Group. DLJ
estimates that the purchase price paid by National Grid Group to acquire the
businesses making up National Grid USA was $4,786 million.
Comparable Publicly Traded Company Analysis. DLJ analyzed the market values
and trading multiples of selected publicly traded electric utility companies in
the United States that DLJ believed were reasonably comparable to National Grid
USA on the basis notably of their business activity and geographic presence.
These comparable companies consisted of:
- Conectiv, Inc.
- Consolidated Edison, Inc.
- Constellation Energy Group, Inc.
- Energy East Corporation
- KeySpan Corporation
- PECO Energy Company
- Potomac Electric Power Company
- PPL Corporation
- Public Service Enterprise Group, Inc.
In examining these comparable companies, DLJ calculated the enterprise value
of each company as a multiple of its respective: (i) LTM sales, (ii) LTM EBITDA
and (iii) LTM EBIT. All historical data was derived from publicly available
sources. DLJ's analysis of the comparable companies yielded the following
multiple ranges:
<TABLE>
<CAPTION>
ENTERPRISE VALUE/LTM
------------------------------
SALES EBITDA EBIT
-------- -------- --------
<S> <C> <C> <C>
High................................................ 2.6x 8.4x 12.3x
Low................................................. 1.1x 5.0x 8.2x
Average............................................. 2.0x 7.0x 10.1x
Median.............................................. 2.1x 7.3x 10.1x
</TABLE>
Based on an analysis of this data and National Grid USA's actual results,
DLJ estimated the value of National Grid USA to range between $4,791 million and
$5,856 million.
DCF Analysis. DLJ performed a DCF analysis of the projected cash flows of
National Grid USA for the fiscal years ending December 31, 2000 through
December 31, 2005, using projections and assumptions provided by the management
of National Grid Group. The DCF valuation for National Grid USA was estimated
using discount rates ranging from 7.0% to 8.0%, based on estimates related to
the weighted average costs of capital of National Grid USA, and terminal
multiples of estimated EBITDA ranging from 6.8x to 7.8x on December 31, 2005.
Based on this analysis, DLJ estimated the value of National Grid USA to range
between $5,296 million and $6,085 million.
The above DCF analysis did not include cash flows and corresponding values
for NEES Communications, Inc. and certain operational and tax synergies
resulting from National Grid Group's acquisition of the businesses of National
Grid USA. DLJ estimated that the valuation of NEES Communications, Inc. was
$100 million, based on the value of NEES Communications, Inc.'s
telecommunications contracts. DLJ estimated that the present value of the
operational and tax synergies resulting from National Grid Group's acquisition
of the businesses of National Grid USA was in range
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<PAGE>
from $0 to $758 million, based on sensitivities to cost savings assumptions
provided by National Grid Group management.
Energis. National Grid Group had an interest of 36.3% in Energis as of
September 4, 2000. DLJ estimated the value of Energis based on Energis' stock
price and public valuation, research analysts' price targets, and a comparable
publicly traded company analysis. Based on these analyses, DLJ estimated the
value of Energis to range between L9,470 million and L11,237 million, implying a
value for National Grid Group's 36.3% interest in Energis to range between
L3,438 million and L4,079 million (or $5,157 million and $6,119 million at an
exchange rate of L1.00 = $1.50).
Public Valuation. The equity valuation of Energis was L10,257 million as of
September 1, 2000, based on Energis' closing share price of L6.60 on that date.
Research Analyst Views. DLJ reviewed research analyst reports from six
large financial institutions, dated between May and July 2000, that valued the
current price per share and published a target price for shares of Energis. The
target prices were in a range of L6.60 to L9.00.
Comparable Publicly Traded Company Analysis. DLJ performed a comparable
publicly traded company analysis of Energis, by analyzing the market values and
trading multiples of selected publicly traded European alternative network
companies that DLJ believed were reasonably comparable to Energis. These
comparable companies consisted of:
- Carrier 1 International S.A.
- Colt Telecom Group Plc
- Fibernet Group Plc
- Netia SA
- Thus Plc
- Versatel Telecom International
DLJ calculated the enterprise value of each company as a multiple of its
respective: (i) projected calendar year 2000, 2001 and 2002 sales and (ii) net
PP&E and gross PP&E. All historical data was derived from publicly available
sources and all projected data was obtained from Wall Street research reports.
DLJ's analysis of the comparable companies yielded the following multiple
ranges:
<TABLE>
<CAPTION>
ENTERPRISE VALUE
----------------------------------------------------------------
2000 SALES 2001 SALES 2002 SALES NET PP&E GROSS PP&E
---------- ---------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C>
High................. 26.9x 16.8x 13.3x 22.3x 19.2x
Low.................. 3.8x 2.9x 2.8x 2.5x 2.3x
Median............... 12.9x 6.5x 5.4x 9.3x 8.3x
</TABLE>
Based on an analysis of this data and Energis' actual and projected results,
DLJ estimated the equity value of Energis to range between L10,110 million and
L12,485 million (or $15,165 million and $18,727 million at an exchange rate of
L1.00=$1.50).
Intelig. National Grid Group owns 50% of Intelig. DLJ estimated the value
of Intelig based on a DCF analysis, an analysis of comparable publicly traded
companies, and a net asset valuation analysis. Based on these analyses, DLJ
estimated the enterprise value of Intelig to range between $1,675 million and
$2,159 million, implying a value for National Grid Group's 50% stake in Intelig
to range between $665 million and $907 million.
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<PAGE>
DCF Analysis. DLJ performed a DCF analysis of the projected cash flows of
Intelig for the fiscal years ending December 31, 2000 through December 31, 2008,
using projections and assumptions provided by the management of National Grid
Group. The DCF valuation for Intelig was estimated using discount rates ranging
from 14.5% to 16.5%, based on estimates related to the weighted average costs of
capital of Intelig, and terminal multiples of estimated EBITDA ranging from 7.0x
to 8.0x on December 31, 2008. Based on the DCF analysis, DLJ estimated the value
of Intelig to range between $1,372 million and $2,012 million.
Comparable Publicly Traded Company Analysis. DLJ also performed a
comparable publicly traded company analysis of Intelig, analyzing the market
values and trading multiples of selected publicly traded Latin American telecom
companies that DLJ believed were reasonably comparable to Intelig. These
comparable companies consisted of:
- Telefonas de Mexico SA de CV (Telmex)
- Compania de Telecommunicaciones de Chile S.A. (Telefonica CTC Chile)
- Telefonica de Argentina S.A.
- Embratel Participacoes S.A.
- Telecommunicacoes de San Paulo S.A. (Telesp)
- Telenorte Leste Participacoes S.A. (Telmar)
- Brazil Telecom Participacoes S.A.
DLJ calculated the enterprise value of each company as a multiple of its
respective projected calendar year 2000 and 2001 sales. All historical data was
derived from publicly available sources and all projected data was obtained from
Wall Street research reports where available. DLJ's analysis of the comparable
companies yielded the following multiple ranges:
<TABLE>
<CAPTION>
ENTERPRISE VALUE/
-----------------------
2000 SALES 2001 SALES
---------- ----------
<S> <C> <C>
High................................................ 3.8x 3.6x
Low................................................. 2.4x 1.9x
Average............................................. 2.8x 2.5x
</TABLE>
Based on an analysis of this data and Intelig's projected results, DLJ
estimated the value of Intelig to range between $2,253 million and
$2,753 million.
Net Asset Value Analysis. DLJ reviewed the net asset value multiples of
selected European companies, which were included in the comparable publicly
traded company analysis for Energis. The multiples observed were in a range of
2.5x to 22.3x, with a median of 9.3x. DLJ estimated 6.7x to 8.1x as a
representative range of multiples for Intelig, implying a value for Intelig to
range between $1,400 million and $1,711 million.
The summary set forth above does not purport to be a complete description of
the analyses performed by DLJ but describes, in summary form, the material
elements of the presentation that DLJ made to Niagara Mohawk's board of
directors on September 4, 2000 in connection with the preparation of DLJ's
fairness opinion. The preparation of a fairness opinion involves various
determinations as to the most appropriate and relevant methods of financial
analysis and the application of these methods to the particular circumstances
and, therefore, such an opinion is not readily susceptible to summary
description. DLJ conducted each of the analyses in order to provide a different
perspective on the transaction and to add to the total mix of information
available. DLJ did not form a conclusion as to whether any individual analysis,
considered in isolation, supported or failed to support an opinion as to
fairness from a financial
37
<PAGE>
point of view. Rather, in reaching its conclusion, DLJ considered the results of
the analyses in light of each other and ultimately reached its opinion based on
the results of all analyses taken as a whole. DLJ did not place any particular
reliance or weight on any individual analysis, but instead concluded that its
analyses, taken as a whole, supported its determination. Accordingly,
notwithstanding the separate factors summarized above, DLJ has indicated to
Niagara Mohawk that it believes that its analyses must be considered as a whole
and that selecting portions of its analyses and the factors considered by it,
without considering all analyses and factors, could create an incomplete view of
the evaluation process underlying its opinion. The analyses DLJ performed are
not necessarily indicative of actual values or future results, which may be
significantly more or less favorable than suggested by these analyses.
ENGAGEMENT LETTER
Pursuant to the terms of an engagement letter dated January 24, 2000,
Niagara Mohawk has agreed to pay DLJ a fee (the "Fee") equal to 0.35% of the
aggregate value of the outstanding Niagara Mohawk common stock, estimated to be
approximately $10.5 million, less certain advisory fees previously paid to DLJ.
A substantial portion of the Fee is contingent upon the consummation of the
merger. In addition, Niagara Mohawk agreed to reimburse DLJ, upon DLJ's request
from time to time, for all out-of-pocket expenses (including the reasonable fees
and expenses of counsel) incurred by DLJ in connection with its engagement
thereunder and to indemnify DLJ and certain related persons against certain
liabilities in connection with its engagement, including liabilities under US
federal securities laws. DLJ and Niagara Mohawk negotiated the terms of the fee
arrangement.
OTHER RELATIONSHIPS
In the ordinary course of business, DLJ and its affiliates may own or
actively trade the securities of Niagara Mohawk and National Grid Group for
their own accounts and for the accounts of their customers and, accordingly, may
at any time hold a long or short position in Niagara Mohawk or National Grid
Group securities.
DLJ has represented Niagara Mohawk in many advisory or underwriting
transactions, including: (i) lead-managing the issue of $200 million of 8 7/8%
Senior Notes due 2007; (ii) advising on the sale of various of Niagara Mohawk's
fossil and hydro generating assets for approximately $900 million;
(iii) advising on the restructuring and termination of various of Niagara
Mohawk's power purchase agreements with certain of its independent power
producers for approximately $3.6 billion in cash and 42.9 million shares of
Niagara Mohawk common stock; and (iv) lead-managing the issue of $3.45 billion
of Senior Notes of various maturities and $316 million of Niagara Mohawk common
stock.
INTERESTS OF NIAGARA MOHAWK'S OFFICERS AND DIRECTORS
GENERAL. Some members of Niagara Mohawk's senior management and the Niagara
Mohawk board of directors may be deemed to have interests in the merger that are
in addition to and/or potentially different from the interests of shareholders
of Niagara Mohawk generally. The Niagara Mohawk board of directors was aware of
these interests and considered them, among other matters, in approving the
merger agreement and the transaction contemplated by the merger agreement. In
considering the recommendation of the Niagara Mohawk board of directors in
respect of the merger agreement and the transactions contemplated by the merger
agreement, the Niagara Mohawk shareholders should be aware that these interests
may present actual or potential conflicts of interest with respect to the
merger.
NATIONAL GRID GROUP BOARD; ARRANGEMENTS FOR MR. DAVIS; NATIONAL GRID USA
BOARD. The merger agreement provides that William E. Davis, Chairman and Chief
Executive Officer of Niagara Mohawk, will be appointed as Chairman of National
Grid USA for two years after the merger and as an executive director on the New
National Grid board of directors. In consideration for Mr. Davis' agreement to
serve as Chairman of National Grid USA for two years and not to compete with
National Grid Group or its
38
<PAGE>
subsidiaries for 2 years thereafter, National Grid USA and Mr. Davis have agreed
that Mr. Davis will receive, about the time of the merger, the amount that would
have been payable had he been terminated under his employment agreement and then
will receive for two years his present annual salary and have the right to
participate in bonus opportunities equivalent to those he had at Niagara Mohawk
and the opportunity to receive raises. One additional outside director on the
current Niagara Mohawk board of directors, to be selected by National Grid
Group, will also be appointed to the New National Grid board. The parties have
also agreed that three senior executives of Niagara Mohawk, including
Mr. Davis, will be appointed to the National Grid USA Board.
NEW YORK ADVISORY BOARD APPOINTMENTS. Promptly following the merger, an
advisory board will be established for two years to advise Niagara Mohawk with
respect to matters relating to general business as well as opportunities and
activities in New York State and to maintain and develop customer relationships
in New York State. The board will consist of up to 12 outside directors of the
Niagara Mohawk board who are not appointed to the New National Grid board.
DIRECTOR AND OFFICER INDEMNIFICATION AND INSURANCE. New National Grid has
agreed that it will indemnify all officers, directors and employees of Niagara
Mohawk from all losses (including litigation expenses and fees) arising out of
actions or omissions occurring at or prior to the merger (whenever asserted)
that are, in whole or in part, based on or arising out of the fact that such
person is or was a director, officer or employee of Niagara Mohawk or based on
or arising out of or pertaining to the transactions contemplated by the merger
agreement. New National Grid also has agreed that it will maintain in effect for
no less than six years following the merger all rights of indemnification in
favor of the employees, agents, officers and directors of Niagara Mohawk
contained in the certificate of incorporation and bylaws of Niagara Mohawk and
its subsidiaries before the merger. New National Grid also has agreed that,
until the sixth anniversary of the merger, it will cause to be maintained in
effect the policies of directors' and officers' liability insurance maintained
by Niagara Mohawk and its subsidiaries as of the date of the merger agreement,
or will procure equally favorable directors' and officers' liability coverage,
with respect to claims arising from facts or events that occurred on or before
the merger. See "The Merger Agreement--Indemnification."
SENIOR OFFICER EMPLOYMENT AGREEMENTS. Niagara Mohawk and NMPC have
employment agreements with 9 of their senior officers, in addition to Mr. Davis
whose arrangements with National Grid USA are described above. In the event of a
change in control (as defined in the employment agreement and which includes
shareholder adoption of the merger agreement), the agreement will remain in
effect for a period of at least 36 months after the completion of the merger
unless a notice not to extend the term of the agreement was given at least
18 months prior to the change in control. If, following a change in control, the
executive's employment is terminated by Niagara Mohawk without cause or by the
executive for good reason within 36 months after the completion of the merger,
the executive will be entitled to a lump sum severance benefit equal to four
times the executive's base salary. The executive will also be entitled to
employee benefit plan coverage for medical, prescription drug, dental and
hospitalization benefits and life insurance for the remainder of the executive's
life with all related premiums paid by Niagara Mohawk and coverage under other
employee benefit plans will continue for four years. If the executive's
employment is terminated by the Company without cause or by the executive for
good reason before completion of the merger, only two times the executive's base
salary will be paid until the merger is completed (or two years plus two years'
bonus in the event of a termination by Niagara Mohawk without cause) with an
additional amount, so that the aggregate amount paid is four years salary, being
paid when the merger is completed. In the event that the payments to the
executive upon termination of employment following a change in control would
subject the executive to the excise tax on excess parachute payments under the
Internal Revenue Code, Niagara Mohawk will reimburse the executive for such
excise tax (and the income tax and excise tax on such reimbursement). In the
event of a dispute over an executive's rights under the executive's agreement
following a change in control of Niagara Mohawk, Niagara Mohawk will pay the
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<PAGE>
executive's reasonable legal fees with respect to the dispute unless the
executive's claims are found to be frivolous.
Each senior officer employment agreement also provides that the executive's
benefits under the Supplemental Executive Retirement Plan (SERP) will be based
on the executive's salary, annual incentive awards and awards under the 1995
Stock Incentive Plan, as applicable. Further, if the executive's employment is
terminated by Niagara Mohawk without cause at any time, or by the executive for
good reason after a change in control, the agreements provide that the executive
will be deemed fully vested under the SERP without reduction for early
commencement.
As used in the senior officer employment agreements, "good reason" generally
means a materially adverse change in duties, reduction in salary or benefits or
relocation by more than 50 miles, all as determined by the executive in good
faith.
As used in the senior officer employment agreements, termination for "cause"
generally arises upon willful failure to perform duties, commitment of a felony,
gross neglect or willful misconduct resulting in material economic loss to
Niagara Mohawk or breach of certain confidentiality and non-compete provisions.
Following a change in control, "cause" must be determined by a vote of
three-fourths of the Niagara Mohawk board of directors after a meeting at which
the executive and his or her legal counsel are entitled to be heard.
OFFICER CHANGE IN CONTROL AGREEMENTS. Niagara Mohawk and NMPC also have
change in control agreements with 19 of their other officers, which provide that
if, within two years following a change in control which would occur upon the
completion of the merger, an officer terminates his or her employment for good
reason or Niagara Mohawk terminates the officer's employment without cause, the
officer will be entitled to a lump sum severance benefit equal to two times the
officer's base salary plus two years of benefits. In addition, a subsidiary of
Opinac has change in control agreements with nine officers. Five officers have
agreements which provide that if, within two years following a change in
control, an officer terminates his or her employment for good reason or Niagara
Mohawk terminates the officer's employment without cause, the officer will be
entitled to severance payments equal to two times the officer's base salary plus
a payment in lieu of benefits for a period of two years and four other officers
have agreements which provide under such circumstances that those officers will
be entitled to severance payments equal to one and one-half times the officer's
base salary plus a payment in lieu of benefits for a period of eighteen months.
EFFECT OF CHANGE IN CONTROL ON COMPENSATION AND BENEFITS. Completion of the
merger will constitute a "change in control" of Niagara Mohawk for the following
Niagara Mohawk compensation and benefit plans in which the executive officers of
Niagara Mohawk participate: the Niagara Mohawk Long-Term Incentive Plan (LTIP),
the Officers Annual Incentive Compensation Plan (OAICP), the CEO Special Award
Plan, the Supplemental Executive Retirement Plan (SERP), and the Officers
Deferred Compensation Plan. As a result:
- all stock units granted under the LTIP will be deemed vested and will
entitle the holder to a cash payment equal to the merger consideration
within 30 days following the change in control;
- stock appreciation rights granted under the LTIP will become exercisable
for the balance of the exercise period (using the ADS consideration in the
merger as the means of determining appreciation);
- if the employment of a participant who held outstanding awards on the date
of shareholder adoption of the merger agreement is terminated after
shareholder adoption and prior to the completion of the merger, either by
the participant for good reason or by Niagara Mohawk without cause, the
participant will receive a cash payment within 5 business days of the
completion of the merger for any awards which were forfeited on such
termination of employment;
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<PAGE>
- stock appreciation rights and stock units under the CEO Special Award Plan
will be treated similarly to the appreciation rights and the units under
the LTIP and cash awards under the plan will be paid within 30 days of the
change in control;
- contingent stock units awarded under the OAICP will be deemed vested and
will entitle holders to a cash payment within 30 days following the change
in control;
- under the SERP, certain benefits vest upon a change in control, and senior
officers with employment agreements as described above are entitled to
vesting and full benefits without reduction for early retirement in
addition to the benefits described above under "Senior Officer Employment
Agreements;" and
- participants in the Officers Deferred Compensation Plan are entitled to
payments, at their election, either in a lump sum or in installments, in
the event of their deemed termination of employment due to the occurrence
of certain events within 24 months following a change in control.
PAYMENTS TO DIRECTORS. Non-employee directors of Niagara Mohawk have
received annual grants of deferred stock units ("DSUs") equal in value to
$15,000 ($17,000 for committee chairs) based on the market price of Niagara
Mohawk shares at the time of each grant under the Outside Director Deferred
Stock Unit Plan. Under the plan, when a director ceases to be an outside
director, the director is entitled to receive the cash value of the DSUs
credited to his or her account based on market prices at the time of the
payment. Under the terms of the plan, in connection with the merger, each
outside director will receive an amount in cash equal to the per share merger
consideration with respect to each DSU credited to his or her account
immediately following the completion of the merger, unless the director elects
to receive payment in a lump sum in the year following completion or in
installments over 5 years beginning in the year following completion.
ONGOING EMPLOYEE COMPENSATION AND BENEFITS. The merger agreement provides
that New National Grid shall maintain compensation, benefits and coverage with
respect to current employees and retirees of Niagara Mohawk or its subsidiaries,
other than those covered by a collective bargaining agreement who continue
employment with New National Grid or its subsidiaries, for two years after the
merger that are no less favorable in the aggregate than those provided to those
employees and retirees immediately prior to the merger. Therefore, in addition
to any benefits previously described, current executive officers of Niagara
Mohawk or its subsidiaries will continue to receive compensation incentives and
employee benefits that are at least as favorable as those currently provided.
STOCK OPTIONS. At the time of the merger, the 211,375 stock options
outstanding under Niagara Mohawk's 1992 Stock Option Plan will be cancelled and
each of the options which has an exercise price less than the merger
consideration, currently 101,625 options, will entitle the holder to receive an
amount in cash equal to the per share merger consideration minus the exercise
price of the option.
STOCK OWNERSHIP. All of the directors and executive officers of Niagara
Mohawk own shares for which they will receive the same consideration in the
merger as other shareholders. The directors and executive officers own less than
1% of the outstanding shares.
ACCOUNTING TREATMENT
The merger will be accounted for under the purchase method of accounting, in
accordance with generally accepted accounting principles. Under the purchase
method of accounting, the purchase price of Niagara Mohawk, including direct
costs of the acquisition, will be allocated to the assets acquired and
liabilities assumed based upon their estimated fair values, with the excess
purchase consideration allocated to goodwill.
The Unaudited Pro Forma Condensed Combined Financial Statements appearing
elsewhere in this proxy statement/prospectus are based upon certain assumptions,
as described in the pro forma statements,
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and are included for informational purposes only. Any difference between the
purchase price, representing fair value, and the fair value of the identified
assets acquired will be recorded as goodwill. If the merger is completed,
National Grid Group's financial statements will reflect effects of transaction
adjustments only from the Merger Effective Time. The actual amounts of assets,
liabilities, and acquisition adjustment may differ significantly from the
amounts reflected in the Unaudited Pro Forma Condensed Combined Financial
Statements.
For purposes of preparing National Grid Group's consolidated financial
statements under UK GAAP, National Grid Group will convert Niagara Mohawk's
financial statements from US GAAP to UK GAAP and establish a new accounting
basis for Niagara Mohawk's assets and liability based upon the fair market
values thereof and the purchase price for Niagara Mohawk. Therefore, the
purchase accounting adjustments made in connection with the development of the
Unaudited Pro Forma Condensed Combined Financial Information appearing elsewhere
in this proxy statement/prospectus are preliminary and have been made solely for
purposes of developing the Unaudited Pro Forma Condensed Combined Financial
Information to comply with the disclosure requirements of the SEC. Although the
final allocation will differ, the Unaudited Pro Forma Condensed Combined
Financial Information reflects National Grid Group's best estimate based upon
currently available information.
NEW YORK STOCK EXCHANGE, UK LISTING AUTHORITY AND LONDON STOCK EXCHANGE LISTING
It is a condition to the completion of the merger that the UK Listing
Authority has agreed to admit to the Official List of the UK Listing Authority,
subject to allotment, both the New National Grid ordinary shares represented by
New National Grid ADSs issuable in the merger and the New National Grid ordinary
shares to be issued under the scheme of arrangement. New National Grid will also
apply for the New National Grid ordinary shares to be admitted to trading on the
London Stock Exchange. In addition, the New National Grid ADSs to be issued in
the merger must be approved for listing on the New York Stock Exchange at or
prior to the Merger Effective Time.
FEDERAL SECURITIES LAW CONSEQUENCES
All ADSs received by Niagara Mohawk shareholders in the merger will be
freely transferable, except that ADSs received by persons who are deemed to be
"affiliates" (as that term is defined under the Securities Act) of Niagara
Mohawk prior to the merger may be resold by them only in transactions permitted
by the resale provisions of Rule 145 under the Securities Act or as otherwise
permitted under the Securities Act. Persons who may be deemed to be affiliates
of Niagara Mohawk generally include individuals or entities that control, are
controlled by, or are under common control with, Niagara Mohawk and may include
certain officers and directors of Niagara Mohawk as well as principal
shareholders of Niagara Mohawk. The merger agreement requires Niagara Mohawk to
use commercially reasonable efforts to cause each of its affiliates to execute a
written agreement providing that the affiliate will not offer or sell or
otherwise dispose of any ADSs issued to the affiliate in or pursuant to the
merger in violation of the Securities Act or the rules and regulations
promulgated by the SEC thereunder.
This proxy statement/prospectus does not cover resales of ADSs received by
any person who may be deemed to be an affiliate of Niagara Mohawk.
MATERIAL TAX CONSEQUENCES
The following summary discusses: (1) the material US federal income tax
consequences to Niagara Mohawk shareholders who exchange their Niagara Mohawk
common stock for (a) New National Grid ADSs; (b) cash; or (c) a combination of
New National Grid ADSs and cash; (2) the material US federal income and UK tax
consequences to US Holders (as defined below) of the ownership and disposition
of New National Grid ADSs; and (3) New York State Real Estate Transfer tax
consequences to Niagara Mohawk shareholders. This discussion is based upon the
US Internal Revenue Code of 1986, as amended
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and in effect (the "Code"), Treasury regulations, administrative rulings and
judicial decisions currently in effect. All of the foregoing are subject to
change, possibly with retroactive effect, and any such change could affect the
continuing validity of the following discussion.
For purposes of this discussion, "US Holder(s)" means a beneficial owner(s)
of New National Grid ADSs who is:
- a citizen or resident of the United States,
- a corporation, or other entity taxable as a corporation, or a partnership
created or organized under the laws of the United States or any of its
political subdivisions, or
- an estate or trust that is subject to US federal income tax on its income
regardless of its source.
This discussion does not describe all aspects of US taxation or UK taxation
that may be relevant to US Holders in light of their particular circumstances.
The discussion assumes that shareholders hold their Niagara Mohawk common stock
and will hold New National Grid ADSs as capital assets within the meaning of
Section 1221 of the Code. The discussion does not apply to shareholders subject
to special treatment under US federal income tax laws, such as insurance
companies, tax-exempt organizations, financial institutions, brokers, dealers,
persons that hold Niagara Mohawk common stock as part of a straddle, hedge or
conversion transaction or persons who acquired Niagara Mohawk common stock
through the exercise of employee stock options or otherwise as compensation.
Except as provided below, the discussion does not consider the potential effects
of any state, local or foreign tax laws.
None of National Grid Group, New National Grid or Niagara Mohawk has
requested a ruling from the US Internal Revenue Service with respect to any of
the US federal income tax consequences of the merger. As a result, there can be
no assurance that the Internal Revenue Service will agree with any of the
conclusions described below.
Holders of Niagara Mohawk common stock should consult their own tax advisors
regarding the specific tax consequences to them of the merger, including the
applicability and effect of federal, state, local and foreign income and other
tax laws in their particular circumstances.
US TAX CONSEQUENCES OF THE MERGER
In the opinions of PricewaterhouseCoopers LLP, special tax advisors to
National Grid Group and New National Grid, and Bryan Cave LLP, special tax
counsel to Niagara Mohawk, for US federal income tax purposes:
- the merger, together with the scheme of arrangement, will be treated for
US federal income tax purposes as a transaction described in Section 351
of the Code, and no gain or loss will be recognized as a result thereof by
National Grid Group, New National Grid or Niagara Mohawk;
- no gain or loss will be recognized by Niagara Mohawk shareholders who
receive solely New National Grid ADSs in exchange for their Niagara Mohawk
common stock pursuant to the merger, except with respect to any cash
received instead of a fractional share;
- capital gain or loss will be recognized by Niagara Mohawk shareholders who
receive solely cash in exchange for their Niagara Mohawk common stock
pursuant to the merger, in an amount equal to the difference between the
amount of cash received and their adjusted tax basis in their Niagara
Mohawk common stock;
- a Niagara Mohawk shareholder who exchanges his Niagara Mohawk common stock
for a combination of New National Grid ADSs and cash, will recognize gain
(I.E., the amount by which the sum of the cash received and the fair
market value of the New National Grid ADSs received exceeds his adjusted
tax basis in his Niagara Mohawk common stock surrendered), if any, but
only to the extent of the amount of cash received; any loss will not be
recognized;
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- a US Holder of Niagara Mohawk common stock who receives cash instead of a
fractional New National Grid ADS should be treated as having received the
fractional share in the merger and then having exchanged the fractional
share for cash in a redemption by New National Grid; the US Holder will
generally recognize gain or loss equal to the difference between the
amount of cash received and that US Holder's adjusted tax basis in the New
National Grid ADS that is allocable to the fractional share;
- the aggregate tax basis of the New National Grid ADSs received by a US
Holder will be the same as the aggregate tax basis of the Niagara Mohawk
common stock surrendered in exchange therefor in the merger increased by
the gain recognized, if any, and reduced by any cash received pursuant to
the merger; and
- the holding period for the New National Grid ADSs received by a US Holder
will include the holding period of the Niagara Mohawk common stock
surrendered in exchange therefor in the merger.
The tax opinions are subject to qualifications and are based on currently
applicable law, certain factual representations made by National Grid Group, New
National Grid and Niagara Mohawk and certain assumptions. The material
assumptions are that (i) the merger and the scheme of arrangement will be
completed as contemplated by the registration statement and in accordance with
the provisions set forth in the merger agreement, (ii) any statements concerning
the merger set forth in the merger agreement or the registration statement are
true, correct and complete, and (iii) any representations made by National Grid
Group, New National Grid or Niagara Mohawk concerning the merger are true,
correct and complete. Moreover, the tax opinions are in no way binding on the
Internal Revenue Service or any courts. Any change in currently applicable law,
which may or may not be retroactive, or failure of any of such factual
representations or assumptions to be true, correct and complete in all material
respects, could affect the continuing validity of the tax opinions.
NEW YORK STATE TRANSFER TAXES
It is expected that, as a result of the merger, the New York State Real
Estate Transfer Tax ("Transfer Tax") will be imposed on Niagara Mohawk
shareholders. New National Grid has agreed to pay such Transfer Tax directly to
New York State taxing authorities on behalf of the shareholders. For US federal
income tax purposes, any such payments made on behalf of a shareholder may
result in the deemed receipt of additional consideration by such shareholder in
proportion to the number of shares of Niagara Mohawk common stock owned by such
shareholder. In such event, such shareholder would be deemed to have paid such
Transfer Tax on his own behalf.
BACKUP WITHHOLDING
Certain non-corporate Niagara Mohawk shareholders may be subject to backup
withholding at a 31% rate on payments received in connection with the merger
(including cash paid instead of fractional shares of New National Grid ADSs).
Backup withholding will not apply, however, to a Niagara Mohawk shareholder who
(i) furnishes a correct taxpayer identification number and certifies as to not
being subject to backup withholding on the substitute Form W-9 or successor form
which will be included in the letter of transmittal to be delivered to Niagara
Mohawk shareholders prior to the completion of the merger, (ii) provides a
certification of foreign status on Form W-8 or successor form or (iii) is
otherwise exempt from backup withholding.
If you do not provide a correct taxpayer identification number, you may be
subject to penalties imposed by the Internal Revenue Service. Any amount paid as
backup withholding will be creditable against your US federal income tax
liability, and a US Holder may obtain a refund of any excess amounts withheld
under the backup withholding rules by filing an appropriate claim for refund
with the Internal
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Revenue Service. You should consult with your own tax advisors as to your
qualification for exemption from backup withholding and the procedure for
obtaining the exemption.
You may prevent backup withholding by completing a substitute Form W-9 or
substitute Form W-8, as applicable, and submitting it to the paying agent when
you submit your Niagara Mohawk common stock certificates.
REPORTING REQUIREMENTS
The former holders of Niagara Mohawk common stock will be required to attach
to their income tax returns for the taxable year in which the completion of the
merger occurs, and maintain a permanent record of, a complete statement of all
the facts relating to the exchange of shares in connection with the merger. The
facts to be disclosed by a former holder include the former holder's basis in
the Niagara Mohawk common stock transferred to New National Grid and the number
of New National Grid ADSs received in the merger.
US TAX CONSEQUENCES OF THE OWNERSHIP OF ADSS
Dividends paid to a US Holder by New National Grid with respect to the ADSs
will be taxable as ordinary income to the US Holder for US federal income tax
purposes to the extent paid out of New National Grid's current or accumulated
earnings and profits, as determined for US federal income tax purposes, based on
the US dollar value of the dividend on the date the dividend is actually or
constructively received by the Depositary, calculated by reference to the
exchange rate on the relevant date.
A US Holder, generally, is entitled to a UK tax credit of one ninth of the
amount of the cash dividend that is offset by the UK withholding tax. Under the
present US-UK income tax treaty, US Holders will include as ordinary income the
amount of any dividend paid by New National Grid out of its current or
accumulated earnings and profits, as determined for US federal income tax
purposes (the "base dividend"), plus, if an election is made on US IRS
Form 8833 (Treaty-Based Return Position Disclosure Under Section 6114 or
7701(b)), the amount of any UK tax credit (the "dividend gross-up"). For
example, if New National Grid paid a dividend of $90 for US federal income tax
purposes, a US Holder making the election referred to above would recognize
ordinary income of $100, comprised of $90 of the base dividend plus $10 of the
dividend gross-up (reflecting the $10 UK tax credit.) The income is recognized
when the dividend is actually or constructively received by the Depositary. The
dividend will not be eligible for the dividends-received deduction generally
allowed to US corporations in respect of dividends received from other US
corporations. Distributions in excess of New National Grid's current and
accumulated earnings and profits, as determined for US federal income tax
purposes, will be treated as a return of capital to the extent of the US
Holder's basis in the ADSs, and thereafter as capital gain.
Subject to some specific limitations and requirements, a US Holder will be
entitled, generally, to credit the UK withholding tax against the US Holder's US
federal income tax liability. To obtain a foreign tax credit, US Holders must
make an election on US IRS Form 8833 (Treaty-Based Return Position Disclosure
Under Section 6114 or 7701(b)), which must be filed with their US federal income
tax return for the relevant year. Claiming a US foreign tax credit with respect
to the UK withholding tax may result in a lower effective US federal income tax
rate on dividends paid by New National Grid for certain US Holders. US Holders
who do not elect to claim a foreign tax credit may instead claim a deduction for
any UK withholding tax. Eligible US Holders who rely on the US-UK income tax
treaty should consider disclosing this reliance on their US federal income tax
return. US Holders who fail to disclose reliance on a treaty where disclosure is
required are subject to penalties under US federal income tax law. THE RULES
RELATING TO THE COMPUTATION OF FOREIGN TAXES ARE COMPLEX AND US HOLDERS SHOULD
CONSULT THEIR OWN TAX ADVISORS TO DETERMINE WHETHER AND TO WHAT EXTENT A CREDIT
WOULD BE AVAILABLE AND WHETHER ANY FILINGS OR OTHER ACTIONS MAY BE REQUIRED TO
SUBSTANTIATE THEIR FOREIGN TAX CREDIT CLAIM.
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TAXATION OF CAPITAL GAINS
In general, for US federal income tax purposes, US Holders of ADSs will be
treated as the owners of the underlying ordinary shares that are represented by
the ADSs and deposits and withdrawals of ordinary shares by US Holders in
exchange for ADSs will not be treated as a sale or other disposition for US
federal income tax purposes. In the event a US Holder exchanges his ADSs for
ordinary shares of New National Grid, the US Holder's tax basis and holding
period for the ordinary shares will be the same as the tax basis and holding
period of the ADSs exchanged therefor.
Upon a sale or other disposition of ADSs, a US Holder will recognize a gain
or loss for US federal income tax purposes in an amount equal to the difference
between the US dollar value of the amount realized and the US Holder's tax basis
(determined in US dollars) in the ADSs. Generally, the gain or loss will be a
long-term capital gain or loss if the US Holder's holding period for the ADSs
exceeds one year, and any gain or loss generally will be US source income.
UK TAX CONSEQUENCES TO US HOLDERS OF THE OWNERSHIP OF ADSS
For the purposes of the US-UK income tax treaty, US Holders of ADSs will be
treated as owners of the ordinary shares underlying the ADSs.
TAXATION OF DIVIDENDS
The US-UK income tax treaty contains provisions that are intended to extend
the benefits of the UK integrated tax system to US Holders eligible for treaty
benefits ("eligible US Holders"). As discussed above in "US Tax Consequences of
the Ownership of ADSs," the treaty provides that eligible US Holders, generally,
are entitled to a UK tax credit that is offset by the UK withholding tax.
TAXATION OF CAPITAL GAINS
A US Holder who is not a resident or ordinarily resident for tax purposes in
the United Kingdom, generally, will not be liable for UK tax on capital gains
realized on the disposal of his ADSs. This general rule does not apply if, at
the time of the disposal, the US Holder carries on a trade, profession or
vocation in the UK through a branch or agency and the ADSs are or have been
used, held or acquired for the purposes of such trade, profession or vocation,
or for the purposes of such branch or agency. An individual US Holder who has,
on or after March 17, 1998, ceased to be resident or ordinarily resident for tax
purposes in the UK for a period of less than five tax years and who disposes of
ADSs during that period may be liable for UK tax on capital gains realized,
subject to any available exemption or relief.
STAMP DUTY AND STAMP DUTY RESERVE TAX
UK stamp duty is charged in respect of certain documents and UK stamp duty
reserve tax ("SDRT") is imposed in respect of certain transactions in
securities.
Transfers of the ordinary shares will generally be subject to UK stamp duty
at the rate of 50p for every L100, or part thereof, of the consideration given
for the transfer (with rounding up to the nearest multiple of L5). An agreement
to transfer ordinary shares or any interest in the ordinary shares for money or
money's worth will normally give rise to a charge of SDRT at the rate of 0.5% of
the consideration given. If an agreement to transfer ordinary shares is
completed by a duly stamped transfer within six years, then the charge to SDRT
will be cancelled or, where the SDRT charge has been paid, the SDRT will be
repaid, provided that a claim for repayment is made.
Transfers of shares through the electronic transfer system known as "CREST"
are generally subject to SDRT rather than stamp duty.
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A charge to stamp duty or SDRT respectively at the rates of L1.50 for every
L100, or part thereof, or 1.5% of the value of the consideration or, in some
circumstances, the value of the ordinary shares concerned, may arise on a
transfer of the ordinary shares to the Depositary or to certain persons
providing a clearance service or their nominees or agents and will generally be
payable by the Depositary or person providing the clearance service. Any tax or
duty payable by the Depositary on deposit of ordinary shares will be charged by
the Depositary to the party to whom ADSs are delivered against the deposits.
However, any SDRT or stamp duty arising on the issue of the ADSs constituting
merger consideration will be paid by New National Grid.
No liability for stamp duty should arise on any transfer of an ADS or
beneficial ownership of such ADS, provided that the ADS and any instrument of
transfer or written agreement to transfer is executed outside the United
Kingdom, and remains at all times outside the United Kingdom. In any other case,
a charge to AD VALOREM stamp duty may arise.
SDRT will not be payable on any agreement to transfer the American
Depositary Receipts ("ADRs") evidencing ADSs or beneficial ownership of the
ADRs. A transfer of the underlying ordinary shares from the Depositary to the
holder of an ADS upon cancellation of the ADS generally will be subject to a
fixed UK stamp duty of L5 per instrument of transfer.
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THE MERGER AGREEMENT
THE DESCRIPTION OF THE MERGER AGREEMENT SET FORTH BELOW HIGHLIGHTS CERTAIN
IMPORTANT TERMS OF THE MERGER AGREEMENT AS AMENDED, A COPY OF WHICH IS ATTACHED
TO THIS PROXY STATEMENT/PROSPECTUS AS ANNEX A. THIS DESCRIPTION DOES NOT PURPORT
TO BE COMPLETE AND IT MAY NOT INCLUDE ALL THE INFORMATION THAT INTERESTS OR IS
RELEVANT TO YOU. WE URGE YOU TO READ THE MERGER AGREEMENT CAREFULLY AND IN ITS
ENTIRETY.
MERGER EFFECTIVE TIME
The merger will become effective upon the later of the filing of a
certificate of merger relating to the merger by the Department of State of the
State of New York and the filing of a certificate of merger relating to the
merger with the Secretary of State of the State of Delaware or upon a later date
agreed upon by the parties and specified in the certificates of merger; provided
that the Merger Effective Time shall occur as soon as reasonably practical but
no later than seven days after the Scheme Effective Time.
EFFECTS OF THE MERGER
At the Merger Effective Time, Grid Delaware, Inc. will be merged with and
into Niagara Mohawk and Niagara Mohawk will continue its corporate existence
with the same certificate of incorporation and bylaws as in effect immediately
prior to the Merger Effective Time. The additional effects of the merger will be
as set forth in the applicable provisions of New York and Delaware law.
At the Merger Effective Time, all shares of common stock of Grid
Delaware, Inc. issued and outstanding prior to the merger will be converted into
the right to receive a number of shares of common stock of Niagara Mohawk equal
to the number of issued and outstanding Niagara Mohawk shares at the Merger
Effective Time. Each share of Niagara Mohawk common stock will be converted into
the right to receive the merger consideration in the form of cash, ADSs or a
combination of cash and ADSs.
No fractional ordinary shares or scrip representing fractional ADSs will be
issued in the merger. Shareholders will receive a cash payment in place of
fractional shares.
As a result of the merger, the common stock of Niagara Mohawk will no longer
be publicly traded. Following the merger, persons who were shareholders of
Niagara Mohawk immediately prior to the merger will no longer have an
opportunity to continue to hold an interest in Niagara Mohawk as a separate
business entity.
Trading in the common stock of Niagara Mohawk on the New York Stock Exchange
will cease immediately following the Merger Effective Time. At such time, the
common stock will be delisted from the New York Stock Exchange. Registration of
the common stock under the Securities Exchange Act of 1934, as amended, will
also be terminated, as will the ongoing disclosure requirements thereunder with
respect to the common stock.
ELECTION
Holders of shares of Niagara Mohawk common stock (other than shares held by
Niagara Mohawk, National Grid Group, New National Grid or their wholly owned
subsidiaries, which will be cancelled in the merger) issued and outstanding
immediately prior to the election deadline will be entitled to choose one of the
consideration options, listed below on their form of election:
- to receive cash consideration for each share;
- to receive ADS consideration for each share; or
- to exchange some of their shares for cash and some for ADSs.
Niagara Mohawk shares as to which no election as to the type of
consideration has been made will be deemed to have elected cash or ADSs as
determined by National Grid Group.
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A form of election (as described herein) and complete instructions for
properly making an election to receive cash, ADSs or a combination of cash and
ADSs will be mailed to shareholders under separate cover not more than 90 days
nor less than 30 days before the anticipated day of the completion of the
merger, which is currently expected to be in late 2001.
LIMITS ON CASH AND ADS CONSIDERATION
Under the merger agreement, the total amount of cash consideration to be
paid in the merger will be $1.015 billion with the balance to be paid in ADS
consideration. National Grid Group has a right to increase the cash election
number to follow the elections of Niagara Mohawk's shareholders more closely.
ALLOCATION
If the number of shares of Niagara Mohawk common stock for which cash is
elected would result in an amount of cash payable to Niagara Mohawk shareholders
exceeding the cash election number ($1.015 billion, unless increased by National
Grid Group in accordance with the terms of the merger agreement), then:
- those shares with respect to which ADS elections or no elections were made
will be exchanged for ADSs; and
- the cash will be prorated among the other shares of Niagara Mohawk common
stock.
If the number of shares of Niagara Mohawk common stock for which ADSs are
elected does not result in at least $1.015 billion of cash being elected then:
- all shares for which a cash election or no elections were made will be
exchanged for cash; and
- the remaining cash will be prorated among the shares for which an ADS
election was made.
In all instances, cash will be paid in place of fractional ADSs.
As a result of the above-described proration, the amount of cash and ADSs
received by shareholders may differ from their actual elections. If one form of
consideration is oversubscribed by the Niagara Mohawk shareholders, a
shareholder may receive all or part of his consideration in the undersubscribed
form of consideration.
EXCHANGE OF STOCK CERTIFICATES
EXCHANGE AGENT. National Grid Group, New National Grid or Grid
Delaware, Inc., as the case may be, will deposit with The Bank of New York
acting as Exchange Agent cash equal to the sum of the total cash payable in
exchange for outstanding Niagara Mohawk common stock and the number of ordinary
shares represented by the ADSs to be issued in the merger.
EXCHANGE PROCEDURES. At least 30 and no more than 90 days before the
anticipated day of the completion of the merger, the Exchange Agent will mail a
form of election to each record shareholder (as of a record date to be
determined by Niagara Mohawk, New National Grid and National Grid Group) of
Niagara Mohawk common stock. The Exchange Agent will use its best efforts to
make a form of election available to all persons who become shareholders of
Niagara Mohawk after the record date. To be effective, a form of election must
be:
- properly completed and signed by the shareholder of record;
- accompanied by the certificates for the Niagara Mohawk common stock for
which the election is being made (duly endorsed in blank or otherwise
acceptable for transfer on the books of Niagara Mohawk, or by an
appropriate guarantee of delivery); and
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- delivered to the exchange agent before 5:00 p.m. on the fifth business day
immediately preceding the day of the completion of the merger.
Holders may revoke their elections by sending written notice to the Exchange
Agent before the deadline for submitting elections. Elections will be
automatically revoked if the Exchange Agent receives written notice from New
National Grid, National Grid Group and Niagara Mohawk that the merger has been
abandoned. Upon any such revocation, the certificates (or delivery guarantees)
covered by the election shall be promptly returned. New National Grid or
National Grid Group, as the case may be (and, at their option, the Exchange
Agent), will have the discretion to determine whether forms of election have
been properly completed, signed and submitted or revoked, and to disregard
defects in the forms of election.
Promptly after the Merger Effective Time, the Exchange Agent will mail the
following materials to each shareholder of record of Niagara Mohawk whose shares
were converted into the right to receive consideration in the merger and who did
not return a properly completed form of election:
- a letter of transmittal for use in submitting his shares to the Exchange
Agent for exchange; and
- instructions explaining what the shareholder must do to effect the
surrender of Niagara Mohawk certificates in exchange for consideration to
be issued in the merger.
If the shareholder has not already submitted all of his certificates accompanied
by a form of election, the shareholder should complete and sign the letter of
transmittal and return it to the Exchange Agent together with his certificates
in accordance with the instructions. Shareholders who hold shares through a
nominee (for example if their shares of common stock are held by a broker as
nominee) will not need to request that certificates be issued. Those
shareholders will need to make their elections in the same time period and will
receive separate instructions at that time.
LOST, STOLEN OR DESTROYED CERTIFICATES. If certificates for any Niagara
Mohawk common stock have been lost, stolen or destroyed, the shareholder must
submit an affidavit to that effect to the Exchange Agent. New National Grid or
the surviving corporation in the merger may also require the shareholder to
deliver a bond to the Exchange Agent in an amount reasonably required to
indemnify the Exchange Agent against claims with respect to lost certificates.
TRANSFER OF OWNERSHIP. The Exchange Agent will issue payment for shares of
Niagara Mohawk common stock to a person other than the person in whose name the
Niagara Mohawk certificate surrendered in exchange therefor was registered only
if the surrendered certificate is properly endorsed and otherwise in proper form
for transfer. The person requesting the payment must also pay any required
transfer or other taxes or establish to the satisfaction of New National Grid,
National Grid Group and Niagara Mohawk that no tax is payable.
PAYMENTS FOLLOWING SURRENDER. Until they have surrendered their
certificates, holders of certificates who elect or are allocated to receive ADSs
will not receive:
- dividends and other distributions with respect to ADSs they are entitled
to pursuant to the merger and that are declared or made with a record date
after the Merger Effective Time; or
- cash payment in place of fractional ADSs.
At the time of surrender, Niagara Mohawk shareholders will receive
certificates representing whole ADSs issued in exchange for Niagara Mohawk
shares, the cash payable in place of fractional ADSs to which the shareholder is
entitled under the merger agreement and the amount of dividends or other
distributions paid with respect to whole ADSs if such distributions had a record
date after the Merger Effective Time. These shareholders will also be paid on
the appropriate payment date the amount of dividends or other distributions with
a record date after the Merger Effective Time but prior to surrender,
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and a payment date subsequent to surrender. Shareholders who elect to receive
cash in exchange for Niagara Mohawk shares will be paid the appropriate amounts
without interest.
SHAREHOLDERS SHOULD NOT FORWARD CERTIFICATES TO THE EXCHANGE AGENT, NEW
NATIONAL GRID, NATIONAL GRID GROUP OR NIAGARA MOHAWK UNTIL THEY HAVE RECEIVED A
FORM OF ELECTION. SHAREHOLDERS SHOULD NOT RETURN CERTIFICATES WITH THE ENCLOSED
PROXY. A FORM OF ELECTION AND COMPLETE INSTRUCTIONS FOR PROPERLY MAKING AN
ELECTION TO RECEIVE CASH, ADSS OR A COMBINATION OF CASH AND ADSS WILL BE MAILED
TO SHAREHOLDERS UNDER SEPARATE COVER NOT MORE THAN 90 DAYS NOR LESS THAN
30 DAYS BEFORE THE ANTICIPATED DAY OF THE COMPLETION OF THE MERGER, WHICH IS
CURRENTLY ANTICIPATED TO BE IN LATE 2001.
REPRESENTATIONS AND WARRANTIES
In the merger agreement, each of Niagara Mohawk, National Grid Group, New
National Grid and Grid Delaware, Inc. makes representations and warranties about
itself and its business in favor of the other parties. These representations and
warranties relate to such matters as:
- the organization of the parties and their subsidiaries and similar
corporate matters;
- the parties' capital structures;
- the authorization, execution, delivery, performance and enforceability of
the merger agreement and related matters;
- the absence of breach or conflict and compliance with applicable laws,
regulations, organizational documents, agreements and other existing
obligations;
- the regulatory approvals, licenses and permits of National Grid Group and
its subsidiaries and Niagara Mohawk and its subsidiaries;
- the reports and financial statements filed by National Grid Group and its
subsidiaries and Niagara Mohawk and its subsidiaries with the SEC, the
Federal Energy Regulatory Commission, the Nuclear Regulatory Commission,
the Federal Communications Commission, the Department of Energy or
appropriate state public utilities commissions, and accuracy of the
information contained therein;
- the absence of material adverse changes and the non-occurrence of certain
events with respect to National Grid Group and its subsidiaries and
Niagara Mohawk and its subsidiaries;
- the legal proceedings with respect to National Grid Group and its
subsidiaries and Niagara Mohawk and its subsidiaries;
- the accuracy of information supplied by each of Niagara Mohawk, National
Grid Group, New National Grid and Grid Delaware, Inc. for use in the
registration statement, of which this proxy statement/prospectus forms a
part, filed by New National Grid in connection with the issuance of ADSs
in the merger;
- the accuracy of information supplied by each of them for use in filings
with the UK Listing Authority in connection with the merger or the scheme
of arrangement, including the circular to be issued to shareholders of
National Grid Group, the listing particulars relating to New National Grid
ordinary shares and the document, including explanatory statement, to be
sent to shareholders of National Grid Group in connection with the scheme
of arrangement;
- tax matters;
- with respect to Niagara Mohawk, retirement and other employee benefit
plans and matters relating to the Employee Retirement Income Security Act
of 1974, as amended;
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- environmental compliance and liability with respect to National Grid Group
and its subsidiaries and Niagara Mohawk and its subsidiaries;
- with respect to Niagara Mohawk, regulation as a utility;
- the National Grid Group and Niagara Mohawk shareholder votes required in
connection with the merger and the scheme of arrangement;
- with respect to Niagara Mohawk, the opinion of DLJ;
- beneficial ownership by either Niagara Mohawk, National Grid Group or New
National Grid of common stock, ordinary shares or ADSs issued by the other
parties, as applicable;
- brokers' and finders' fees incurred in connection with the merger and the
scheme of arrangement;
- with respect to Niagara Mohawk, non-applicability of certain takeover
provisions to the merger;
- insurance;
- with respect to Niagara Mohawk, assets necessary to conduct business;
- with respect to Niagara Mohawk, labor and employee relations;
- with respect to Niagara Mohawk, intellectual property;
- with respect to Niagara Mohawk, credit and commodity derivatives exposure;
and
- with respect to Niagara Mohawk, compliance by it with laws applicable to
Niagara Mohawk's nuclear facilities.
CONDUCT OF BUSINESS BEFORE THE MERGER EFFECTIVE TIME
Under the merger agreement, Niagara Mohawk has agreed, as to itself and its
subsidiaries, that, during the period from the date of the merger agreement
until the Merger Effective Time, except as otherwise permitted in the merger
agreement or as described in the disclosure schedule provided by Niagara Mohawk
to National Grid Group, or by written consent of the parties, Niagara Mohawk
(and each of its subsidiaries) will, among other things:
- carry on its business in the usual, regular and ordinary course in
substantially the same manner as conducted in the past;
- consult with National Grid Group before initiating any changes in rates or
services or accounting or entering into agreements with respect to such
changes and deliver to National Grid Group for comment copies of filings
and agreements related to rate matters at least four days before their
filing or execution;
- confer, provide copies of filings and cooperate with National Grid Group,
notify and forewarn National Grid Group of any material changes and
changes that are reasonably likely to result in a material adverse effect
on Niagara Mohawk and its subsidiaries or its ability to complete the
merger;
- use all commercially reasonable efforts to obtain third-party consents
required in the merger and related transactions;
- maintain insurance coverage with financially responsible insurance
companies consistent with insurance maintained by Niagara Mohawk in the
ordinary course of business in accordance with past practice;
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- inform National Grid Group and New National Grid of any events that are
reasonably likely to result in a tax change relating to the sale of
Niagara Mohawk's nuclear facilities and to consult with them before making
any of those changes;
and will not:
- (1) declare or pay any dividends on or make other distributions in respect
of any of its capital stock, other than dividends paid by a subsidiary of
Niagara Mohawk to Niagara Mohawk or to another subsidiary of Niagara
Mohawk, regularly scheduled dividends and distributions required by the
terms of preferred stock or similar securities that are not convertible
into common stock, (2) split, combine or reclassify any of its capital
stock or issue other securities in substitution for its capital stock or
(3) make any redemptions, repurchases or other acquisitions of its capital
shares, other than redemptions or repurchases of stock for the purpose of
funding employee stock ownership and dividend reinvestment plans and
redemptions, purchases or acquisitions required by the terms of any
non-convertible preferred securities of Niagara Mohawk subsidiaries;
- issue or sell capital stock or options, other than issuances of options or
awards under Niagara Mohawk stock plans in connection with the hiring of
new employees or upon exercise of existing options, or intercompany
issuances of capital stock;
- amend its charter or by-laws, except as contemplated by the merger
agreement;
- engage in material acquisitions or alterations of its corporate structure
or ownership, except in the ordinary course of business consistent with
past practice;
- sell, lease, encumber or otherwise dispose of its assets;
- make any additional investments in, loans or contributions to any joint
venture or partnership, or undertake any guarantees or other obligations
with respect to any joint venture or partnership;
- take any action that could reasonably be expected to jeopardize the tax
exempt qualification of some of Niagara Mohawk's bond issues;
- make or rescind any material tax election or grant any power of attorney
with respect to tax matters, make a request for a tax ruling or enter into
a closing agreement, settle or compromise any material tax claim, action,
proceeding, investigation, audit or controversy relating to taxes, or make
a material change in its methods of reporting income or deductions for
federal income tax purposes;
- make any capital expenditure in excess of 110% of the amount budgeted for
each fiscal year, other than in circumstances described in the merger
agreement;
- incur or guarantee indebtedness or enter into a keep-well agreement with
respect to indebtedness other than (1) short-term indebtedness in the
ordinary course of business consistent with past practice in amounts
agreed upon by the parties, except as reasonably deemed necessary after
consulting with National Grid Group following a catastrophic event,
(2) long-term indebtedness in connection with the refinancing of existing
indebtedness at stated maturity or at a lower cost of funds, or
(3) guarantees or keep-well agreements in favor of wholly owned
subsidiaries in connection with their business;
- enter into, amend or increase the amount or accelerate the payment or
vesting or termination of benefits or payments under any employee benefit
or compensation plan, or other contract, agreement, commitment,
arrangement, plan, trust, fund or policy or other arrangement benefiting
officers, employees or directors, except for increases in the ordinary
course of business consistent in process and amounts with past practice or
that are otherwise required pursuant to the current terms of Niagara
Mohawk benefit plans which, taken together for any group, will not result
in a material increase in benefits or compensation expense or material
changes in the amount which will fail to be deductible for federal income
tax purposes or in acceleration or increase of parachute payments;
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- adopt, establish, enter into or implement any new employee plan, benefit
or compensation program or policy, any new employment, severance or
retention agreement, or other new contract, agreement or arrangement
providing for any form of benefits or other compensation to any former,
present or future director, officer or employee, except as required by the
existing collective bargaining agreement, by employee benefit plans that
are agreed to in writing by the parties or as is otherwise required under
the current terms of Niagara Mohawk's employee benefit plans, or as may be
necessary to implement the terms of existing severance policies (NMPC may
also negotiate successor collective bargaining agreements);
- engage in any activity which would cause a change in its status under the
US Public Utility Holding Company Act of 1935;
- make any changes in its accounting methods other than as required by law,
rule, regulation or US generally accepted accounting principles or agreed
to by the parties;
- enter into any material agreements with affiliates on terms materially
less favorable than those that could be obtained in arm's-length
bargaining;
- modify, amend, terminate, renew or fail to renew any material contract or
waive, release or assign material rights or claims or agree to provisions
that would impede the ability of Niagara Mohawk to complete the merger or
with respect to which the merger will trigger default or termination
provisions;
- discharge any material liabilities other than in the ordinary course of
business consistent with past practice;
- take any action that would be reasonably likely to adversely affect the
status of the merger and the scheme of arrangement taken together as a
transaction described in Section 351 of the Code or cause the merger to be
subject to Section 367(a)(1) of the Code;
- terminate, amend, modify or waive any standstill agreement or standstill
provisions of other agreements to which it is a party and fail to take all
appropriate steps to enforce the provisions of any such agreement; or
- take any action that would, or is reasonably likely to, result in a
material breach of any provision of the merger agreement or a failure of
any representation or warranty of Niagara Mohawk to be true and correct.
Under the merger agreement, National Grid Group has agreed, as to itself and
its subsidiaries, that, during the period from the date of the merger agreement
until the Merger Effective Time, except as otherwise permitted in the merger
agreement or by written consent of the parties, National Grid Group (and each of
its subsidiaries) will, among other things:
- carry on its business in the usual, regular and ordinary course in
substantially the same manner as conducted in the past;
- confer with and provide copies of filings to Niagara Mohawk, notify and
forewarn Niagara Mohawk of any material changes and changes that are
reasonably likely to result in a material adverse effect on National Grid
Group and its subsidiaries or materially impair its ability to complete
the merger or the scheme of arrangement; and
- use all commercially reasonable efforts to obtain third-party consents
required in the merger and related transactions;
and will not:
- enter into or agree to mergers, consolidations or acquisitions of assets
or stock of other entities that could reasonably be expected to materially
delay the completion of the merger;
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- take any action that would be reasonably likely to adversely affect the
status of the merger and the scheme of arrangement taken together as a
transaction described in Section 351 of the Code or cause the merger to be
subject to Section 367(a)(1) of the Code;
- take any action including amending its charter, by-laws, regulations or
similar organic documents, except as provided in the merger agreement,
engage in any activity that would result in a change of its status under
the US Public Utility Holding Company Act of 1935; or make any changes in
its accounting methods other than as required by law, rule, regulation or
applicable generally accepted accounting principles, that would reasonably
be expected to prevent or materially impede, interfere with or delay the
merger or the scheme of arrangement; or
- willfully take any action that would, or is reasonably likely to, result
in a material breach of any provision of the merger agreement or a failure
of any representation or warranty of National Grid Group to be true and
correct.
Under the merger agreement, New National Grid has agreed that both New
National Grid and Grid Delaware, Inc. will perform their obligations and will
not engage in any business or activity, or enter into any agreement or
arrangement that is inconsistent with the merger agreement or the scheme of
arrangement.
In addition, Niagara Mohawk and National Grid Group have agreed that if they
determine that the Niagara Mohawk nuclear facilities are likely to be sold but
not on a timely basis in order to satisfy the conditions of the merger
agreement, they would consider alternatives to the sale of these facilities
before the completion of the merger and related transactions. Alternatives may
include alternative governance, operational and ownership arrangements
acceptable to National Grid Group that are consistent with the requirements of
the Atomic Energy Act and applicable Nuclear Regulatory Commission rules and
regulations.
NO SOLICITATION OF TRANSACTIONS
Under the merger agreement, Niagara Mohawk has agreed that neither it nor
any of its subsidiaries or representatives will initiate or encourage any
inquiry or proposal about other mergers, sales of substantial assets, sales of
10% or more of its capital stock or other business combinations, or negotiate,
discuss, approve or recommend any such alternative acquisition proposal. The
merger agreement requires Niagara Mohawk to terminate any existing discussions
or negotiations with any third party about such mergers, sales or similar
transactions.
Prior to the time the Niagara Mohawk shareholders adopt the merger agreement
and approve related transactions, Niagara Mohawk's board of directors is not
prevented from considering, approving and recommending an unsolicited
alternative acquisition proposal from a third party or providing information to
the offeror, if the board of directors:
- determines in good faith, based on the written opinion of outside counsel,
that the board's fiduciary duties under applicable law with respect to the
alternative acquisition proposal require it to do so in order to act
consistently with the fiduciary duties of its members;
- concludes in good faith (based on the written advice of its financial
advisors) that the person or group making the alternative acquisition
proposal has adequate sources of financing to consummate it and that such
proposal is materially more favorable to Niagara Mohawk shareholders from
a financial point of view than the merger; and
- engages in discussions or negotiations regarding the alternative
acquisition proposal and provides information to the offeror of the
proposal pursuant to a confidentiality agreement no more favorable to the
offeror than the confidentiality agreement between National Grid Group and
Niagara Mohawk.
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Niagara Mohawk must promptly notify National Grid Group of the receipt of
any alternative acquisition proposal, the material terms and conditions of any
such proposal, the identity of the person making the proposal, and the status
and details of any such request or proposal. If Niagara Mohawk decides to accept
the acquisition proposal, it must give National Grid Group five business days'
written notice of its intent to accept. In addition, Niagara Mohawk and its
financial and legal advisors must give National Grid Group a reasonable
opportunity to adjust the terms of the merger agreement so that the parties can
proceed with the merger and negotiate in good faith with National Grid Group
with respect to any such adjustments. Concurrently with the termination of the
merger agreement, Niagara Mohawk must also pay required termination fees (see
"--Termination").
INDEMNIFICATION
For a period of six years following the Merger Effective Time, with respect
to persons who were or become employees, officers or directors of Niagara Mohawk
or its subsidiaries before the Merger Effective Time or, if applicable, the
Scheme Effective Time, with respect to persons who were or become employees,
officers or directors of National Grid Group before the Scheme Effective Time:
- New National Grid shall, at New National Grid's election, either maintain
the current directors' and officers' liability insurance policies of
National Grid Group or Niagara Mohawk, obtain new policies on terms no
less favorable than the terms of the current insurance coverage, or
provide tail coverage for persons currently covered by such policies on
terms no less favorable than the terms of the current insurance coverage.
- To the fullest extent permitted by law, the indemnification provisions in
the charters, by-laws and similar governing documents of National Grid
Group or Niagara Mohawk and its subsidiaries, will survive the merger and
remain in effect with respect to activities of the officers, directors,
employees and agents of the companies prior to the Merger Effective Time
or the Scheme Effective Time, as applicable.
In addition, to the extent such persons are not otherwise indemnified, New
National Grid has agreed to the fullest extent permitted under applicable law
and its governing documents, to indemnify, defend and hold harmless each present
and former director, officer and employee of Niagara Mohawk or National Grid
Group, as applicable (or any of its subsidiaries) against (1) all losses,
expenses, claims, damages or liabilities or amounts paid in settlements arising
out of actions or omissions occurring at or prior to the Merger Effective Time,
with respect to Niagara Mohawk, and at or prior to the Scheme Effective Time,
with respect to National Grid Group, that arise in whole or in part out of the
fact that such person was a director, officer or employee of Niagara Mohawk or
National Grid Group, as applicable (or any of its subsidiaries); and (2) any
losses to the extent they are based on or relate to the transactions
contemplated by the merger agreement. Subject to certain conditions, the
surviving corporation will pay for counsel for the indemnified parties and will
cooperate in the indemnified party's defense, but it will not be liable for any
settlement effected without its written consent.
CORPORATE GOVERNANCE MATTERS
NATIONAL GRID BOARD. New National Grid agreed to take all actions necessary
to appoint all members serving on the National Grid Group board of directors
immediately prior to the Merger Effective Time, the current Chief Executive
Officer of Niagara Mohawk and one additional outside director of the board of
directors of Niagara Mohawk, as determined by National Grid Group, to serve on
the New National Grid board of directors following the Merger Effective Time.
ADVISORY BOARD. Promptly following the Merger Effective Time, New National
Grid agreed to cause the surviving entity in the merger to establish an advisory
board which will be maintained for at least two years. The advisory board will
be comprised of up to 12 persons who were, immediately prior to the Merger
Effective Time, serving as non-executive members of Niagara Mohawk's board of
directors, who
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are not appointed to serve on the New National Grid board of directors and who
are willing to serve in such capacity on the advisory board. The function of the
advisory board will be to advise the surviving entity's board of directors with
respect to general business as well as opportunities and activities in the State
of New York and to maintain and develop customer relationships in the State of
New York. The board will meet at least three times a year.
NATIONAL GRID USA BOARD. For a period of two years after the Merger
Effective Time, the current Chief Executive Officer of Niagara Mohawk shall
serve as Chairman of the board of directors of National Grid USA and two other
current executive officers of Niagara Mohawk as determined by National Grid
Group will serve on the board of directors of National Grid USA.
WORKFORCE AND EMPLOYEE BENEFIT MATTERS
New National Grid will honor or will cause the appropriate subsidiary to
honor all collective bargaining agreements in effect at the Merger Effective
Time until their expiration and assume all rights and obligations under those
agreements.
Subject to compliance with applicable laws and obligations under applicable
collective bargaining agreements, for a period of two years following the Merger
Effective Time:
- reductions in workforce, if any, in respect of US employees of New
National Grid and its subsidiaries will be made on a fair and equitable
basis, as determined by New National Grid, and any US employees whose
employment is terminated or job is eliminated during such period will have
a right to participate on a fair and equitable basis in the job
opportunity and placement programs offered by New National Grid or any of
its subsidiaries for which these US employees are eligible; and
- workforce reductions, if any, carried out by the surviving entity will be
done in accordance with all applicable collective bargaining agreements,
and all laws governing the employment relationship and its termination,
including the Worker Adjustment and Retraining Notification Act and
regulations thereunder, and any similar state or local law.
Under the merger agreement, employee benefit plans will be treated in the
following manner:
- New National Grid or its subsidiaries will provide for two years after the
day of the completion of the merger, compensation, benefits and coverage
to current employees and retirees of Niagara Mohawk or its subsidiaries,
other than those covered by a collective bargaining agreement, who
continue employment with New National Grid or its subsidiaries, that are
no less favorable in the aggregate than those provided to such employees
and retirees immediately prior to the merger;
- New National Grid and the surviving entity and its other subsidiaries will
honor all obligations to current and former officers of Niagara Mohawk or
its subsidiaries, and to their beneficiaries, under employment agreements
and benefit plans, and assume all other obligations under employment,
severance, consulting and retention agreements or arrangements and benefit
plans;
- the compensation, benefits and coverage provided to employees who are
covered by a collective bargaining agreement will continue to be provided
under the terms of that agreement;
- with some exceptions and modifications, New National Grid or its
subsidiaries will provide severance benefits that are equivalent to those
provided to employees of Niagara Mohawk and its subsidiaries (other than
with respect to employees covered by a collective bargaining agreement) on
the date of the merger agreement to such employees who continue employment
with New National Grid or its subsidiaries, if their employment is
terminated within 24 months after the merger;
- employees and retirees of Niagara Mohawk or its subsidiaries, other than
employees covered by a collective bargaining agreement, who continue
employment with New National Grid or its
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subsidiaries will receive full credit for all service with Niagara Mohawk
or its subsidiaries, to the same extent as their service was credited by
Niagara Mohawk or its subsidiaries, for purposes of eligibility, vesting,
accrual of benefits and determination of the level of benefits in any
benefit plan or arrangement of New National Grid or its subsidiaries
(exceptions apply if their credit would provide duplication of benefits or
if New National Grid or its subsidiaries establish certain non-replacement
plans or arrangements after the merger);
- New National Grid or its subsidiaries generally will, with respect to any
welfare benefit plan of New National Grid or its subsidiaries in which
continuing employees other than those covered by a collective bargaining
agreement may be eligible to participate after the completion of the
merger, (1) waive for such employees all limitations as to preexisting
conditions, exclusions and waiting periods, other than limitations or
waiting periods that are already in effect and (2) provide those employees
with credit for any co-payments and deductibles paid prior to the
completion of the merger in satisfying applicable credit or out-of-pocket
requirements;
- except as may be limited by any applicable law or collective bargaining
agreement, New National Grid and its subsidiaries may elect to merge or
replace Niagara Mohawk's benefit plans, agreements, or arrangements into
or with those of New National Grid or its subsidiaries; and
- Niagara Mohawk has agreed to use its reasonable efforts to take all
necessary actions to have each stock option outstanding pursuant to
Niagara Mohawk's 1992 Stock Option Plan, whether or not then exercisable,
cancelled and exchanged for an amount in cash from Niagara Mohawk equal to
the result of multiplying (1) the number of shares of Niagara Mohawk
common stock previously subject to the option by (2) the excess of the
merger consideration over the per share exercise price of the option.
CONDITIONS TO COMPLETION OF THE MERGER
CONDITIONS TO EACH PARTY'S OBLIGATIONS TO EFFECT THE MERGER. Unless waived
in writing, the obligations of the parties to complete the merger are subject to
satisfaction of the following conditions:
- the shareholders of Niagara Mohawk have adopted the merger agreement and
the shareholders of National Grid Group have approved the merger;
- no court of competent jurisdiction or other governmental authority has
enacted, promulgated, enforced or entered any law or order (whether
temporary, preliminary or permanent) that has the effect of making illegal
or otherwise restricting or prohibiting completion of the scheme of
arrangement, the merger or related transactions;
- the proxy/registration statement has been declared effective and the SEC
has not taken or threatened any prohibitory action;
- the UK Listing Authority has agreed to admit to its Official List the
ordinary shares represented by the ADSs to be issued in the merger and the
ordinary shares to be issued pursuant to the scheme of arrangement and
such agreement has not been withdrawn, and the ADSs to be issued in the
merger have been approved for listing, upon official notice of issuance,
on the New York Stock Exchange;
- the sale by Niagara Mohawk of its nuclear facilities has closed and
conforming license amendments have been issued by the Nuclear Regulatory
Commission to reflect the change in ownership, or National Grid Group and
Niagara Mohawk have agreed to an alternative to the sale, with respect to
which all required approvals (which will include approvals by the US
Nuclear Regulatory Commission, the New York Public Service Commission and
other regulatory bodies) and any necessary conforming license amendments
have been received;
- the parties have obtained the required statutory approvals from agencies,
including a confirmation from the New York Public Service Commission that
PowerChoice will remain in effect in
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accordance with its terms in all material respects following completion of
the merger (see "The Merger--Regulatory Matters" below) which have become
final orders as required in the merger agreement; and
- the applicable waiting periods under the Hart Scott Rodino ("HSR") Act
have expired or have been terminated.
CONDITIONS TO THE OBLIGATIONS OF NEW NATIONAL GRID AND NATIONAL GRID
GROUP. The obligations of New National Grid and National Grid Group are also
subject to satisfaction of the following conditions:
- Niagara Mohawk has performed, in all material respects, those agreements
and covenants in the merger agreement required to be performed by Niagara
Mohawk at or prior to the Merger Effective Time;
- the representations and warranties of Niagara Mohawk contained in the
merger agreement are true and correct as of the date of the merger
agreement and, subject to certain exceptions, as of the day of the closing
of the merger, unless any failure of the representations and warranties to
be true and correct could not individually or in the aggregate be
reasonably expected to result in a material adverse effect on the business
of Niagara Mohawk;
- New National Grid and National Grid Group have received a certificate from
the chief financial officer of Niagara Mohawk stating that the above
conditions have been satisfied;
- Niagara Mohawk has obtained certain consents as required in the merger
agreement;
- Niagara Mohawk has obtained certain agreements executed by its
"affiliates" (as the term is defined under the Securities Act) as provided
in the merger agreement;
- New National Grid and National Grid Group have received a satisfactory
written opinion from PricewaterhouseCoopers LLP opining, among other
things, that the merger, together with the scheme of arrangement, will
constitute a transaction described in Section 351 of the Code and no gain
or loss will be recognized by New National Grid or National Grid Group as
a result thereof;
- New National Grid and National Grid Group have received all necessary
licenses, permits and other governmental approvals necessary to be
transferred or issued to New National Grid and National Grid Group in
order for it to continue business operations of Niagara Mohawk and its
subsidiaries; and
- the High Court of Justice in London, England, has sanctioned the scheme of
arrangement on terms contemplated by the merger agreement, and the scheme
of arrangement has been approved by National Grid Group shareholders.
CONDITIONS TO OBLIGATIONS OF NIAGARA MOHAWK. The obligations of Niagara
Mohawk are also subject to satisfaction of the following conditions:
- National Grid Group and New National Grid have performed, in all material
respects, those agreements and covenants in the merger agreement required
to be performed by National Grid Group and New National Grid at or prior
to the Merger Effective Time;
- the representations and warranties of National Grid Group, New National
Grid and Grid Delaware, Inc. contained in the merger agreement are true
and correct as of the date of the merger agreement and, subject to certain
exceptions, as of the day of the completion of the merger, unless any
failure of the representations and warranties to be true and correct could
not individually or in the aggregate be reasonably expected to result in a
material adverse effect on the business of National Grid Group;
- Niagara Mohawk has received a certificate from the chief financial officer
of National Grid Group and New National Grid stating that the above
conditions have been satisfied;
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- National Grid Group and New National Grid have obtained certain consents
as required in the merger agreement unless the failure to obtain such
consents could not reasonably be expected to have a material adverse
effect on National Grid Group or Niagara Mohawk;
- Niagara Mohawk has received a satisfactory written opinion from Bryan Cave
LLP opining, among other things, that the merger, together with the scheme
of arrangement, will constitute a transaction described in Section 351 of
the Code, and no gain or loss will be recognized by Niagara Mohawk
pursuant to the merger, and no gain or loss will be recognized by Niagara
Mohawk shareholders who receive solely ADSs pursuant to the merger; and
- Niagara Mohawk has received an opinion from CMS Cameron McKenna,
substantially to the effect that the New National Grid ordinary shares
represented by the ADSs to be issued in the merger will be validly issued
and fully paid.
TERMINATION
CONDITIONS TO TERMINATION. National Grid Group, New National Grid and
Niagara Mohawk have the right to terminate the merger agreement prior to the day
of the completion of the merger, whether before or after the shareholders have
approved the transaction, by mutual written consent of the boards of directors.
Both National Grid Group and Niagara Mohawk also have the right to terminate the
merger agreement under the following circumstances:
- if any state or federal law, order, rule or regulation prohibits the
merger (such determination must be supported by an opinion of outside
counsel) or if any court or government authority issues a nonappealable
final order or other permanent action restraining, enjoining or otherwise
prohibiting the merger;
- upon written notice to the other parties, if the merger has not been
completed by December 31, 2001, so long as the delay has not been caused
by a failure of the party seeking termination to fulfill its obligations
under the merger agreement. If all closing conditions are satisfied or
able to be satisfied on December 31, 2001, other than receipt of the
required statutory approvals and/or the sale or other arrangement relating
to Niagara Mohawk's nuclear facilities, to the extent conditions with
respect to Niagara Mohawk's nuclear facilities remain open, Niagara Mohawk
has either entered into a definitive agreement for the sale of its nuclear
facilities or satisfactory alternative arrangements with respect to these
facilities have been reached by the parties, the relevant date for
termination will be extended to March 31, 2002. If all closing conditions
other than receipt of approvals for the sale of Niagara Mohawk's nuclear
facilities are satisfied or able to be satisfied on March 31, 2002 and the
definitive agreement or other arrangement for the sale of these facilities
remains in effect, the date for termination will be extended to
August 31, 2002;
- upon written notice to the other party, if the shareholders of such party
do not approve the merger or adopt the merger agreement, as the case may
be, at their duly held shareholder meeting;
- by Niagara Mohawk, prior to its shareholders' adoption of the merger
agreement and approval of related transactions, if Niagara Mohawk receives
a third-party proposal about another merger, sale of substantial assets,
sale of 10% or more of Niagara Mohawk's or any of its material
subsidiaries capital stock or other business combination, in response to
which Niagara Mohawk's board of directors determines, based on the written
opinion of outside counsel, that the board's fiduciary duties under
applicable law require it to accept such proposal in order to act
consistently with the fiduciary duties of its members, and concludes in
good faith (based on written advice of its financial advisors) that the
person or group making the alternative proposal has adequate sources of
financing to consummate it and that such proposal is materially more
favorable to Niagara Mohawk
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shareholders than the merger; provided that before Niagara Mohawk may
terminate the merger agreement:
(1) Niagara Mohawk must give National Grid Group five business days'
written notice of its intent to accept the alternative acquisition
proposal (notice must also specify its material terms and identify
the person making the proposal);
(2) Niagara Mohawk and its financial and legal advisors must give
National Grid Group a reasonable opportunity during this five
business days' period to make any adjustments in the terms of the
merger agreement that would allow Niagara Mohawk to proceed with the
merger, and must negotiate in good faith with National Grid Group
towards adjusting the merger agreement so as to enable the merger to
proceed; and
(3) Niagara Mohawk must pay to National Grid Group the termination fee of
$150 million plus National Grid Group's out-of-pocket expenses due up
to $10 million if it enters into a transaction with the offeror of
the alternative acquisition proposal; or
- upon written notice to the other party if:
(1) the other party has materially breached a covenant, representation or
warranty, and the breach remains uncured 20 days after written notice
was given;
(2) the other party's board of directors withdraws or modifies, in a
manner adverse to the terminating party, its approval or
recommendation to its shareholders regarding approval of the merger
agreement, the merger or the scheme of arrangement (if it remains
part of the transaction structure); or
(3) New National Grid fails to deliver the consideration to be paid in
connection with the merger to the Depositary, while all other
conditions to New National Grid's obligations have been either
satisfied or waived.
EFFECT OF TERMINATION. If the merger agreement is terminated, there will be
no liability on the part of National Grid Group, Niagara Mohawk or any of their
affiliates, directors, officers or shareholders, except as otherwise provided in
the merger agreement and as described below under "--Termination Fees." Nothing,
however, will relieve any party from liability for a breach of the merger
agreement.
TERMINATION FEES.
- If a party terminates the merger agreement because the other party's board
of directors withdraws or modifies its recommendation to its shareholders
before their approval, the other party will be obligated to pay a
termination fee of $150 million and also pay in cash to the terminating
party all documented out-of-pocket expenses and fees incurred by the
terminating party, up to $10 million.
- If a party terminates the merger agreement because the other party
willfully materially breaches a representation, warranty, covenant or
agreement under the merger agreement, the non-breaching terminating party
may recover appropriate amounts at law or in equity available to that
party.
- If Niagara Mohawk terminates the merger agreement because its board of
directors determines that their fiduciary duties make it necessary to
accept an alternative acquisition proposal (as described above), Niagara
Mohawk will pay in cash to National Grid Group a termination fee equal to
$150 million in addition to any amounts that have already been paid to
National Grid Group in respect of out-of-pocket expenses and fees up to
$10 million.
- Additionally, in certain other circumstances Niagara Mohawk may be
required to pay to National Grid Group a termination fee of $150 million
(plus any amounts to be paid to National Grid Group in respect of
out-of-pocket expenses and fees up to $10 million). Specifically, the
termination fee will be payable if the merger agreement is terminated
while an alternative acquisition proposal is
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outstanding, on the basis of a material breach by Niagara Mohawk of any
representation, warranty, covenant or agreement under the merger
agreement, a failure to seek or obtain the requisite shareholder approval,
or a failure to complete the merger by December 31, 2001 (or the
applicable later dates in the circumstances described above) and if
Niagara Mohawk enters into a transaction with the offeror of the
alternative acquisition proposal within two years after termination of the
merger agreement (or within one year if the termination was solely the
result of failure to complete the sale of Niagara Mohawk's nuclear
facilities).
AMENDMENT AND WAIVER
AMENDMENT. The parties to the merger agreement may amend the agreement by
action taken by their boards of directors at any time before Niagara Mohawk
shareholders and National Grid Group shareholders have approved the merger
agreement at their meetings and before the Merger Effective Time. After the
shareholders of either party have approved the merger agreement, however, an
amendment may be made only to the extent permitted by applicable law.
On December 1, 2000, for technical reasons, we amended the merger agreement
to change the number of shares of common stock of Niagara Mohawk into which the
shares of common stock of Grid Delaware, Inc. will be converted at the Merger
Effective Time.
WAIVER. At any time prior to the Merger Effective Time, the parties may:
- extend the time for performance of acts or obligations of the other
parties;
- waive inaccuracies in the representations and warranties of the other
parties; and
- waive compliance with agreements or conditions contained in the merger
agreement, to the extent permitted by applicable law.
REGULATORY MATTERS
Before the merger and the scheme of arrangement are completed, we must
obtain a number of regulatory approvals. National Grid Group, New National Grid
and the Niagara Mohawk are not aware of any material governmental consents,
approvals or clearances that are required prior to the parties' consummation of
the merger or the scheme of arrangement, other than those described below. It is
presently contemplated that if any additional governmental consents, approvals
or clearances are required, they will be sought.
It is a condition to the completion of the merger that final orders
approving the merger and the scheme of arrangement, if appropriate, be obtained
from the various federal, state and foreign regulators described below. Under
the merger agreement, each party has agreed to use its best efforts to obtain
all governmental authorizations necessary or advisable to complete or effect the
transactions contemplated by the merger agreement. Various parties may seek
intervention in these proceedings to oppose the merger or to have conditions
imposed upon the receipt of necessary approvals. While there can be no assurance
that the consents, approvals and clearances described below or any additional
consents, approvals or clearances will be obtained on satisfactory terms, the
directors of New National Grid, National Grid Group and Niagara Mohawk believe
that the necessary approvals can be obtained by late 2001.
HSR ACT
The merger is subject to the requirements of the HSR Act and the rules and
regulations thereunder, which provide that certain acquisition transactions may
not be completed until certain information has been furnished to the Antitrust
Division of the Department of Justice (the "Antitrust Division") and the Federal
Trade Commission (the "FTC") and until certain waiting periods have been
terminated or have expired. The expiration or earlier termination of the HSR Act
waiting period would not preclude the
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Antitrust Division or the FTC from challenging the merger on antitrust grounds.
If the merger is not completed within 12 months after the expiration or earlier
termination of the initial HSR Act waiting period, New National Grid, National
Grid Group and Niagara Mohawk would be required to submit new information to the
Antitrust Division and the FTC, and a new HSR Act waiting period would have to
expire or be earlier terminated before the merger could be completed. New
National Grid, National Grid Group and Niagara Mohawk intend to file their
premerger notifications in the first half of 2001.
FEDERAL POWER ACT
Section 203 of the Federal Power Act (the "FPA") provides that no public
utility may sell or otherwise dispose of its facilities subject to the
jurisdiction of the Federal Energy Regulatory Commission or, directly or
indirectly, merge or consolidate such facilities with those of any other person
or acquire any security of any other public utility without first having
obtained authorization from the Federal Energy Regulatory Commission. Because
this transaction involves a change in ownership and control of Niagara Mohawk's
public utility subsidiary, the prior approval of the Federal Energy Regulatory
Commission under FPA Section 203 is required in order to complete the merger. In
addition, because the scheme of arrangement technically involves a change of
control over National Grid Group's existing public utility subsidiaries to New
National Grid, the scheme of arrangement also requires approval of the Federal
Energy Regulatory Commission as a merger transaction under Section 203 of the
FPA.
Under Section 203 of the FPA, the Federal Energy Regulatory Commission is
directed to approve a merger if it finds such merger "consistent with the public
interest." In reviewing a merger, the Federal Energy Regulatory Commission
generally evaluates: (1) whether the merger will adversely affect competition;
(2) whether the merger will adversely affect rates; and (3) whether the merger
will impair the effectiveness of regulation. New National Grid, National Grid
Group and Niagara Mohawk believe the proposed merger and scheme of arrangement
satisfies these standards.
An application will be filed with the Federal Energy Regulatory Commission
requesting approval of the merger and the scheme of arrangement under
Section 203 of the FPA at the appropriate time.
SECURITIES AND EXCHANGE COMMISSION APPROVAL PURSUANT TO THE US PUBLIC UTILITY
HOLDING COMPANY ACT OF 1935
Section 9(a)(2) of the US Public Utility Holding Company Act of 1935
provides that it is unlawful, without the prior approval of the SEC, for any
person to acquire any security of any public utility company if that person
already owns 5% or more of the voting securities of another public utility
company, or will by virtue of that transaction come to own 5% or more of the
voting securities of two or more public utility companies. As a result of the
merger and the scheme of arrangement, New National Grid will be deemed to
acquire directly or indirectly all of the common shares of National Grid Group,
a registered public utility holding company that owns several public utility
company subsidiaries as well as the common shares of Niagara Mohawk and its
public utility subsidiary. Accordingly, New National Grid and National Grid
Group are required to obtain prior SEC approval under Section 9(a)(2) of the US
Public Utility Holding Company Act of 1935 to complete the scheme of arrangement
and the merger. An application for approval of the merger and the scheme of
arrangement will be filed by New National Grid and National Grid Group at the
appropriate time.
Under the applicable standards of the US Public Utility Holding Company Act
of 1935, the SEC is directed to approve a proposed acquisition unless it finds
that (1) the acquisition would tend towards detrimental interlocking relations
or a detrimental concentration of control, (2) the consideration to be paid in
connection with the acquisition is not reasonable, (3) the acquisition would
unduly complicate the capital structure of the applicant's holding company
system or would be detrimental to the proper functioning of the applicant's
holding company system, or (4) the acquisition would violate applicable state
law. In order to approve a proposed acquisition, the SEC also must find that the
acquisition would tend
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towards the development of an integrated public utility system and would
otherwise conform to the US Public Utility Holding Company Act of 1935's
integration and corporate simplification standards.
If the scheme of arrangement is effected, New National Grid will register as
a holding company under Section 5 of the US Public Utility Holding Company Act
of 1935 and become subject to regulation thereunder. National Grid Group is
currently a registered holding company under Section 5 of the US Public Utility
Holding Company Act of 1935. Niagara Mohawk is currently a holding company
exempt from all provisions of the US Public Utility Holding Company Act of 1935,
including the registration provisions, except Section 9(a)(2) (which is
discussed above) because it and its public utility subsidiary are organized and
doing business predominantly in a single state, New York. Following the
completion of the merger, Niagara Mohawk and its subsidiaries will become
subsidiaries of a registered holding company and will be subject to regulation
under the US Public Utility Holding Company Act of 1935.
FEDERAL COMMUNICATIONS COMMISSION
The Federal Communications Commission must approve the transfer of control
of telecommunications permits or licenses. The Communications Act of 1934
prohibits the transfer, assignment or disposal in any manner of any construction
permit or station license, or any rights thereunder, to any person without
authorization from the Federal Communications Commission. In addition, a carrier
must obtain permission before acquisition or operation of new lines and may not
construct or extend a line, or transmit via such lines, without prior Federal
Communications Commission approval. Under the Communications Act, the Federal
Communications Commission will approve a transfer of control if it serves the
public convenience, interest and necessity. We will seek the necessary approval
from the Federal Communications Commission for the transfer of control of
licenses held by Niagara Mohawk and to amend licenses and tariffs as
appropriate.
STATE REGULATORY APPROVALS
NEW YORK PUBLIC SERVICE COMMISSION
Under Section 70 of the New York State Public Service Law, the New York
Public Service Commission ("NYPSC") must approve the transfer of an electric
company's franchise, works or systems to another corporation. The NYPSC has
previously asserted jurisdiction over mergers of holding companies of public
utility corporations, even where there was no direct transfer of the franchise,
works or system of the New York utility, based upon the indirect change of
control. In reviewing proposed mergers, the NYPSC must determine whether the
transaction is in the public interest. Factors which may be considered include
ratepayer benefits, service quality and reliability, market power issues,
environmental impacts, affiliate transactions and the financial integrity of the
resulting corporation. We intend to seek necessary approval of the transaction
by the NYPSC under Section 70 or other applicable statutes at the appropriate
time.
NEW HAMPSHIRE PUBLIC UTILITY COMMISSION
The New Hampshire Public Utility Commission ("NHPUC") must approve the
direct or indirect acquisition of more than 10% of the stock or bonds of a
public utility or public utility holding company doing business in the state
under Section 374:33 of the New Hampshire Revised Statutes Annotated ("RSA").
The scheme of arrangement may require approval of the NHPUC under RSA 374:33
because of the indirect transfer of control of Granite State Electric Company, a
subsidiary of National Grid USA, to New National Grid. Under RSA 369:8, approval
is not required for a merger of a parent company of a public utility where the
public utility certifies that the transaction will not have an adverse effect on
the rates, terms, service or operations of the New Hampshire public utility and
the NHPUC does not challenge the certification. If the NHPUC does challenge the
utility's certification of no adverse effect within 30 days of the filing, the
utility may amend its initial certification. If after reviewing the amended
certification, the
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NHPUC still challenges the certification, the utility must review the proposed
merger under RSA 374:33. The transaction may be approved under RSA 374:33 where
the NHPUC determines that there will be no net harm to New Hampshire customers.
If the NHPUC takes no action within 60 days after the public utility's filing of
certification of no adverse effect, then the transaction is considered approved
as filed. We intend to seek a waiver of any necessary approvals from the NHPUC
based upon a certification that the transaction will not have an adverse effect
within the state.
VERMONT PUBLIC SERVICE BOARD
Under Section 107 of Title 30 of the Vermont Statutes Annotated, the Vermont
Public Service Board ("VPSB") must approve the direct or indirect acquisition of
a controlling interest in a company subject to the jurisdiction of the VPSB, or
in a company which has the controlling interest in the jurisdictional company.
Because New England Power Company ("NEP"), a subsidiary of National Grid USA,
operates facilities in Vermont, and is subject to the VPSB's jurisdiction, the
scheme of arrangement will require VPSB approval for the indirect change of
control of NEP. The VPSB may approve the acquisition based upon a finding that
the transaction will promote the public good and has discretionary authority to
waive formal hearings. We will file for all necessary approvals from the VPSB at
the appropriate time.
CONNECTICUT DEPARTMENT OF PUBLIC UTILITY CONTROL
The Connecticut Department of Public Utility Control ("CDPUC") must approve
the direct or indirect merger or consolidation of a Connecticut public service
company under Section 16-43 of the Connecticut General Statutes ("CGS"). Because
NEP is a public service company under Connecticut law by virtue of its ownership
of the Millstone Unit III nuclear facility, the transaction may require approval
by the CDPUC in the event the pending sale of NEP's interest in Millstone Unit
III has not closed.
UK GOVERNMENTAL APPROVAL
The UK Secretary of State for Trade and Industry holds a special share in
National Grid Group. National Grid Group cannot undertake certain transactions,
including the scheme of arrangement, without his prior written consent. National
Grid Group will seek consent to implement the scheme of arrangement from the UK
Secretary of State for Trade and Industry.
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SCHEME OF ARRANGEMENT
The board of directors of National Grid Group intends to recommend to
National Grid Group shareholders a proposal to introduce a new holding company
for National Grid Group. The holding company structure will be effected through
a scheme of arrangement which must be sanctioned by the High Court in London,
England and approved by National Grid Group's shareholders. Under the scheme of
arrangement, New National Grid will issue one share in New National Grid in
exchange for each outstanding National Grid Group share. As a result, New
National Grid will become the holding company for National Grid Group. The
special share in National Grid Group will be cancelled and New National Grid
will issue a special share to the UK Secretary of State for Trade and Industry
in his capacity as holder of the National Grid Group special share.
Following the scheme of arrangement becoming effective, ordinary shares of
New National Grid will be admitted to the Official List of the UK Listing
Authority and traded on the London Stock Exchange, New National Grid ADSs will
be listed for trading on The New York Stock Exchange and New National Grid will
be subject to the registration and information requirements of the US securities
laws.
The rights attaching to New National Grid ordinary shares will be
substantially the same as those currently attaching to National Grid Group
ordinary shares. Thus, after the scheme of arrangement is implemented (but
before completion of the merger), holders of New National Grid Group ordinary
shares will have their interest in National Grid Group replaced by an equivalent
proportionate interest in New National Grid and, subject to the effect of
exercise of options to subscribe for National Grid Group shares granted under
National Grid Group share schemes, their proportionate interests in the profits,
net assets and dividends in the National Grid Group will not be affected.
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UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
INTRODUCTORY NOTE
The following Unaudited Pro Forma Condensed Combined Financial Information
gives pro forma effect to the acquisition of National Grid USA (formerly New
England Electric System) and the proposed acquisition of Niagara Mohawk, after
giving effect to the pro forma adjustments described in the accompanying notes.
The Unaudited Pro Forma Condensed Combined Income Statement for the year ended
March 31, 2000 does not include the results of Eastern Utilities Associates
(EUA), which was acquired by National Grid Group on April 19, 2000 for a cash
consideration of L414.0 million. The EUA acquisition has not been included on
the grounds that this acquisition does not constitute a significant transaction.
The Unaudited Pro Forma Condensed Combined Financial Information has been
prepared from, and should be read in conjunction with, the respective historical
consolidated accounts and notes thereto of National Grid Group, National Grid
USA and Niagara Mohawk, which are incorporated by reference in this proxy
statement/prospectus.
The Unaudited Pro Forma Condensed Combined Financial Information is provided
for illustrative purposes only and does not purport to represent what the actual
results of operations or the financial position of the Combined Group,
comprising National Grid Group, National Grid USA, EUA (except in respect of the
Unaudited Pro Forma Condensed Combined Income Statement for the year ended
March 31, 2000) and Niagara Mohawk, would have been had the acquisitions of
National Grid USA and Niagara Mohawk occurred on the dates assumed, nor is it
necessarily indicative of the Combined Group's future operating results or
combined financial position. No account has been taken within the Unaudited Pro
Forma Condensed Combined Financial Information of any future synergies
(including cost savings) or any future severance and restructuring costs, which
are expected to occur following the acquisition of National Grid USA and the
proposed acquisition of Niagara Mohawk, as at the date or period of presentation
of the Unaudited Pro Forma Condensed Combined Financial Information.
Following the acquisition of National Grid USA on March 22, 2000 for a cash
consideration of L2,070.8 million (see note 7 (a) to the Unaudited Pro Forma
Condensed Combined Financial Information), National Grid Group applied the
acquisition method of accounting under UK GAAP and similarly intends to account
for the proposed acquisition of Niagara Mohawk using this method. In addition,
both acquisitions qualify for the purchase method of accounting under US GAAP
and the Unaudited Pro Forma Condensed Combined Financial Information has been
prepared on this basis. For the purposes of the acquisition method of accounting
under UK GAAP and the purchase method of accounting under US GAAP, National Grid
Group is treated as the acquiring entity and National Grid USA and Niagara
Mohawk are treated as the entities being acquired.
As described in note 3 to the Unaudited Pro Forma Condensed Combined
Financial Information, adjustments have been made to the historical consolidated
accounts of National Grid USA and Niagara Mohawk to reflect reclassifications to
conform with National Grid Group's presentation under UK GAAP.
The historical accounts of National Grid USA and Niagara Mohawk have been
prepared in accordance with US GAAP. For the purpose of presenting the Unaudited
Pro Forma Condensed Combined Financial Information, financial information
relating to National Grid USA and Niagara Mohawk has been adjusted to conform
with National Grid Group's accounting policies under UK GAAP as described in
note 6 to the Unaudited Pro Forma Condensed Combined Financial Information.
The historical accounts of National Grid USA and Niagara Mohawk are
presented in US dollars. For the purposes of presenting the Unaudited Pro Forma
Condensed Combined Financial Information the adjusted income statements of
National Grid USA and Niagara Mohawk in respect of the year ended December 31,
1999 and of Niagara Mohawk for the six months ended June 30, 2000 have been
translated into pounds sterling at the average Noon Buying Rate for the
respective periods. The adjusted balance
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UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL INFORMATION (CONTINUED)
INTRODUCTORY NOTE (CONTINUED)
sheet of Niagara Mohawk at September 30, 2000 has been translated into pounds
sterling at the Noon Buying Rate on September 30, 2000. See note 3 to the
Unaudited Pro Forma Condensed Combined Financial Information.
The pro forma acquisition accounting adjustments reflected in the
accompanying Unaudited Pro Forma Condensed Combined Financial Information, and
described in note 7 to the Unaudited Pro Forma Condensed Combined Financial
Information, reflect estimates made by National Grid Group's management and
assumptions that it believes to be reasonable. Actual amounts will differ from
those reflected in the Unaudited Pro Forma Condensed Combined Financial
Information.
In exchange for each share of Niagara Mohawk common stock, Niagara Mohawk
shareholders will receive consideration of $19.00 per Niagara Mohawk common
share, if the Average Price is between $32.50 and $51.00. In the event that the
Average Price is greater than $51.00, the per share consideration received by
Niagara Mohawk shareholders will increase by two-thirds of the percentage of the
increase in value over $51.00. In the event that the Average Price is less than
$32.50, the per share consideration received by Niagara Mohawk shareholders will
decrease by two-thirds of the percentage of the decrease in value below $32.50.
Niagara Mohawk shareholders can elect to receive their consideration either in
cash or ADSs, or a combination of both, subject to the aggregate cash
consideration paid being $1.015 billion. If cash elections received from Niagara
Mohawk shareholders exceed $1.015 billion, National Grid Group may, at its sole
discretion, increase the cash component of the consideration. See note 7(b) to
the Unaudited Pro Forma Condensed Combined Financial Information for details of
the purchase consideration assumed for the purpose of calculating the
acquisition adjustments.
The Unaudited Pro Forma Condensed Combined Financial Information has been
prepared in accordance with UK GAAP which differs in certain significant
respects from US GAAP. Note 8 to the Unaudited Pro Forma Condensed Combined
Financial Information provides a description of the significant differences
between UK and US GAAP, as they relate to National Grid Group. A reconciliation
of the pro forma net income and pro forma shareholders' funds to US GAAP is
included in note 9 to the Unaudited Pro Forma Condensed Combined Financial
Information.
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UNAUDITED PRO FORMA CONDENSED COMBINED INCOME STATEMENT
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2000
The following Unaudited Pro Forma Condensed Combined Income Statement for
the six months ended September 30, 2000 is derived from the unaudited historical
consolidated profit and loss account of National Grid Group for the six months
then ended and the unaudited historical statement of consolidated income of
Niagara Mohawk for the six months ended June 30, 2000, after giving effect to
the pro forma adjustments described in notes 1 to 7 to the Unaudited Pro Forma
Condensed Combined Financial Information. Such adjustments have been determined
as if the acquisition of Niagara Mohawk took place on April 1, 1999, the first
day of the earliest financial period of National Grid Group presented in the
Unaudited Pro Forma Condensed Combined Financial Information. The Unaudited Pro
Forma Condensed Combined Financial Information has been prepared from and should
be read in conjunction with, and supplemental to, the respective unaudited
historical consolidated financial information and notes thereto of National Grid
Group, and Niagara Mohawk, for the six months ended September 30, 2000 and the
six months ended June 30, 2000 respectively which are incorporated by reference
in this proxy statement/prospectus.
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UNAUDITED PRO FORMA CONDENSED COMBINED INCOME STATEMENT
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2000 (CONTINUED)
<TABLE>
NATIONAL GRID NIAGARA MOHAWK
--------------- --------------------------------
ACQUISITION
SIX MONTHS SIX MONTHS ENDED JUNE 30, 2000 ADJUSTMENTS COMBINED GROUP
ENDED PRO FORMA
SEPTEMBER 30, US GAAP ADJUSTMENTS UK GAAP
2000 (NOTE 3) (NOTE 5)
UK GAAP UK GAAP (NOTE UK GAAP
7(B))
--------------- -------- ---------- -------- ---------- --------------
LM LM LM LM LM LM
<S> <C> <C> <C> <C> <C> <C>
Group turnover.................... 1,792.8 1,426.8 -- 1,426.8 -- 3,219.6
Operating costs................... (1,456.6) (1,267.7) 1.4 (i) (1,266.3) 2.7 (2,720.2)
-------- -------- ----- -------- -------- ---------
Operating profit.................. 336.2 159.1 1.4 160.5 2.7 499.4
Share of joint ventures' and
associate's operating
(loss)/profit................... (59.1) 0.9 0.9 (ii) 1.8 -- (57.3)
-------- -------- ----- -------- -------- ---------
Total operating profit
--Before exceptional integration
costs and goodwill
amortization.................... 358.6 160.0 2.3 162.3 -- 520.9
--Exceptional integration costs
(Note 4(a))..................... (46.8) -- -- -- -- (46.8)
--Goodwill amortization........... (34.7) -- -- -- 2.7 (i) (32.0)
277.1 160.0 2.3 162.3 2.7 442.1
Exceptional profit relating to
partial disposals of Energis
(Note 4(a))..................... 132.1 -- -- -- -- 132.1
Net interest...................... (98.7) (136.7) 0.2 (iii) (136.5) (26.6)(ii) (261.8)
-------- -------- ----- -------- -------- ---------
Profit on ordinary activities
before taxation................. 310.5 23.3 2.5 25.8 (23.9) 312.4
Taxation
--Excluding exceptional items..... (38.5) (16.7) (0.8)(iv) (17.5) 8.0 (ii) (48.0)
--Exceptional items
(Note 4(a))..................... 143.3 -- -- -- -- 143.3
104.8 (16.7) (0.8) (17.5) 8.0 95.3
-------- -------- ----- -------- -------- ---------
Profit on ordinary activities
after taxation.................. 415.3 6.6 1.7 8.3 (15.9) 407.7
Minority interests................ (2.7) (10.0) -- (10.0) -- (12.7)
-------- -------- ----- -------- -------- ---------
Profit/(loss) for the period...... 412.6 (3.4) 1.7 (1.7) (15.9) 395.0
======== ======== ===== ======== ======== =========
Basic earnings/(loss) per
ordinary/ common share.......... 28.0p (2.0)p (1.0)p 23.0p
--Goodwill amortization........... 2.4p -- -- 1.9p
--Exceptional items............... (15.6)p -- -- (13.3)p
-------- -------- -------- ---------
Basic earnings/(loss) per
ordinary/ common share excluding
exceptional items and goodwill
amortization.................... 14.8p (2.0)p (1.0)p 11.6p
======== ======== ======== =========
Diluted earnings/(loss) per
ordinary/ common share.......... 26.5p (2.0)p (1.0)p 22.0p
--Goodwill amortization........... 2.2p -- -- 1.7p
--Exceptional items............... (14.4)p -- -- (12.4)p
-------- -------- -------- ---------
Diluted earnings/(loss) per
ordinary/ common share excluding
exceptional items and goodwill
amortization.................... 14.3p (2.0)p (1.0)p 11.3p
======== ======== ======== =========
Weighted average number of shares
in issue (millions of shares)
--Basic........................... 1,474.8 174.2 174.2 244.9 (i) 1,719.7
--Diluted......................... 1,598.2 174.2 174.2 244.9 (i) 1,843.1
</TABLE>
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UNAUDITED PRO FORMA CONDENSED COMBINED INCOME STATEMENT
FOR THE YEAR ENDED MARCH 31, 2000
The following Unaudited Pro Forma Condensed Combined Income Statement for
the year ended March 31, 2000 is derived from the audited historical
consolidated profit and loss account of National Grid Group for the year then
ended and the audited historical statements of consolidated income of National
Grid USA and Niagara Mohawk for the year ended December 31, 1999, after giving
effect to the pro forma adjustments described in notes 1 to 7 to the Unaudited
Pro Forma Condensed Combined Financial Information. Such adjustments have been
determined as if the acquisition of National Grid USA and Niagara Mohawk took
place on April 1, 1999, the first day of the earliest financial period of
National Grid Group presented in the Unaudited Pro Forma Condensed Combined
Financial Information. The Unaudited Pro Forma Condensed Combined Financial
Information has been prepared from, and should be read in conjunction with, and
supplemental to, the respective historical consolidated accounts and notes
thereto of National Grid Group, National Grid USA and Niagara Mohawk, which are
incorporated by reference in this proxy statement/prospectus.
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UNAUDITED PRO FORMA CONDENSED COMBINED INCOME STATEMENT
FOR THE YEAR ENDED MARCH 31, 2000 (CONTINUED)
<TABLE>
<CAPTION>
NATIONAL GRID NATIONAL NIAGARA MOHAWK ACQUISITION ADJUSTMENTS
GROUP GRID USA YEAR ENDED ---------------------------
YEAR ENDED PARTIAL DECEMBER 31, NATIONAL GRID NIAGARA COMBINED
MARCH 31, 2000 YEAR 1999 USA MOHAWK GROUP
UK GAAP UK GAAP UK GAAP UK GAAP UK GAAP PRO FORMA
(NOTE 1) (NOTE 2) (NOTE 2) (NOTE 7(A)) (NOTE 7(B)) UK GAAP
--------------- ---------- ---------------- ------------- ----------- ----------------
LM LM LM LM LM LM
<S> <C> <C> <C> <C> <C> <C>
Group turnover................ 1,614.7 1,309.8 2,521.1 -- -- 5,445.6
Operating costs............... (1,042.6) (1,095.6) (2,228.6) (42.4) 5.4 (4,403.8)
-------- -------- -------- ------ ------ --------
Operating profit.............. 572.1 214.2 292.5 (42.4) 5.4 1,041.8
Share of joint ventures' and
associate's operating
(loss)/profit............... (33.5) 6.2 4.1 -- -- (23.2)
-------- -------- -------- ------ ------ --------
Total operating profit
--Before goodwill
amortization................ 546.5 219.3 296.6 -- -- 1,062.4
--Goodwill amortization....... (7.9) 1.1 -- (42.4)(i) 5.4(i) (43.8)
538.6 220.4 296.6 (42.4) 5.4 1,018.6
Exceptional item (Note
4(a))....................... 1,027.3 -- -- -- -- 1,027.3
Net interest.................. (64.9) (45.6) (312.3) (135.4)(ii) (53.2)(ii) (611.4)
-------- -------- -------- ------ ------ --------
Profit/(loss) on ordinary
activities before
taxation.................... 1,501.0 174.8 (15.7) (177.8) (47.8) 1,434.5
Taxation
--Excluding exceptional
item........................ (123.1) (60.5) (5.6) 40.6(ii) 16.0(ii) (132.6)
--Exceptional item (Note
4(a))....................... (229.5) -- -- -- -- (229.5)
(352.6) (60.5) (5.6) 40.6 16.0 (362.1)
-------- -------- -------- ------ ------ --------
Profit/(loss) on ordinary
activities after taxation... 1,148.4 114.3 (21.3) (137.2) (31.8) 1,072.4
Minority interests............ -- -- (22.8) -- -- (22.8)
-------- -------- -------- ------ ------ --------
Profit/(loss) for the year.... 1,148.4 114.3 (44.1) (137.2) (31.8) 1,049.6
======== ======== ======== ====== ====== ========
Basic earnings/(loss) per
ordinary/ common share...... 78.0p 192.6p (23.6)p 61.1p
--Goodwill amortization....... 0.5p (1.9)p -- 2.5p
--Exceptional item............ (54.2)p -- -- (46.4)p
-------- -------- -------- --------
Basic earnings/(loss) per
ordinary/ common share
excluding exceptional item
and goodwill amortization... 24.3p 190.7p (23.6)p 17.2p
======== ======== ======== ========
Diluted earnings/(loss) per
ordinary/common share....... 73.4p 192.1p (23.6)p 58.2p
--Goodwill amortization....... 0.5p (1.8)p -- 2.4p
--Exceptional item............ (50.1)p -- -- (43.4)p
-------- -------- -------- --------
Diluted earnings/(loss) per
ordinary/common share
excluding exceptional item
and goodwill amortization... 23.8p 190.3p (23.6)p 17.2p
======== ======== ======== ========
Weighted average number of
shares in issue (millions of
shares)
--Basic....................... 1,472.9 59.4 186.7 244.9(i) 1,717.8
--Diluted..................... 1,593.3 59.5 186.7 244.9(i) 1,838.2
</TABLE>
72
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
AT SEPTEMBER 30, 2000
The following Unaudited Pro Forma Condensed Combined Balance Sheet at
September 30, 2000 is derived from the unaudited historical consolidated balance
sheet of National Grid Group and Niagara Mohawk at September 30, 2000 and has
been prepared to reflect the acquisition of Niagara Mohawk after giving effect
to the pro forma adjustments described in notes 1 to 7 to the Unaudited Pro
Forma Condensed Combined Financial Information. The Unaudited Pro Forma
Condensed Combined Financial Information has been prepared from, and should be
read in conjunction with and supplemental to, the respective unaudited
historical consolidated accounts and notes thereto of National Grid Group and
Niagara Mohawk, for the six months and nine months ended September 30, 2000
respectively, which are incorporated by reference in this proxy
statement/prospectus.
<TABLE>
NATIONAL GRID ACQUISITION
GROUP
AT SEPTEMBER 30,
NIAGARA MOHAWK AT SEPTEMBER 30,
2000
--------------------------------
ADJUSTMENTS COMBINED GROUP
PRO FORMA
2000 US GAAP ADJUSTMENTS UK GAAP
(NOTE 3) (NOTE 5)
UK GAAP UK GAAP (NOTE UK GAAP
7(B))
----------------- -------- ---------- -------- ---------- --------------
LM LM LM LM LM LM
<S> <C> <C> <C> <C> <C> <C>
Fixed assets
Intangible assets--positive
goodwill....................... 1,140.6 -- -- -- -- 1,140.6
Intangible assets--negative
goodwill....................... -- -- -- -- (108.5)(i) (108.5)
Tangible assets.................. 5,467.9 3,896.1 269.1 (vi) 4,165.2 -- 9,633.1
Investments...................... 890.6 325.2 -- 325.2 -- 1,215.8
-------- -------- ----- -------- -------- ---------
7,499.1 4,221.3 269.1 4,490.4 (108.5) 11,881.0
-------- -------- ----- -------- -------- ---------
Current assets
Stocks........................... 35.6 109.9 -- 109.9 -- 145.5
Debtors (due within one year).... 781.4 669.8 24.0 (vii) 693.8 -- 1,475.2
Debtors (due after one year)..... 882.5 3,372.6 49.8 (viii) 3,422.4 -- 4,304.9
Assets held for exchange......... 16.6 -- -- -- -- 16.6
Businesses held for resale....... 133.7 -- -- -- -- 133.7
Investments...................... -- 55.3 -- 55.3 -- 55.3
Cash and deposits................ 649.7 64.6 -- 64.6 -- 714.3
-------- -------- ----- -------- -------- ---------
2,499.5 4,272.2 73.8 4,346.0 -- 6,845.5
Creditors (due within one
year).......................... (2,138.5) (1,038.7) -- (1,038.7) -- (3,177.2)
-------- -------- ----- -------- -------- ---------
Net current assets............... 361.0 3,233.5 73.8 3,307.3 -- 3,668.3
-------- -------- ----- -------- -------- ---------
Total assets less current
liabilities.................... 7,860.1 7,454.8 342.9 7,797.7 (108.5) 15,549.3
Creditors (due after more than
one year)...................... (3,975.0) (3,650.2) (13.9)(ix) (3,664.1) (709.4)(ii) (8,348.5)
Provisions for liabilities and
charges........................ (597.0) (1,632.2) 21.5 (x) (1,610.7) -- (2,207.7)
-------- -------- ----- -------- -------- ---------
Net assets employed.............. 3,288.1 2,172.4 350.5 2,522.9 (817.9) 4,993.1
======== ======== ===== ======== ======== =========
Capital and reserves
Called up share capital.......... 174.7 1.3 -- 1.3 27.5 (i)(iii) 203.5
Share premium account............ 275.0 1,721.4 -- 1,721.4 (378.8)(i)(iii) 1,617.6
Treasury stock................... -- (275.1) -- (275.1) 275.1 (iii) --
Profit and loss account.......... 2,783.7 411.1 350.5 (xi) 761.6 (761.6)(iii) 2,783.7
Accumulated other comprehensive
income......................... -- (19.9) -- (19.9) 19.9 (iii) --
-------- -------- ----- -------- -------- ---------
Shareholders' funds.............. 3,233.4 1,838.8 350.5 2,189.3 (817.9) 4,604.8
Minority interests............... 54.7 333.6 -- 333.6 -- 388.3
-------- -------- ----- -------- -------- ---------
3,288.1 2,172.4 350.5 2,522.9 (817.9) 4,993.1
======== ======== ===== ======== ======== =========
Net debt......................... 3,766.1 3,606.3 -- 3,606.3 709.4 8,081.8
</TABLE>
73
<PAGE>
NOTES TO THE UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL INFORMATION
NOTE 1: FINANCIAL INFORMATION RELATING TO NATIONAL GRID GROUP
The financial information relating to National Grid Group in respect of the
year ended March 31, 2000 includes the results of National Grid USA from
March 22, 2000 (the date of acquisition) to March 31, 2000.
NOTE 2: FINANCIAL INFORMATION RELATING TO NATIONAL GRID USA AND NIAGARA MOHAWK
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
NATIONAL GRID USA NIAGARA MOHAWK
-------------------------------------------------------------- ------------------------------------
PERIOD
MARCH 22, 2000
YEAR ENDED DECEMBER 31, 1999
------------------------------------
TO PARTIAL
MARCH 31, 2000
YEAR ENDED DECEMBER 31, 1999
------------------------------
UK GAAP YEAR US GAAP
UK GAAP (NOTES 3
US GAAP ADJUSTMENTS (NOTE 4(B)) ADJUSTMENTS UK GAAP
(NOTES 3 AND (NOTE 5) (NOTE 5)
4(B)) (NOTE 4(B)) AND 4(C)) (NOTE 4(C))
---------------- ----------- ---------------- ---------- --------- ----------- ----------
LM LM LM LM LM LM LM
<S> <C> <C> <C> <C> <C> <C> <C>
Group turnover....... 1,346.0 -- 36.2 1,309.8 2,521.1 -- 2,521.1
Operating costs...... (1,129.0) -- (i) (33.4) (1,095.6) (2,206.9) (21.7)(i) (2,228.6)
-------- ---- ----- -------- -------- ----- --------
Operating profit..... 217.0 -- 2.8 214.2 314.2 (21.7) 292.5
Share of joint
ventures' profit... 1.8 4.6 (ii) 0.2 6.2 2.0 2.1 (ii) 4.1
-------- ---- ----- -------- -------- ----- --------
Total operating
profit
--Before goodwill
amortization..... 218.8 4.6 4.1 219.3 316.2 (19.6) 296.6
--Goodwill
amortization..... -- -- (1.1) 1.1 -- -- --
-------- ---- ----- -------- -------- ----- --------
218.8 4.6 3.0 220.4 316.2 (19.6) 296.6
Net interest......... (40.9) (4.0)(iii) 0.7 (45.6) (311.2) (1.1)(iii) (312.3)
-------- ---- ----- -------- -------- ----- --------
Profit/(loss) on
ordinary activities
before taxation.... 177.9 0.6 3.7 174.8 5.0 (20.7) (15.7)
Taxation............. (68.8) 7.1 (iv) (1.2) (60.5) (3.9) (1.7)(iv) (5.6)
-------- ---- ----- -------- -------- ----- --------
Profit/(loss) on
ordinary activities
after taxation..... 109.1 7.7 2.5 114.3 1.1 (22.4) (21.3)
Minority interests... -- (0.2)(v) (0.2) -- (22.8) -- (22.8)
-------- ---- ----- -------- -------- ----- --------
Profit/(loss) for the
period............. 109.1 7.5 2.3 114.3 (21.7) (22.4) (44.1)
======== ==== ===== ======== ======== ===== ========
</TABLE>
NOTE 3: RECLASSIFICATIONS AND TRANSLATION OF FINANCIAL INFORMATION RELATING TO
NATIONAL GRID USA AND NIAGARA MOHAWK
National Grid USA and Niagara Mohawk present their accounts in accordance
with US GAAP and in US dollars.
Reclassifications have been made to the National Grid USA and Niagara Mohawk
historical financial information to conform to National Grid Group's
presentation under UK GAAP.
The results of National Grid USA and Niagara Mohawk have been translated
into pounds sterling at the average Noon Buying Rate of $1.62 to L1.00 for the
year ended December 31, 1999. The results of Niagara Mohawk for the six months
ended June 30, 2000 have been translated into pounds sterling at the
74
<PAGE>
NOTES TO THE UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL INFORMATION (CONTINUED)
NOTE 3: RECLASSIFICATIONS AND TRANSLATION OF FINANCIAL INFORMATION RELATING TO
NATIONAL GRID USA AND NIAGARA MOHAWK (CONTINUED)
average Noon Buying Rate of $1.57 to L1.00 for that period. The historical
balance sheet of Niagara Mohawk at September 30, 2000 has been translated into
pounds sterling at the Noon Buying Rate on September 30, 2000 of $1.48 to L1.00.
The use of these exchange rates in the Unaudited Pro Forma Condensed Combined
Financial Information should not be construed to signify that the US dollar
amounts actually represent such pounds sterling amounts or could be converted
into pounds sterling at the rate indicated or at any other rate, at any time.
NOTE 4: RESULTS FOR THE PERIODS PRESENTED
(a) National Grid Group
The exceptional item of L1,027.3 million in respect of the year ended
March 31, 2000 relates to the partial disposal of National Grid Group's
shareholding in Energis plc, an associated undertaking. This comprised a pre-tax
profit of L895.2 million (L665.7 million after tax) on the sale of 28.9 million
shares in Energis plc, and a pre- and post-tax profit of L132.1 million
resulting from reductions in National Grid Group's interest in Energis plc,
primarily as a consequence of the placing by Energis plc of 14.8 million of its
shares.
The results for the six months ended September 30, 2000 include post-tax
exceptional profits of L228.6 million net, comprising:
- A profit of L132.1 million, before and after tax, arising from reductions
in National Grid Group's interest in Energis, primarily as a result of the
placing of 77.7 million shares by Energis in September 2000;
- US acquisition integration costs of L43.5 million (L46.8 million before
tax); and
- A tax credit of L140 million, arising from the realisation of a capital
loss for tax purposes as a result of a group restructuring.
(b) National Grid USA
The financial information relating to National Grid Group in respect of the
year ended March 31, 2000 includes the results of National Grid USA from
March 22, 2000 (the date of acquisition) to March 31, 2000. In order to reflect
the results of National Grid USA in the Unaudited Pro Forma Condensed Combined
Income Statement for a full 12 month period, National Grid USA's results for the
period March 22, 2000 to March 31, 2000 have been excluded and their results for
the year ended December 31, 1999 have been substituted.
(c) Niagara Mohawk
Niagara Mohawk's historical results of operations for the year ended
December 31, 1999, were negatively impacted by Niagara Mohawk's early redemption
of certain debt securities which resulted in an after-tax charge to earnings of
L14.7 million. Additionally, Niagara Mohawk's earnings for the year ended
December 31, 1999 were reduced by L14.7 million (after-tax) because of costs
associated with a new customer service system, and L13.0 million (after-tax) for
higher bad debt expense stemming from implementation issues involving the new
system.
75
<PAGE>
NOTES TO THE UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL INFORMATION (CONTINUED)
NOTE 5: UK GAAP ADJUSTMENTS BY CAPTION HEADING
The UK GAAP adjustments, which are described in Note 6, can be summarized by
caption heading as follows:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30,
2000 YEAR ENDED DECEMBER 31, 1999
-------------- ----------------------------------
NOTE 6 NIAGARA MOHAWK NATIONAL GRID USA NIAGARA MOHAWK
-------- -------------- ----------------- --------------
LM LM LM
<C> <S> <C> <C> <C> <C>
(i) Operating costs
Pension costs........................ (b) 1.9 1.2 (18.4)
Allowance for equity funds used
during construction.............. (e) (0.5) (1.2) (3.3)
------ ---- -----
1.4 -- (21.7)
====== ==== =====
(ii) Share of joint ventures' profit
Equity accounting.................... (f) 0.9 4.6 2.1
====== ==== =====
(iii) Net interest
Equity accounting.................... (f) (0.1) (4.0) (0.4)
Pension costs........................ (b) 0.3 -- (0.7)
------ ---- -----
0.2 (4.0) (1.1)
====== ==== =====
(iv) Taxation
Equity accounting.................... (f) (0.8) (0.4) (1.7)
Deferred taxation.................... (a) -- 7.5 --
------ ---- -----
(0.8) 7.1 (1.7)
====== ==== =====
(v) Minority interests
Equity accounting.................... (f) -- (0.2) --
====== ==== =====
</TABLE>
<TABLE>
<CAPTION>
NIAGARA MOHAWK
AT SEPTEMBER 30,
2000
----------------
LM
<C> <S> <C> <C> <C> <C>
(vi) Tangible assets
Decommissioning liabilities......... (d) 269.1
Allowance for equity funds used
during construction............. (e) --
------
269.1
======
(vii) Debtors (due within one year)
Regulatory assets
--decommissioning liabilities....... (d) 29.3
--provisions for liabilities and
charges......................... (c) (5.3)
------
24.0
======
(viii) Debtors (due after more than one
year)
Regulatory assets
--decommissioning liabilities....... (d) 549.8
--provisions for liabilities and
charges......................... (c) (188.6)
--deferred taxation................. (c) (311.4)
------
49.8
======
</TABLE>
76
<PAGE>
NOTES TO THE UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL INFORMATION (CONTINUED)
NOTE 5: UK GAAP ADJUSTMENTS BY CAPTION HEADING (CONTINUED)
<TABLE>
<CAPTION>
NIAGARA MOHAWK
AT SEPTEMBER 30,
2000
----------------
LM
<C> <S> <C> <C> <C> <C>
(ix) Creditors (due after more than one
year)
Other creditors--pensions........... (b) (13.9)
======
(x) Provisions for liabilities and
charges
Decommissioning liabilities......... (d) (848.2)
Regulatory assets................... (c) 193.9
Deferred taxation--regulatory
assets.......................... (a),(c) 311.4
--other............................. (a) 364.4
------
21.5
======
(xi) Profit and loss account reserve
Deferred taxation................... (a) 364.4
Pension costs....................... (b) (13.9)
------
350.5
======
</TABLE>
NOTE 6: UK GAAP ADJUSTMENTS TO HISTORICAL NATIONAL GRID USA AND NIAGARA
MOHAWK'S FINANCIAL INFORMATION
National Grid USA and Niagara Mohawk prepare their accounts in accordance
with US GAAP. For the purposes of preparing the Unaudited Pro Forma Condensed
Combined Financial Information, the accounts of National Grid USA and Niagara
Mohawk have been restated to conform with National Grid Group's accounting
policies under UK GAAP by giving effect to the adjustments described below.
(a) Deferred taxation
Under UK GAAP, provision is made for deferred taxation to the extent that a
liability or an asset will crystallize in the foreseeable future. US GAAP
requires full provisioning for deferred taxation liabilities and permits
deferred taxation assets to be recognized if their realization is considered
more likely than not.
(b) Pension costs
Under UK GAAP, pension costs are accounted for and disclosures are provided
in accordance with UK Statement of Standard Accounting Practice 24. Under US
GAAP, pension costs are determined in accordance with the requirements of US
Statements of Financial Accounting Standards (SFAS) 87 and 88 and pension
disclosures are presented in accordance with SFAS 132. Differences between UK
GAAP and US GAAP figures arise from the requirement to use different actuarial
methods and assumptions and a different method of amortizing certain surpluses
and deficits.
(c) Regulatory assets
SFAS 71 "Accounting for the Effect of Certain Types of Regulation"
establishes US GAAP for utilities whose regulators have the power to approve
and/or regulate rates that may be charged to customers. Provided that through
the regulatory process, the utility is substantially assured of recovering its
allowable costs by the collection of revenue from its customers, such costs not
yet recovered are deferred as regulatory assets. Due to the different regulatory
environment, no equivalent accounting standard applies in the United Kingdom.
77
<PAGE>
NOTES TO THE UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL INFORMATION (CONTINUED)
NOTE 6: UK GAAP ADJUSTMENTS TO HISTORICAL NATIONAL GRID USA AND NIAGARA
MOHAWK'S FINANCIAL INFORMATION (CONTINUED)
(c) Regulatory assets (Continued)
Under UK GAAP, regulatory assets established in accordance with SFAS 71 are
recognized where they comprise rights or other access to future economic
benefits which arise as a result of past transactions or events which have
created an obligation to transfer economic benefit to a third party. Measurement
of the past transaction or event and hence of the regulatory asset is determined
in accordance with UK GAAP. Where the application of UK GAAP results in the non
or partial recognition of an obligation compared with US GAAP, any related
regulatory asset is either not or partially recognized. In certain
circumstances, regulatory assets may be reported net of related regulatory
liabilities, including provisions for liabilities and charges.
(d) Decommissioning liabilities
Under US GAAP, estimated decommissioning liabilities are recognized over the
expected life of the assets and included within accumulated provisions for
depreciation and amortization. Under UK GAAP, estimated decommissioning
liabilities are provided in full and included in provisions for liabilities and
charges, and recognized as a tangible fixed asset or a regulatory asset.
(e) Allowance for equity funds used during the course of construction
Under US GAAP, the estimated cost of equity funds used to finance the
construction of tangible fixed assets is capitalized or recorded as a regulatory
asset and recognized in other income as an allowance for equity funds used
during the course of construction. Under UK GAAP, this treatment is not
permitted.
With regard to the purchase accounting for Niagara Mohawk, it is anticipated
that the UK GAAP adjustment to tangible fixed assets will result in a
corresponding fair value revaluation adjustment. Therefore, no UK GAAP
adjustment has been included in the Unaudited Pro Forma Condensed Combined
Balance Sheet at September 30, 2000.
(f) Equity accounting
UK GAAP requires the investors' share of operating profit or loss, interest
and taxation relating to associates and joint ventures to be accounted for and
disclosed separately from those of group undertakings. Under US GAAP, the
investors' share of the after tax profits and losses of joint ventures and
associates are included within the income statement as a single line item. UK
GAAP requires the investors' share of gross assets and gross liabilities of
joint ventures to be shown on the face of the balance sheet. Under US GAAP, the
net investment in joint ventures is shown as a single line item.
78
<PAGE>
NOTES TO THE UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL INFORMATION (CONTINUED)
NOTE 7: ACQUISITION ADJUSTMENTS TO THE UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL INFORMATION
The acquisition adjustments to the Unaudited Pro Forma Condensed
Combined Financial Information reflect those adjustments detailed below.
(a) National Grid USA
(i) Purchase consideration and goodwill
On March 22, 2000, National Grid Group acquired the entire issued
capital of National Grid USA for a cash consideration of L2,070.8 million
including acquisition costs of L21.4 million. The acquisition has been
accounted for by using the acquisition method of accounting. Because the
acquisition occurred late in the year ended March 31, 2000, the fair values
of net assets acquired of L1,223.2 million and goodwill of L847.6 million
arising on acquisition are provisional and may be subject to revision during
the financial year ending March 31, 2001. The amortization of this goodwill
over 20 years gives rise to a charge of L42.4 million in the Unaudited Pro
Forma Condensed Combined Income Statement.
(ii) Net interest, taxation and non-recurring charges
Pro forma net interest and taxation adjustments:
<TABLE>
<CAPTION>
LM
--------
<S> <C>
Interest charge relating to cash consideration.............. (139.0)
Non-recurring charges....................................... 3.6
------
Net interest adjustment..................................... (135.4)
======
Taxation credit on net interest adjustment.................. 40.6
======
</TABLE>
The pro forma interest adjustment of L139.0 million relates to the
period April 1, 1999 to March 21, 2000, and has been calculated on the net
cash outflow of L2,070.8 million at an annual interest rate of 6.90%, being
an estimate of the cost to National Grid Group of financing the net cash
outflow, based on the interest foregone on cash deposits and the interest
payable on incremental borrowings.
Non-recurring charges of L3.6 million that relate directly to the
acquisition of National Grid USA, have been excluded from the Unaudited Pro
Forma Condensed Combined Income Statement.
The pro forma taxation adjustment of L40.6 million has been calculated
at the standard UK corporation tax rate of 30%.
A 1/8% movement in the variable interest rate used above would affect
profit after taxation by L0.6 million.
(b) Niagara Mohawk
(i) Purchase consideration and goodwill
At the time of the acquisition of Niagara Mohawk, National Grid Group
will establish a new accounting basis for Niagara Mohawk's assets and
liabilities based upon the fair market values thereof and the purchase price
for Niagara Mohawk, including the direct costs of acquisition.
79
<PAGE>
NOTES TO THE UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL INFORMATION (CONTINUED)
NOTE 7: ACQUISITION ADJUSTMENTS TO THE UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL INFORMATION (CONTINUED)
(b) Niagara Mohawk (Continued)
(i) Purchase consideration and goodwill (Continued)
A preliminary allocation of the purchase price has been reflected in the
Unaudited Pro Forma Condensed Combined Financial Information to the extent
that the excess of the historical net asset position of Niagara Mohawk over
the purchase price has been allocated to goodwill. A final allocation of the
purchase price is dependent upon certain valuations and other studies which
have not progressed to a stage where there is sufficient information to make
such an allocation in the Unaudited Pro Forma Condensed Combined Financial
Information. National Grid Group will not complete the valuations and
studies of other significant assets, liabilities and the operations of
Niagara Mohawk until after the completion of the acquisition. It is also
expected that adjustments will be made to certain assets and liabilities in
order to comply with UK and US rules for purchase accounting.
National Grid Group believes that the portion of the existing carrying
value of Niagara Mohawk's net assets in excess of the purchase price
comprises primarily negative goodwill, which will be amortized, under both
US and UK GAAP, over 20 years.
Under the terms of the Merger Agreement with Niagara Mohawk, Niagara
Mohawk shareholders will receive consideration of $19.00 per Niagara Mohawk
common share, subject to the Average Price being between $32.50 and $51.00.
In the event that the Average Price is greater than $51.00, the per share
consideration received by Niagara Mohawk shareholders will increase by
two-thirds of the percentage of the increase in value over $51.00. In the
event that the Average Price is less than $32.50, the per share
consideration received by Niagara Mohawk shareholders will decrease by
two-thirds of the percentage of the decrease in value below $32.50. Niagara
Mohawk shareholders can elect to receive their consideration either in cash
or ADSs, or a combination of both, subject to the aggregate cash
consideration paid being $1.015 billion. If cash elections received from
Niagara Mohawk shareholders exceed $1.015 billion, National Grid Group may,
at its sole discretion, increase the cash component of the consideration.
For the purposes of the acquisition adjustments included within the
Unaudited Pro Forma Condensed Combined Financial Information, the number of
Niagara Mohawk common shares to be purchased has been taken as the number of
common shares in issue on November 29, 2000 of 187,364,863 less treasury
stock of 27,125,045. The total purchase consideration, based on an exchange
rate of $1.48 to L1.00, is estimated at L2,080.8 million, including an
estimate of acquisition expenses of L23.6 million. Based on the price of a
National Grid Group ordinary share of 560p (the closing price on
September 4, 2000) and an exchange rate of $1.48 to L1.00 and assuming
National Grid Group does not exercise its right to increase the cash
proportion, it is assumed that the total purchase consideration, excluding
acquisition expenses, will comprise the issue by National Grid Group of
244.9 million ordinary shares and a cash payment of $1.015 billion
(L685.8 million). The assumed value of the share consideration included
within the Unaudited Pro Forma Condensed Combined Balance Sheet is
L1,371.4 million, comprising called up share capital of L28.8 million and
share premium of L1,342.6 million respectively.
In the event that the Average Price is $32.50 or $51.00 during the
applicable time period before closing, the merger agreement would require
the issue by National Grid Group of approximately 312 million or
approximately 199 million shares, respectively. The issue of 312 million
ordinary shares would increase the reported Combined Group Pro forma
weighted average number of shares in issue
80
<PAGE>
NOTES TO THE UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL INFORMATION (CONTINUED)
NOTE 7: ACQUISITION ADJUSTMENTS TO THE UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL INFORMATION (CONTINUED)
(b) Niagara Mohawk (Continued)
(i) Purchase consideration and goodwill (Continued)
by approximately 4%. The issue of 199 million ordinary shares would decrease
the reported Combined Group Pro forma weighted average number of shares in
issue by approximately 3%.
Negative goodwill arising on the acquisition, representing the
difference between the estimated purchase consideration and the historical
value of the separately identifiable net assets attributable to shareholders
of L2,189.3 million as shown by the Unaudited Pro Forma Condensed Combined
Balance Sheet, is estimated at L108.5 million. The amortization of this
negative goodwill over 20 years gives rise to a credit of L2.7 million and
L5.4 million in the Unaudited Pro Forma Condensed Combined Income Statements
for the six months ended September 30, 2000 and the year ended March 31,
2000, respectively.
(ii) Net interest, taxation and non-recurring charges
It has been assumed for the purposes of this pro forma condensed
combined financial information that the estimated cash consideration,
including acquisition expenses, relating to the proposed acquisition of
Niagara Mohawk of L709.4 million is to be financed by long term borrowings.
Pro forma net interest and taxation adjustments:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
SEPTEMBER 30, MARCH 31,
2000 2000
LM LM
------------- --------------
<S> <C> <C>
Interest charge relating to cash
consideration, including acquisition
expenses.................................... (26.6) (53.2)
===== =====
Taxation credit............................... 8.0 16.0
===== =====
</TABLE>
The pro forma interest adjustments of L26.6 million and L53.2 million
for the six months ended September 30, 2000 and the year ended March 31,
2000 respectively, relating to the cash consideration have been calculated
on the net cash outflow of L709.4 million at an annual interest rate of
7.5%, being an estimate of the cost to National Grid Group of financing the
net cash outflow, based on the interest payable on incremental borrowings.
The pro forma net taxation adjustments of L8.0 million and
L16.0 million have been calculated at the standard UK corporation tax rate
of 30%.
A 1/8% movement in the variable interest rate used above would affect
profit after taxation by L0.7 million for a twelve month period.
It is estimated that L8.9 million of non-recurring charges will be
incurred by National Grid Group in respect of financing the acquisition of
Niagara Mohawk. These charges have not been reflected in the Unaudited Pro
Forma Condensed Combined Income Statement.
(iii) Capital and reserves
The capital and reserves attributable to the shareholders of Niagara
Mohawk are eliminated on consolidation as they relate to the position at
acquisition.
81
<PAGE>
NOTES TO THE UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL INFORMATION (CONTINUED)
NOTE 8: SIGNIFICANT DIFFERENCES BETWEEN UK GAAP AND US GAAP
The Unaudited Pro Forma Condensed Combined Financial Information has been
prepared in accordance with UK GAAP, which differs in certain significant
respects from US GAAP.
The main differences between UK and US GAAP that are relevant to the
Combined Group's Unaudited Pro Forma Condensed Combined Financial Information
relate to:
ALLOWANCE FOR EQUITY FUNDS USED DURING THE COURSE OF CONSTRUCTION
Under US GAAP, the estimated cost of equity funds used to finance the
construction of tangible fixed assets is capitalized or recorded as a regulatory
asset and recognized in other income as an allowance for equity funds used
during the course of construction. Under UK GAAP, this treatment is not
permitted.
DEFERRED TAXATION
Under UK GAAP, provision is made for deferred taxation to the extent that a
liability or an asset will crystallize in the foreseeable future. US GAAP
requires full provisioning for deferred taxation liabilities and permits
deferred taxation assets to be recognized if their realization is considered
more likely than not.
PENSIONS
Under UK GAAP, pension costs are accounted for and disclosures are provided
in accordance with UK Statement of Standard Accounting Practice 24. Under US
GAAP, pension costs are determined in accordance with the requirements of US
Statements of Financial Accounting Standards (SFAS) 87 and 88 and pension
disclosures are presented in accordance with SFAS 132. Differences between UK
GAAP and US GAAP figures arise from the requirement to use different actuarial
methods and assumptions and a different method of amortizing certain surpluses
and deficits.
REGULATORY ASSETS
SFAS 71 "Accounting for the Effect of Certain Types of Regulation"
establishes US GAAP for utilities whose regulators have the power to approve
and/or regulate rates that may be charged to customers. Provided that through
the regulatory process, the utility is substantially assured of recovering its
allowable costs by the collection of revenue from its customers, such costs not
yet recovered are deferred as regulatory assets. Due to the different regulatory
environment, no equivalent accounting standard applies in the United Kingdom.
Under UK GAAP, regulatory assets established in accordance with SFAS 71 are
recognized where they comprise rights or other access to future economic
benefits which arise as a result of past transactions or events which have
created an obligation to transfer economic benefit to a third party. Measurement
of the past transaction or event and hence of the regulatory asset is determined
in accordance with UK GAAP. Where the application of UK GAAP results in the non
or partial recognition of an obligation compared with US GAAP, any related
regulatory asset is either not or partially recognized. In certain
circumstances, regulatory assets may be reported net of related regulatory
liabilities, including provisions for liabilities and charges.
82
<PAGE>
NOTES TO THE UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL INFORMATION (CONTINUED)
NOTE 8: SIGNIFICANT DIFFERENCES BETWEEN UK GAAP AND US GAAP (CONTINUED)
SHARES HELD BY EMPLOYEE SHARE TRUSTS
Under UK GAAP, shares in National Grid Group that are held by employee share
trusts are recorded as fixed asset investments at cost less amounts written off.
Under US GAAP, those shares not fully vested are regarded as treasury stock and
recorded as a deduction from shareholders' equity.
SHARE OPTION SCHEMES
As permitted under UK GAAP, no cost is accrued for share options awarded
under the Sharesave Scheme where the exercise price of the options is below the
market value at the date of grant. In respect of the grant of options under the
Executive Scheme, no cost is accrued under UK GAAP as the exercise price is
equivalent to the market value at the date of grant. As permitted by SFAS 123,
"Accounting for Stock-Based Compensation," National Grid Group has accounted for
compensatory share option schemes under Accounting Principles Board statement
(APB) 25 "Accounting for Stock Issued to Employees." Under the requirements of
APB 25, the compensation costs relating to the Sharesave and Executive Schemes
are amortized over the period from the date of grant of options to the date
those options are first exercisable. SFAS 123 prescribes a fair value method of
recognizing share option compensation costs, the application of which would have
no material effect on National Grid Group's reported net income or earnings per
ordinary share.
ORDINARY DIVIDENDS
Under UK GAAP, final ordinary dividends are provided for in the year in
respect of which they are proposed by the board of directors for approval by the
shareholders. Under US GAAP, dividends are not provided until declared.
TANGIBLE FIXED ASSETS
During the financial year ended March 31, 1990, an impairment provision was
recorded in respect of certain tangible fixed assets. Part of this impairment
provision was subsequently released and shareholders' equity credited. Under US
GAAP this partial release would not be permitted.
FINANCIAL INSTRUMENTS
Under UK GAAP, interest rate and currency swaps used to hedge a portfolio of
borrowings are hedge accounted for and are not recorded at market value. Any
related foreign currency borrowings are translated at the hedged rate. Under US
GAAP, interest rate and currency swaps which are not related to specific
borrowings or to a specific group of similar borrowings are generally not
eligible for hedge accounting. In addition, interest rate swaps that convert
fixed rate liabilities into variable rate liabilities generally do not qualify
for hedge accounting under US GAAP. As a result, interest rate and currency
swaps that do not meet the US GAAP criteria for hedging are required to be
recorded at market value with the resultant unrealized gains and losses
recognized in income together with any exchange differences arising on the
translation of any related foreign currency borrowings at the exchange rate
ruling on the balance sheet date.
83
<PAGE>
NOTES TO THE UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL INFORMATION (CONTINUED)
NOTE 8: SIGNIFICANT DIFFERENCES BETWEEN UK GAAP AND US GAAP (CONTINUED)
EXTRAORDINARY ITEM
Under US GAAP, the loss from the extinguishment of debt, net of income
taxes, is classified as an extraordinary item, which is not included in pro
forma information. Under UK GAAP, this item would not be classified as an
extraordinary item, and has been included within net interest and taxation.
EQUITY PLUS INCOME CONVERTIBLE SECURITIES ("EPICS")
Under UK GAAP, EPICs at September 30, 2000 are carried in the balance sheet
at the gross proceeds of the issue and the related issue costs were written off
when incurred. Under US GAAP, the issue costs are deferred and written off over
the period to the expected date of redemption of the EPICs on May 3, 2003.
US GAAP requires the carrying value of the EPICs to be adjusted to the
settlement amount of the debt, which is linked to the Energis plc share price,
as described in Note 18 to the accounts, which are included within "Item
19--Financial statements and exhibits" of the Annual Report of National Grid
Group on Form 20-F for the year ended March 31, 2000, which is incorporated by
reference in this proxy statement/prospectus.
SEVERANCE COSTS
Under UK GAAP, severance costs are provided for in the accounts if it is
determined that a constructive or legal obligation has arisen from a
restructuring program where it is probable that it will result in the outflow of
economic benefits and the costs involved can be estimated with reasonable
accuracy. Under US GAAP, in respect of the existing severance program, severance
costs are recognized when the employees accept the severance offer. In addition,
where the number of employees leaving results in a significant reduction in the
accrual of pension benefits for employees' future service (a curtailment under
US GAAP), the effects are reflected as part of the cost of such termination
benefits. Accordingly, timing differences between UK GAAP and US GAAP arise on
the recognition of such costs.
SHARE OF ASSOCIATE'S ADJUSTMENTS TO CONFORM WITH US GAAP
National Grid Group's share of the associate's results and net assets, which
also impact on the exceptional profit relating to Energis plc and assets held
for exchange, have been adjusted to conform with US GAAP.
GOODWILL--EFFECT OF US GAAP ADJUSTMENTS
Under US GAAP, the fair value of net assets acquired is calculated in
accordance with US GAAP principles which differ in certain respects from UK GAAP
principles. As a result, the US GAAP net assets of National Grid USA and Niagara
Mohawk are less than the net assets as determined under UK GAAP and the related
goodwill under US GAAP is higher than the goodwill calculated under UK GAAP
principles. These adjustments reflect the higher level of goodwill as calculated
under US GAAP and the related increase in annual goodwill amortization.
84
<PAGE>
NOTES TO THE UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL INFORMATION (CONTINUED)
NOTE 8: SIGNIFICANT DIFFERENCES BETWEEN UK GAAP AND US GAAP (CONTINUED)
RECOGNITION OF UK TRANSMISSION INCOME
The main source of UK revenue is derived from the use of the UK transmission
system, and under US GAAP is recognized and invoiced in the period in which the
service is provided up to the maximum revenue allowed under the transmission
license. Under UK GAAP, any income received or receivable in excess of the
maximum revenue allowed for the period is recognized as income.
NOTE 9: RECONCILIATION OF COMBINED GROUP UNDER UK GAAP TO US GAAP
The following statements summarize the material adjustments which reconcile
the Combined Group unaudited pro forma net income and shareholders' funds under
UK GAAP to the amounts that would have been reported had US GAAP been applied.
<TABLE>
<CAPTION>
COMBINED GROUP
PRO FORMA PRO FORMA
SIX MONTHS ENDED YEAR ENDED
SEPTEMBER 30, 2000 MARCH 31, 2000
LM LM
------------------- ---------------
<S> <C> <C>
UK GAAP
Profit for the period, excluding exceptional items.......... 166.4 251.8
Exceptional items after taxation............................ 228.6 797.8
------- -------
NET INCOME UNDER UK GAAP.................................... 395.0 1,049.6
------- -------
Adjustments to conform with US GAAP:
Deferred taxation adjustments............................. (83.8) (8.9)
Pension costs............................................. 7.4 23.6
Share option schemes...................................... (4.8) (5.4)
Tangible fixed assets--depreciation on reversal of partial
release of impairment provision......................... 1.7 3.4
Financial instruments..................................... 5.1 27.9
Issue costs associated with EPICs......................... (0.9) (1.8)
Carrying value of EPICs liability......................... 65.0 (115.0)
Severance costs........................................... 38.7 (11.3)
Recognition of UK transmission income..................... (12.7) --
Allowance for equity funds used during construction....... 0.5 4.5
Share of associate's adjustments to conform with US
GAAP.................................................... 22.8 (40.5)
Extraordinary item--loss from the extinguishment of debt,
net of income taxes..................................... 0.6 14.7
Goodwill--effect of US GAAP adjustments................... (14.9) (28.1)
------- -------
Total US GAAP adjustments................................... 24.7 (136.9)
------- -------
NET INCOME UNDER US GAAP.................................... 419.7 912.7
======= =======
</TABLE>
Net income under US GAAP for the six months ended September 30, 2000 and the
year ended March 31, 2000 includes L267.5 million and L795.7 million
respectively relating to net exceptional gains which are treated as exceptional
items under UK GAAP.
85
<PAGE>
NOTES TO THE UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL INFORMATION (CONTINUED)
NOTE 9: RECONCILIATION OF COMBINED GROUP UNDER UK GAAP TO US GAAP (CONTINUED)
<TABLE>
<CAPTION>
COMBINED GROUP
PRO FORMA
AT SEPTEMBER 30, 2000
LM
----------------------
<S> <C>
SHAREHOLDERS' FUNDS UNDER UK GAAP........................... 4,604.8
--------
Adjustments to conform with US GAAP:
Deferred taxation......................................... (1,709.7)
Pension costs............................................. 189.0
Shares held by employee share trusts...................... (13.6)
Ordinary dividends........................................ 89.5
Tangible fixed assets--depreciation on reversal of partial
release of impairment provision......................... (43.3)
Financial instruments..................................... 6.1
Issue costs associated with EPICs......................... 4.6
Carrying value of EPICs liability......................... (50.0)
Severance liabilities..................................... 4.1
Recognition of UK transmission income..................... (12.7)
Regulatory assets......................................... 351.6
Share of associate's adjustments to conform with US
GAAP.................................................... 23.1
Goodwill--effect of US GAAP adjustments................... 588.4
Other..................................................... 2.8
--------
Total US GAAP adjustments................................... (570.1)
--------
SHAREHOLDERS' FUNDS UNDER US GAAP........................... 4,034.7
========
</TABLE>
NOTE 10: EARNINGS PER ORDINARY/COMMON SHARE AND ADS ON A US GAAP BASIS
<TABLE>
<CAPTION>
COMBINED NIAGARA NATIONAL GRID NATIONAL GRID
GROUP MOHAWK USA GROUP
PRO FORMA HISTORICAL(1) HISTORICAL(1) HISTORICAL
LM $M $M LM
--------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
YEAR ENDED MARCH 31, 2000
Net income/(loss) under US GAAP............... 912.7 (35.1) 176.7 1,009.8
------ ------ ----- -------
Earnings/(loss) per ordinary/common share
Basic....................................... 53.1p $(0.19) $2.98 68.6p
Diluted..................................... 50.8p $(0.19) $2.97 64.7p
Earnings per ADS
Basic....................................... 265.7p 342.8p
Diluted..................................... 253.9p 323.4p
</TABLE>
<TABLE>
<CAPTION>
NUMBER NUMBER NUMBER NUMBER
(MILLION) (MILLION) (MILLION) (MILLION)
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Weighted average number of shares in issue
Basic.................................................... 1,717.8 186.7 59.4 1,472.9
Diluted.................................................. 1,838.2 186.7 59.5 1,593.3
</TABLE>
------------------------
(1) National Grid USA and Niagara Mohawk historical comparative data is given
for the year ended December 31, 1999, and is in respect of continuing
operations only.
86
<PAGE>
NOTES TO THE UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL INFORMATION (CONTINUED)
NOTE 10: EARNINGS PER ORDINARY/COMMON SHARE AND ADS ON A US GAAP BASIS
(CONTINUED)
<TABLE>
<CAPTION>
COMBINED NIAGARA NATIONAL GRID
GROUP MOHAWK GROUP
PRO FORMA HISTORICAL(2) HISTORICAL
LM $M LM
--------- ------------- -------------
<S> <C> <C> <C>
SIX MONTHS ENDED SEPTEMBER 30, 2000
Net income/(loss) under US GAAP............................ 419.7 (5.2) 447.4
------ ------ -------
Earnings/(loss) per ordinary/common share
Basic.................................................... 24.4p $(0.03) 30.3p
Diluted.................................................. 23.3p $(0.03) 28.7p
Earnings per ADS
Basic.................................................... 122.0p 151.7p
Diluted.................................................. 116.7p 143.3p
</TABLE>
<TABLE>
<CAPTION>
NUMBER NUMBER NUMBER
(MILLION) (MILLION) (MILLION)
--------- --------- ---------
<S> <C> <C> <C>
Weighted average number of shares in issue
Basic..................................................... 1,719.7 174.2 1,474.8
Diluted................................................... 1,843.1 174.2 1,598.2
</TABLE>
------------------------
(2) Niagara Mohawk historical comparative data is given for the six months ended
June 30, 2000.
The inclusion of the exceptional items (as defined under UK GAAP) and
goodwill amortization has resulted in US GAAP earnings per share and ADS being
increased or (decreased) by the following amounts:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
SEPTEMBER 30, 2000 YEAR ENDED MARCH 31, 2000
COMBINED NATIONAL GRID COMBINED NATIONAL GRID
GROUP GROUP GROUP GROUP
PRO FORMA HISTORICAL PRO FORMA HISTORICAL
--------- ------------- ---------- -------------
<S> <C> <C> <C> <C>
Per ordinary share
Basic
Exceptional items............................. 15.6p 18.1p 46.3p 54.0p
Goodwill amortization......................... (2.7)p (2.8)p (4.2)p (0.5)p
Diluted
Exceptional items............................. 14.5p 16.7p 43.3p 49.9p
Goodwill amortization......................... (2.5)p (2.5)p (3.9)p (0.5)p
Per ADS
Basic
Exceptional items............................. 77.8p 90.7p 231.6p 270.1p
Goodwill amortization......................... (13.6)p (13.8)p (20.9)p (2.7)p
Diluted
Exceptional items............................. 72.6p 83.7p 216.4p 249.7p
Goodwill amortization......................... (12.7)p (12.7)p (19.6)p (2.5)p
</TABLE>
87
<PAGE>
DESCRIPTION OF ORDINARY SHARES
What follows is a summary of the material terms of New National Grid's
proposed share capital as well as information about the material provisions of
New National Grid's proposed articles of association and applicable English law.
New National Grid will become a publicly traded company when the scheme of
arrangement becomes effective. At that time and subject to the condition that
the scheme of arrangement becomes effective, New National Grid will adopt new
articles of association appropriate for a publicly traded company. The following
description assumes that New National Grid has adopted its new articles of
association. The following description also assumes that the special share in
New National Grid, which will be issued to the UK Secretary of State for Trade
and Industry, will have substantially the same rights as National Grid Group's
existing special share. National Grid Group is engaged in discussions with the
UK Secretary of State for Trade and Industry concerning the terms of the special
share. As a result of these discussions, the terms of the special share and
related provisions in the articles of association at the time of the adoption of
New National Grid's proposed articles of association prior to the completion of
the merger, may vary from the terms described below. New National Grid does not
believe that the final terms of the special share and those related provisions
will be materially different from the description below. This summary is not
necessarily complete and you should also refer to New National Grid's proposed
articles of association, the form of which has been filed as an exhibit to this
registration statement.
New National Grid's authorized share capital will be 2,500,000,000 ordinary
shares of 10p each and one special rights non-voting redeemable preference share
of L1.
THE SPECIAL SHARE
Any one of Her Majesty's Secretaries of State, another Minister of the
Crown, the Solicitor for the affairs of HM Treasury or any other person acting
on behalf of the Crown may hold the special share. The registered holder of the
special share may, after consulting New National Grid and subject to the
provisions of the Companies Act 1985, require New National Grid to redeem the
special share at par at any time.
The holder of the special share has the right to receive notice of, and to
attend and speak at, any general meeting or any separate meeting of the holders
of any class of shares, but the special share confers no right to vote nor any
other rights at any shareholders' meeting. The special share confers no right to
participate in New National Grid's capital or profits except that, on a
distribution of capital in a winding-up, the holder of the special share is
entitled to repayment of L1 in priority to other shareholders.
Each of the following actions is effective only with the written consent of
the holder of the special share:
(a) the amendment, removal or alteration of the effect of (including the
ratification of any breach of) specified provisions of the articles of
association, including the article relating to the special share, the
article on general limitations on shareholdings, the article on
shareholding restrictions on Pool members or license holders and the
article relating to the disclosure of interests in shares under
Section 212 of the Companies Act 1985 (each as described under "--General
Limitations on Shareholdings" and "--Shareholding Restrictions on Pool
Members or License Holders" below) except to the extent that any
amendment, removal or alteration of the article relating to the
disclosure of interests in shares is required to comply with the listing
rules of the UK listing Authority;
(b) the creation or issue of any shares in New National Grid carrying voting
rights other than (1) shares carrying voting rights in all circumstances
at general meetings and (2) shares which do not constitute equity share
capital (as defined in the Companies Act 1985) and which, when aggregated
with all other similar shares, carry the right to cast less than 15% of
the votes capable of being cast on a poll on any resolution at any
general meeting;
88
<PAGE>
(c) the variation of any rights (save for dividend rights and rights to
repayment of capital) attached to any shares in New National Grid;
(d) the disposal by New National Grid of any shares in NGC to any person
which is not a wholly owned subsidiary;
(e) any scheme or arrangement which, if put into effect, would relieve NGC
or any of New National Grid's affiliates of, or otherwise modify, the
obligations which New National Grid must impose on them by virtue of the
provisions described under "--Obligations Relating to the Transmission
License Holder" below;
(f) the voluntary winding-up of New National Grid, a special resolution to
the effect that New National Grid should be wound up by the court, the
presentation by New National Grid or by the board of directors of a
petition for the winding-up of New National Grid by the court, or any
proposal for any of the foregoing;
(g) the presentation by New National Grid or by the board of directors of a
petition applying for an administration order or a proposal by the board
of directors for a voluntary arrangement, in each case pursuant to the
Insolvency Act 1986; or
(h) the establishment of a holding company for New National Grid.
ORDINARY SHARES
VOTING RIGHTS
Subject to any rights or restrictions attached to any shares and to any
other provisions of the articles, at any general meeting on a show of hands
every shareholder who is present in person will have one vote and on a poll
every shareholder will have one vote for every share which he holds. On a poll,
shareholders may cast votes either personally or by proxy and a proxy need not
be a shareholder.
In the case of joint holders of a share, the vote of the senior who tenders
a vote, whether in person or by proxy, will be accepted to the exclusion of the
votes of the other joint holders. Seniority will be determined by the order in
which the names of the holders appear in the register of shareholders.
Unless the board of directors otherwise determines, no shareholder, or
person to whom any of that shareholder's holding is transferred other than by a
transfer approved under the articles of association (see below), can vote at any
general meeting either in person or by proxy in respect of any share in New
National Grid held by him:
(1) if all monies presently payable by him in respect of that share have not
been paid;
(2) if he or any other person appearing to be interested in the share has
been given a notice under Section 212 of the Companies Act 1985
(See--"Disclosure of Interests" on page 94) and has failed to provide the
information required by the notice within 14 days from the date of
service of the notice (or in the case of shares representing less than
0.25% of their class, within 28 days of service of the notice); or
(3) in the circumstances referred to under "--General Limitations on
Shareholdings" and "--Shareholding Restrictions on Pool Members or
License Holders" below.
DIVIDENDS AND OTHER DISTRIBUTIONS
New National Grid may not pay any dividend otherwise than out of profits
available for distribution under the Companies Act 1985 and the other applicable
provisions of English law. In addition, as a public company, New National Grid
may make a distribution only if and to the extent that, at the time of the
distribution, the amount of its net assets is not less than the aggregate of its
called-up share capital and
89
<PAGE>
undistributable reserves (as defined in the Companies Act 1985). Subject to the
foregoing, New National Grid may, by ordinary resolution, declare dividends in
accordance with the respective rights of the shareholders but not exceeding the
amount recommended by the board of directors. The board of directors may pay
interim dividends if the board of directors considers that New National Grid's
financial position justifies the payment.
Except insofar as the rights attaching to any share otherwise provide, all
dividends will be apportioned and paid proportionately to the amounts paid up
(otherwise than in advance of calls) on the shares.
A general meeting declaring a dividend may, upon the recommendation of the
board of directors, direct that the dividend be satisfied wholly or partly by
the distribution of assets and may be declared or paid in any currency. The
board of directors may, if authorized by a shareholders' ordinary resolution,
offer the holders of ordinary shares the right to elect to receive new ordinary
shares credited as fully paid, instead of cash for all or part of the dividend
specified by that ordinary resolution.
New National Grid may stop paying dividends or other monies payable in
respect of a share to a shareholder if in respect of at least two consecutive
dividends payment, through no fault of New National Grid, has not been effected
(or, following one such occasion, reasonable enquiries have failed to establish
any new address of the holder or appropriate details for effecting payment by
other means). New National Grid must resume payment of dividends or other monies
payable in respect of a share if the shareholder or person entitled by
transmission claims the arrears of dividend.
All dividends or other sums payable unclaimed for one year after having been
declared may be invested or otherwise made use of by the board of directors for
the benefit of New National Grid until claimed. Any dividend or interest
unclaimed for 12 years from the date when it was declared or became due for
payment will be forfeited and revert to New National Grid.
In a winding-up, a liquidator may, with the sanction of a special resolution
of New National Grid and any other sanction required by applicable provisions of
English law, (a) divide among the shareholders the whole or any part of New
National Grid's assets (whether the assets are of the same kind or not) and may
for this purpose value any assets and determine how the division should be
carried out as between different shareholders or different classes of
shareholders or otherwise as the resolution may provide, or (b) vest the whole
or any part of the assets in trustees upon such trusts for the benefit of the
contributories as the liquidator, with the sanction of a special resolution,
determines, but in neither case will a shareholder be compelled to accept any
assets upon which there is a liability.
Unless the board of directors determines otherwise, no shareholder holding
shares representing 0.25% or more of any class of New National Grid's shares
will be entitled to receive payment of any dividend or other distribution if he
or any person appearing to be interested in those shares has been given a notice
under Section 212 of the Companies Act 1985 and has failed to give New National
Grid the information required by the notice within 14 days from the date of
service of the notice.
VARIATION OF RIGHTS
Subject to applicable provisions of English law and the rights attached to
any specific class of shares, the rights attached to any class of shares of New
National Grid may be varied with the written consent of the holders of
three-fourths in nominal value of the issued shares of that class, or with the
sanction of an extraordinary resolution passed at a separate meeting of the
holders of the shares of that class. The applicable provisions of English law
and the articles of association relating to general meetings will generally
apply to any such separate meeting except that:
(1) the necessary quorum will be two persons between them holding or
representing by proxy not less than one-third in nominal amount of the
issued shares of that class or, at any adjourned meeting of holders of
shares of that class at which that quorum is not present, will be any
holder of shares of that class who is present in person or by proxy
whatever the number of shares held by him;
90
<PAGE>
(2) any holder of shares of that class present in person or by proxy may
demand a poll; and
(3) every holder of shares of that class will, on a poll, have one vote in
respect of every share of that class held by him.
CALLS ON SHARES
Subject to the terms of issue, the board of directors may from time to time
make calls upon shareholders in respect of any unpaid nominal amount or premium
on their shares. Each shareholder must pay to New National Grid the amount
called on his shares (subject to receiving at least 14 clear days' notice). A
call may be made payable by installments. A call may, at any time before New
National Grid receives any sum due under the call, be revoked in whole or in
part and payment of a call may be postponed in whole or in part, as the board of
directors may determine. A person upon whom a call is made shall remain liable
for all calls made upon him notwithstanding the subsequent transfer of the
shares in respect of which the call was made.
If a call on a share remains unpaid after the date due, New National Grid
may cause the relevant shareholder to forfeit his share on not less than
14 clear days' notice. A resolution of the board of directors is required to
effect such a forfeiture.
If shares are forfeited, they become New National Grid's property and New
National Grid may sell them until cancelled in accordance with the applicable
provisions of English law.
A person whose shares have been forfeited will cease to be a shareholder in
respect of the forfeited shares and, in the case of shares held in certificated
form, must surrender to New National Grid for cancelation the certificate for
the forfeited shares but in all cases will remain liable to New National Grid
for all monies which at the date of forfeiture were presently payable by the
forfeiting shareholder to New National Grid in respect of those shares.
TRANSFER OF SHARES
A shareholder may transfer all or any of his shares, in the case of shares
held in certificated form, by an instrument of transfer in any usual form or in
any other form which the board of directors may approve. A transfer must be
executed by or on behalf of the transferor and (unless the share is fully paid)
by or on behalf of the transferee. In the case of shares held in uncertificated
form, the transfer must be in accordance with the Uncertificated Securities
Regulations 1995 and the rules of an electronic settlement system (known as
CREST) and otherwise in such manner as the board of directors in its absolute
discretion determines. The transferor will be deemed to remain the holder of the
share until the name of the transferee is entered in the register of
shareholders.
The board of directors may refuse to register the transfer of a share which
is not fully paid without giving any reason for so doing. Where shares are
admitted to the Official List of the UK Listing Authority however, the board of
directors may not exercise its discretion in such a way as to prevent dealings
in shares of that class from taking place on an open and proper basis.
The board of directors may also refuse to register the transfer of a share:
(1) in the case of shares held in certificated form, if it is not lodged,
duly stamped (if necessary), at New National Grid's registered office or
at another place determined by the board of directors and accompanied by
the certificate for the shares to which it relates (where a certificate
has been issued in respect of the shares) and/or such other evidence as
the board of directors may reasonably require to show the right of the
transferor to make the transfer;
(2) if it is not in respect of one class of share only;
(3) if it is in favor of more than four transferees jointly;
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(4) if it is in favor of a minor, bankrupt or person of mental ill health;
(5) in the case of shares held in uncertificated form, in any other
circumstances permitted by the Uncertificated Securities Regulations 1995
and/or the rules of the CREST settlement system; or
(6) where the board of directors is obliged or entitled to refuse to do so
as a result of any failure to comply with a notice under Section 212 of
the Companies Act 1985.
If the board of directors refuses to register a transfer it will, in the
case of shares held in certificated form, within two months after the date on
which the transfer was lodged, and in the case of shares held in uncertificated
form, within two months after the date on which the relevant transfer
instruction was received by or on behalf of New National Grid, send to the
transferee a notice of refusal. The board of directors may suspend the
registration of transfers at any time and for any period (not exceeding 30 days
in any calendar year) but as New National Grid will be a participating issuer
within the meaning of the Uncertificated Securities Regulations 1995 the
register of members may only be closed with the prior consent of the operator of
the CREST settlement system.
No fee will be charged for the registration of any transfer or document
relating to or affecting the title to any share.
Unless the board of directors otherwise determines, no shareholder holding
shares representing 0.25% or more of any class of New National Grid's shares who
has failed to comply with a notice served under Section 212 of the Companies Act
1985 will be entitled to transfer any of those shares provided that, in the case
of shares held in uncertificated form, the board of directors may only exercise
their discretion not to register a transfer if permitted to do so by the
Uncertificated Securities Regulations 1995. The shareholder may, however, accept
a takeover offer, sell shares on a recognized investment exchange or an
investment exchange on which shares in New National Grid are normally traded, or
sell its entire beneficial interest to a person who is unconnected with the
shareholder and with any other person appearing to be interested in the shares.
The board of directors must also decline to register a transfer which is
made in the circumstances referred to under "General Limitations on
Shareholdings" and "--Shareholding Restrictions on Pool Members or License
Holders" below.
ALTERATION OF CAPITAL
New National Grid may by ordinary resolution increase, consolidate and
divide and sub-divide its share capital. Subject to applicable provisions of
English law, New National Grid may by special resolution reduce its share
capital, any capital redemption reserve and any share premium account or other
undistributable reserve in any manner. Subject to applicable provisions of
English law and to any rights conferred on the holder of any class of shares,
New National Grid may purchase all or any of its shares of any class (including
any redeemable shares).
GENERAL LIMITATIONS ON SHAREHOLDINGS
The articles of association contain provisions which limit interests in
voting shares. These provisions are described briefly below:
(a) If any person has, or appears to the board of directors to have, an
interest in shares which carry 15% or more of the total votes attaching
to the relevant share capital (as defined in the Companies Act 1985) of
New National Grid and capable of being cast on a poll or is deemed so to
have such an interest, the board of directors must take the following
actions. The board must give notice to all persons who appear to the
board of directors to have interests in the shares concerned and, if
different, to the registered holders of those shares. The notice will
require that the interest concerned be reduced to less than 15% by
selling shares within 21 days of the notice
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(or a longer period that the board of directors considers reasonable). No
transfer of the shares to which the interest relates may then be
registered except for the purpose of reducing the interest to less than
15% or until the notice has been withdrawn.
(b) If a person receiving a notice described in paragraph (a) does not
comply with it, the board of directors will, so far as it is able, sell
the shares on appropriate terms, as it determines. The proceeds of that
sale will be received by New National Grid and paid (without interest and
after deduction of any expenses of sale) to the former registered holder.
(c) A registered holder receiving a notice described in paragraph (a) is not
entitled, until he has complied with the notice, to attend or vote at any
general meeting of New National Grid or of any class of shares. Likewise,
the holder will not be able to exercise any other of the rights of a
shareholder in relation to that meeting, and those rights will vest in
the chairman of that meeting who will have discretion to exercise them or
not.
(d) Any resolution or determination of, or decision or exercise of any
discretion or power by, the board of directors or any director or the
chairman of any meeting under the relevant article will be final and
conclusive. Any disposal or transfer made by or on behalf of or on the
authority of the board of directors or any director pursuant to the
relevant article will be conclusive and binding on all persons concerned
and will not be open to challenge. The board of directors is not required
to give any reasons for any decision, determination or declaration taken
or made in accordance with the relevant article.
There are limited exceptions to these restrictions relating principally to
holdings of a trustee or fiduciary nature and market clearing arrangements.
These restrictions do not apply to the Depositary acting in its capacity as
such.
SHAREHOLDING RESTRICTIONS ON POOL MEMBERS OR LICENSE HOLDERS
The articles of association contain additional restrictions which are
intended to prevent members of the "Pool", which is the trading mechanism
through which the great majority of electricity is currently sold and purchased
in bulk in England and Wales, a holder of a license under the Electricity Act
1989, or in either case, any affiliate thereof, or any group of companies of
which a regional electricity company is a member, from having an interest in
shares which carry 1% or more of the total votes attaching to the relevant share
capital of New National Grid and capable of being cast on a poll.
The board of directors has the same rights as those set out under "--General
Limitations on Shareholdings" above to require the sale or to sell sufficient
numbers of shares to bring the relevant interest within the permitted limit
where these provisions are breached.
OBLIGATIONS RELATING TO THE TRANSMISSION LICENSE HOLDER
The articles of association provide that New National Grid must provide
that, without the consent in writing of the holder of the special share:
(a) the transmission license (as subsequently amended) which was granted by
the then Secretary of State for Energy may not be held by any person
which is not New National Grid or a wholly owned subsidiary of New
National Grid;
(b) New National Grid and its wholly owned subsidiaries may not cease to
carry on, or dispose of or relinquish operational control over any asset
required to carry on, the transmission business or the interconnectors
business (as defined in the transmission license in place at
December 11, 1995) except if that cessation, disposal or relinquishment
is required by law or is permitted pursuant to or by virtue of the terms
of the transmission license;
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(c) neither New National Grid nor any affiliate of New National Grid is
permitted to carry on in the United Kingdom any activity which requires a
generation or supply license or which is exempted from such requirement,
save where that activity is expressly permitted under the terms of the
transmission license in place at December 11, 1995 and neither New
National Grid nor any affiliate of New National Grid is permitted to
engage outside the United Kingdom in the generation of electricity to be
imported into the United Kingdom;
(d) no employee or director of any Pool member or the holder of a license
under the Electricity Act 1989 or, in either case, any affiliate thereof
(other than New National Grid or any wholly owned subsidiary of New
National Grid) is permitted to be a director of New National Grid or the
transmission license holder; and
(e) the transmission license holder is not permitted to carry on activities
other than:
(i) those required or contemplated on the part of the transmission
license holder (in its capacity as the holder of the transmission
license) by the transmission license or the Electricity Act 1989 or
related to those requirements; or
(ii) those carried on by NGC at or prior to December 11, 1995.
The restrictions set out in this paragraph (e) would not prevent the acquisition
of any share capital by the transmission license holder in any company (subject
to sub-paragraph (c)).
DISCLOSURE OF INTERESTS
(a) A shareholder may lose the right to vote his shares if he or any other
person appearing to be interested in those shares fails to comply within
a prescribed period of time with a request by New National Grid under the
Companies Act 1985 to give the required information with respect to past
or present ownership or interests in those shares. In the case of holders
of more than 0.25% in nominal amount of the share capital of New National
Grid (or any class of the share capital), in addition to
disenfranchisement, the sanctions that may be applied by New National
Grid include withholding of the right to receive payment of dividends and
other monies payable on shares, and restrictions on transfers of the
shares.
(b) The Companies Act 1985 provides that a person (including a company and
other legal entities) that acquires an interest of 3% or more in any
class of shares constituting an English public company's "relevant share
capital" (i.e., New National Grid's issued share capital carrying the
right to vote in all circumstances at a general meeting of New National
Grid) is required to notify the company of its interest within two
business days following the day on which the obligation arises. After the
3% level is exceeded, similar notifications must be made in respect of
increases or decreases of 1% or more.
For purposes of the notification obligation, the interest of a person in
shares means any kind of interest in shares including interests in any shares
(a) in which a spouse, or child or stepchild under the age of 18 is interested,
(b) in which a corporate body is interested and either (1) that corporate body
or its directors generally act in accordance with that person's directions or
instructions or (2) that person controls one-third or more of the voting power
of that corporate body or (c) in which another party is interested and the
person and that other party are parties to a "concert party" agreement. A
concert party agreement is one which provides for one or more parties to acquire
interests in shares of a particular company and imposes obligations or
restrictions on any one of the parties as to the use, retention or disposal of
such interests acquired under the agreement, and any interest in the company's
shares is in fact acquired by any of the parties under the agreement. Some of
the interests (e.g., those held by certain investment fund managers) may be
disregarded for the purposes of calculating the 3% threshold, but the
obligations of disclosure will still apply where those interests exceed 10% or
more of any class of the company's relevant share capital and to increases or
decreases of 1% or more thereafter.
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In addition, Section 212 of the Companies Act 1985 provides that a public
company may send a written notice to a person whom the company knows or has
reasonable cause to believe to be, or to have been at any time during the three
years immediately preceding the date on which the notice is issued, interested
in shares constituting the company's "relevant share capital." The notice will
require that person to state whether he has an interest in the shares, and in
case that person holds or had held an interest in those shares, to give
additional information relating to that interest and any other interest in the
shares of which that person is aware.
Where a company serves notice under the provisions described above on a
person who is or was interested in shares of the company and that person fails
to give the company any information required by the notice within the time
specified in the notice, the company may apply to an English court for an order
directing that the shares in question be subject to restrictions prohibiting,
among other things, any transfer of those shares, the taking up of rights in
respect of those shares and, other than in liquidation, payments in respect of
those shares.
A person who fails to fulfill the obligations imposed by those provisions of
the Companies Act 1985 described above is subject to criminal penalties.
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DESCRIPTION OF AMERICAN DEPOSITARY SHARES
AMERICAN DEPOSITARY SHARES
The Bank of New York will issue American Depositary Receipts ("ADRs")
evidencing the ADSs. Each ADS will represent an ownership interest in five
ordinary shares of New National Grid. The ordinary shares (or the right to
receive ordinary shares) will be deposited by New National Grid with the London,
England office of the agent of the Depositary, currently located at One Canada
Square, London E14 5AL (the "Custodian"). Each ADS will also represent
securities, cash or other property deposited with The Bank of New York but not
distributed to ADS holders. The Bank of New York's Corporate Trust Office is
located at 101 Barclay Street, New York, NY 10286. The Bank of New York's
principal executive office is located at One Wall Street, New York, New York
10286.
You may hold ADSs either directly or indirectly through your broker or other
financial institution. If you hold ADSs directly, you are an ADS holder. This
description assumes you hold your ADSs directly. If you hold the ADSs
indirectly, you must rely on the procedures of your broker or other financial
institution to assert the rights of ADS holders described in this section. You
should consult with your broker or financial institution to find out what those
procedures are.
Because The Bank of New York will actually hold the ordinary shares, you
must rely on it to exercise your rights as a shareholder of New National Grid.
The obligations of The Bank of New York will be set out in a Deposit Agreement
to be entered into among New National Grid, National Grid Group, The Bank of New
York and you, as an ADS holder. The Deposit Agreement and the ADSs are generally
governed by New York law.
The following is a summary of the Deposit Agreement. Because it is a
summary, it does not contain all the information that may be important to you.
For more complete information, you should read the entire Agreement and the ADR.
Copies of these are available for inspection at the office of the Custodian and
the New York office of the Depositary at the address indicated above.
SHARE DIVIDENDS AND OTHER DISTRIBUTIONS
The Bank of New York has agreed to pay to you the cash dividends or other
distributions it or the Custodian receives on ordinary shares or other deposited
securities after deducting its fees and expenses. You will receive these
distributions in proportion to the number of ordinary shares your ADSs
represent.
CASH. The Bank of New York will convert any cash dividend or other cash
distribution New National Grid pays on the ordinary shares into US dollars, if
it can do so on a reasonable basis and can transfer the US dollars to the United
States. If that is not possible or if any approval from the UK government is
needed and cannot be obtained, the Deposit Agreement allows The Bank of New York
to distribute the pounds sterling only to those ADS holders to whom it is
possible to do so. It will hold the pounds sterling it cannot convert for the
account of the ADS holders who have not been paid. It will not invest the pounds
sterling and it will not be liable for any interest.
Before making a distribution, any UK withholding taxes that must be paid
will be deducted. The Bank of New York will distribute only whole US dollars and
cents and will round fractional cents to the nearest whole cent. IF THE EXCHANGE
RATES FLUCTUATE DURING A TIME WHEN THE BANK OF NEW YORK CANNOT CONVERT THE
FOREIGN CURRENCY, YOU MAY LOSE SOME OR ALL OF THE VALUE OF THE DISTRIBUTION.
SHARES. The Bank of New York may distribute new ADSs representing any
ordinary shares New National Grid may distribute as a dividend or free
distribution, if New National Grid furnishes it with satisfactory evidence that
it is legal to do so. The Bank of New York will only distribute whole ADSs. It
will sell ordinary shares which would require it to use a fractional ADS and
distribute the net proceeds in the same way as it does with cash. If The Bank of
New York does not distribute additional ADSs, each ADS will also represent the
new ordinary shares.
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RIGHTS TO RECEIVE ADDITIONAL SHARES. If New National Grid offers holders of
its ordinary shares any rights to subscribe for additional ordinary shares or
any other rights, The Bank of New York may make these rights available to you.
New National Grid must first instruct The Bank of New York to do so and furnish
it with satisfactory evidence that it is legal to do so. If New National Grid
does not furnish this evidence and/or give these instructions, and The Bank of
New York decides it is practical to sell the rights, The Bank of New York will
sell the rights and distribute the proceeds, in the same way as it does with
cash. The Bank of New York may allow rights that are not distributed or sold to
lapse. In that case, you will receive no value for them.
If The Bank of New York makes rights available to you, upon instruction from
you, it will exercise the rights and purchase the ordinary shares on your
behalf. The Bank of New York will then deposit the ordinary shares and issue
ADSs to you. It will only exercise rights if you pay it the exercise price and
any other charges the rights require you to pay.
US securities laws may restrict the sale, deposit, cancellation and transfer
of the ADSs issued after exercise of rights. For example, you may not be able to
trade the ADSs freely in the United States. In this case, The Bank of New York
may issue the ADSs under a separate restricted deposit agreement which will
contain the same provisions as the agreement, except for the changes needed to
put the restrictions in place.
OTHER DISTRIBUTIONS. The Bank of New York will send to you anything else
New National Grid distributes on deposited securities by any means it thinks is
legal, fair and practical. If it cannot make the distribution in that way, The
Bank of New York has a choice. It may decide to sell what New National Grid
distributed and distribute the net proceeds in the same way as it does with cash
or it may decide to hold what New National Grid distributed, in which case the
ADSs will also represent the newly distributed property.
The Bank of New York is not responsible if it decides that it is unlawful or
impractical to make a distribution available to any ADS holders. New National
Grid has no obligation to register ADSs, ordinary shares, rights or other
securities under the Securities Act. New National Grid also has no obligation to
take any other action to permit the distribution of ADSs, ordinary shares,
rights or anything else to ADS holders. This means that you may not receive the
distribution New National Grid makes on its ordinary shares or any value for
them if it is illegal or impractical for New National Grid to make them
available to you.
DEPOSIT, WITHDRAWAL AND CANCELLATION
The Bank of New York will issue ADRs if you or your broker deposit ordinary
shares or evidence of rights to receive ordinary shares with the Custodian. Upon
payment of its fees and expenses and of any taxes or charges, such as stamp
taxes or stock transfer taxes or fees, The Bank of New York will register the
appropriate number of ADRs in the names you request and will deliver the ADRs at
its office to the persons you request.
You may turn in the ADRs evidencing your ADSs at The Bank of New York's
Corporate Trust Office. Upon payment of its fees and expenses and of any taxes
or charges, such as stamp taxes or stock transfer taxes or fees, The Bank of New
York will deliver (1) the underlying ordinary shares to an account designated by
you and (2) any other deposited securities represented by the ADS at the office
of the Custodian or, at your request, risk and expense, The Bank of New York
will deliver the deposited securities at its office.
VOTING RIGHTS
You may instruct The Bank of New York to vote the ordinary shares
represented by your ADSs but only if New National Grid asks The Bank of New York
to ask for your instructions. Otherwise, you will not
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be able to exercise your right to vote unless you withdraw the ordinary shares.
However, you may not know about the meeting enough in advance to withdraw the
ordinary shares.
If New National Grid asks for your instructions, The Bank of New York will
notify you of the upcoming vote and arrange to deliver New National Grid's
voting materials to you. The materials will (1) describe the matters to be voted
on and (2) explain how you, on a certain date, may instruct The Bank of New York
to vote the ordinary shares or other deposited securities underlying your ADSs
as you direct. For instructions to be valid, The Bank of New York must receive
them on or before the date specified. The Bank of New York will try, as far as
practical, subject to English law and the provisions of New National Grid's
articles of association, to vote or to have its agents vote the ordinary shares
or other deposited securities as you instruct. The Bank of New York will only
vote or attempt to vote as you instruct. HOWEVER, IF THE BANK OF NEW YORK DOES
NOT RECEIVE YOUR VOTING INSTRUCTIONS, IT WILL GIVE A PROXY TO VOTE YOUR ORDINARY
SHARES TO A DESIGNATED REPRESENTATIVE OF NEW NATIONAL GRID.
New National Grid cannot assure you that you will receive the voting
materials in time to ensure that you can instruct The Bank of New York to vote
your ordinary shares. In addition, The Bank of New York and its agents are not
responsible for failing to carry out voting instructions or for the manner of
carrying out voting instructions. This means that you may not be able to
exercise your right to vote and there may be nothing you can do if your ordinary
shares are not voted as you requested.
Under English company law, only holders of record are permitted to attend a
general meeting and vote by a show of hands. The Depositary (or the Custodian),
as holder of record of the ordinary shares represented by the ADSs, would attend
the meeting. In order to participate in a show of hands vote, you must withdraw
ordinary shares in order to attend the meeting in person.
REPORTS AND OTHER COMMUNICATIONS
The Depositary will make available to you for inspection at its Corporate
Trust Office any reports and communications, including any proxy soliciting
material, received from New National Grid, which are both (1) received by the
Depositary as the holder of the deposited securities and (2) made generally
available to the holders of the deposited securities by New National Grid. The
Depositary will also, upon written request, send to you copies of such reports
when furnished by New National Grid pursuant to the Deposit Agreement.
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FEES AND EXPENSES
<TABLE>
<CAPTION>
FOR: ADS HOLDERS MUST PAY:
--------------------------------------------- ---------------------------------------------
<S> <C>
- Each issuance of an ADS, including as a US$5.00 (or less) per 100 ADSs (or portion
result of a distribution of shares or thereof)
rights or other property
- Each cancellation of an ADS, including if US$5.00 (or less) per 100 ADSs (or portion
the Deposit Agreement terminates thereof)
- Any cash distribution made pursuant to the US$0.02 (or less) per ADS (or portion
Deposit Agreement thereof)
- Transfer and registration of ordinary Registration or transfer fees
shares on New National Grid's share
register from registered holder name to the
name of The Bank of New York or its agent
when such holder deposits or withdraws
shares
- Conversion of foreign currencies, including Expenses of The Bank of New York
pounds sterling to US dollars
- Cable, telex and facsimile transmission Expenses of The Bank of New York
expenses, if expressly provided in the
Deposit Agreement
- As necessary Certain taxes and governmental charges which
The Bank of New York or the Custodian has to
pay on any ADS or ordinary share underlying
an ADS, for example, share transfer taxes,
stamp duty reserve tax or withholding taxes
</TABLE>
PAYMENT OF TAXES
You will be responsible for any taxes or other governmental charges payable
on your ADSs or on the deposited securities represented by your ADSs. The Bank
of New York may refuse to transfer your ADSs or allow you to withdraw the
deposited securities represented by your ADSs until such taxes or other charges
are paid. It may apply payments owed to you or sell deposited securities
represented by your ADSs to pay any taxes owed and you will remain liable for
any deficiency. If it sells deposited securities, it will, if appropriate,
reduce the number of ADSs to reflect the sale and pay to you any proceeds, or
send to you any property remaining after it has paid the taxes.
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RECLASSIFICATIONS, RECAPITALIZATIONS AND MERGERS
<TABLE>
<CAPTION>
IF NEW NATIONAL GRID: THEN:
--------------------------------------------- ---------------------------------------------
<S> <C>
Changes the nominal or par value of its The cash, ordinary shares or other securities
ordinary shares received by The Bank of New York will become
Reclassifies, splits up or consolidates any deposited securities. Each ADS will
of the deposited securities automatically represent its equal share of
the new deposited securities.
Distributes securities on the ordinary shares The Bank of New York may, and will if New
that are not distributed to you National Grid asks it to, distribute some or
Recapitalizes, reorganizes, merges, all of the cash, ordinary shares or other
liquidates, sells all or substantially all securities it received. It may also issue new
of its assets, or takes any similar action ADSs or ask you to surrender your outstanding
ADSs in exchange for new ADSs, identifying
the new deposited securities.
</TABLE>
DISCLOSURE OF INTERESTS
Notwithstanding any other provision of the Deposit Agreement, New National
Grid's articles of association and applicable English law, each registered
holder and beneficial owner will agree to be bound by and subject to applicable
provisions of the Companies Act 1985 and New National Grid's articles of
association to the same extent as if the ADSs evidenced by such ADRs were
ordinary shares. In particular, the obligation of a holder of ordinary shares
(or other persons with an interest in those ordinary shares) to disclose certain
information to New National Grid under certain circumstances, as described under
"Description of Ordinary Shares--Disclosure of Interests" also is applicable to
a holder of ADSs (and other persons with an interest in them). The consequences
to a registered holder or beneficial owner of ADSs (or other interested person)
for failing to comply with the disclosure requirements are the same as those for
a holder of ordinary shares (or other interested person) described under
"Description of Ordinary Shares--Disclosure of Interests."
The Depositary will use reasonable efforts to forward to you at the request
and at the expense of New National Grid, any request by New National Grid for
information and to comply with any instructions of New National Grid, to the
extent reasonably practicable, given in connection with the foregoing. If New
National Grid requests information from the Depositary or the Custodian, as the
registered holders of ordinary shares, pursuant to the articles of association
of New National Grid or the Companies Act 1985, the obligations of the
Depositary or the Custodian will be limited to disclosing to New National Grid
the information relating to the ordinary shares in question that they have
recorded pursuant to the terms of the Deposit Agreement.
AMENDMENT AND TERMINATION
New National Grid may agree with The Bank of New York to amend the Deposit
Agreement and the ADRs without your consent for any reason. If the amendment
adds or increases fees or charges, except for taxes and other governmental
charges or registration fees, cable, telex or facsimile transmission costs,
delivery costs or other such expenses, or prejudices an important right of ADS
holders, it will only become effective 30 days after The Bank of New York
notifies you of the amendment. At the time an amendment becomes effective, you
are considered by continuing to hold your ADS, to agree to the amendment and to
be bound by the ADSs and the Deposit Agreement is amended.
The Bank of New York will terminate the Deposit Agreement if New National
Grid asks it to do so. The Bank of New York may also terminate the Deposit
Agreement if The Bank of New York has told New
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National Grid that it would like to resign and New National Grid has not
appointed a new depositary bank within 90 days. In both cases, The Bank of New
York must notify you at least 30 days before termination.
After termination, The Bank of New York and its agents will be required to
do only the following under the Deposit Agreement: (1) advise you that the
Deposit Agreement is terminated, and (2) collect distributions on the deposited
securities and deliver ordinary shares and other deposited securities upon
cancellation of ADSs. After the expiration of one year from the date of
termination, The Bank of New York will, if practical, sell any remaining
deposited securities by public or private sale. After the expiration of one year
from the date of termination, The Bank of New York will hold the proceeds of the
sale, as well as any other cash it is holding under the Deposit Agreement for
the pro rata benefit of the ADS holders that have not surrendered their ADSs. It
will not invest the money and will have no liability for interest. The Bank of
New York's only obligations will be to account for the proceeds of the sale and
other cash. After termination, New National Grid's only obligations will be with
respect to indemnification and to pay certain amounts to The Bank of New York.
LIMITATIONS ON OBLIGATIONS AND LIABILITY TO ADS HOLDERS
The Deposit Agreement expressly limits New National Grid's obligations and
the obligations of The Bank of New York, and it limits New National Grid's
liability and the liability of The Bank of New York. New National Grid and The
Bank of New York:
- are only obligated to take the actions specifically set forth in the
Deposit Agreement without negligence or bad faith;
- are not liable if either of them is prevented or delayed by law or
circumstances beyond their control from performing their obligations under
the Deposit Agreement;
- are not liable if either of them exercises discretion permitted under the
Deposit Agreement;
- have no obligation to become involved in a lawsuit or other proceeding
related to the ADSs or the Deposit Agreement on your behalf or on behalf
of any other party; and
- may rely upon any documents they believe in good faith to be genuine and
to have been signed or presented by the proper party.
In the Deposit Agreement, New National Grid and The Bank of New York agree
to indemnify each other under certain circumstances.
REQUIREMENTS FOR DEPOSITARY ACTIONS
Before The Bank of New York will issue or register a transfer of an ADS,
make a distribution on an ADS, or make a withdrawal of ordinary shares, The Bank
of New York may require:
- payment of stock transfer or other taxes or other governmental charges and
transfer or registration fees charged by third parties for the transfer of
any ordinary shares or other deposited securities;
- production of satisfactory proof of the identity and genuineness of any
signature or other information it deems necessary; and
- compliance with regulations it may establish, from time to time,
consistent with the Deposit Agreement, including presentation of transfer
documents.
The Bank of New York may refuse to deliver, transfer, or register transfers
of ADSs generally when the books of The Bank of New York or New National Grid
are closed, or at any time if The Bank of New York or New National Grid thinks
it advisable to do so.
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You have the right to cancel your ADSs and withdraw the underlying shares at
any time except:
- when temporary delays arise because: (1) The Bank of New York or New
National Grid has closed its transfer books; (2) the transfer of ordinary
shares is blocked to permit voting at a shareholders' meeting; or (3) New
National Grid is paying a dividend on the ordinary shares;
- when you or other ADS holders seeking to withdraw ordinary shares owe
money to pay fees, taxes and similar charges; or
- when it is necessary to prohibit withdrawals in order to comply with any
laws or governmental regulations that apply to ADSs or to the withdrawal
of ordinary shares or other deposited securities.
This right of withdrawal may not be limited by any other provision of the
Deposit Agreement.
PRE-RELEASE OF ADSS
In certain circumstances, subject to the provisions of the Deposit
Agreement, The Bank of New York may issue ADSs before deposit of the underlying
ordinary shares. This is called a pre-release of the ADS. The Bank of New York
may also deliver shares upon cancellation of pre-released ADSs (even if the ADSs
are cancelled before the pre-release transaction has been closed out). A
pre-release is closed out as soon as the underlying ordinary shares are
delivered to The Bank of New York. The Bank of New York may receive ADSs instead
of ordinary shares to close out a pre-release. The Bank of New York may
pre-release ADSs only under the following conditions: (1) before or at the time
of the pre-release, the person to whom the pre-release is being made must
represent to The Bank of New York in writing that it or its customer owns the
ordinary shares or ADSs to be deposited; (2) the pre-release must be fully
collateralized with cash or other collateral that The Bank of New York considers
appropriate; and (3) The Bank of New York must be able to close out the
pre-release on not more than five business days' notice. In addition, The Bank
of New York will limit the number of ADSs that may be outstanding at any time as
a result of pre-release to 30% of the ordinary shares deposited, although The
Bank of New York may disregard the limit from time to time, if it thinks it is
appropriate to do so.
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COMPARISON OF RIGHTS OF NIAGARA MOHAWK SHAREHOLDERS
AND NEW NATIONAL GRID SHAREHOLDERS
As a result of the merger, holders of Niagara Mohawk common stock (other
than holders, if any, who will receive cash for all of their shares) will
receive ADSs, each of which represents five ordinary shares. New National Grid
is a public limited company incorporated under the laws of England and Wales.
Niagara Mohawk is a corporation organized under the laws of the State of New
York. The following is a summary of material differences between the rights of
Niagara Mohawk shareholders and the rights of New National Grid shareholders
arising from the differences between the corporate laws of the State of New York
and England and Wales, the governing instruments of the two companies and as a
result of UK Listing Authority requirements.
Prior to the implementation of the scheme of arrangement and subject to the
condition that the scheme of arrangement becomes effective, New National Grid
will adopt new articles of association appropriate for a publicly traded
company. See "Description of Ordinary Shares." The following description assumes
that the scheme of arrangement and the merger have been completed and that New
National Grid has adopted its new articles of association.
Rights attaching to ordinary shares underlying the ADSs are exercisable only
by the Depositary, as the registered holder of those shares. Rights as between
the Depositary and holders of the ADSs are set out in the Deposit Agreement. For
further details, including details of future proposals in relation to ADSs, see
"Description of American Depositary Shares" above.
LIMITATIONS ON ENFORCEABILITY OF CIVIL LIABILITIES UNDER US FEDERAL SECURITIES
LAWS
New National Grid is and will continue to be an English company. Most of New
National Grid's officers and some of the experts named in this proxy
statement/prospectus are residents of the United Kingdom and not the United
States. In addition, following the merger, a majority of New National Grid's
officers and directors will be residents of the United Kingdom and not the
United States. A large portion of the assets of New National Grid are located
outside of the United States, although New National Grid will indirectly have
very substantial assets in the United States. As a result, it may be difficult
for investors to effect service within the United States upon persons located
outside the United States or to enforce in US courts or outside the United
States judgements obtained against persons in US courts, or to enforce in US
courts judgements obtained against those persons in courts in jurisdictions
outside the United States, in each case, in any action, including actions
predicated upon the civil liability provisions of the US securities laws. New
National Grid believes that there may be doubt as to the enforceability against
persons in the United Kingdom, whether in original actions or in actions for the
enforcement of judgements of US courts, of civil liabilities predicated solely
upon the laws of the United States, including its federal securities laws.
Unlike directors and officers of Niagara Mohawk presently, directors and
officers of New National Grid, a foreign private issuer under the Securities
Exchange Act of 1934, will not be subject to rules under the Securities Exchange
Act that under certain circumstances would require directors and officers to
forfeit to New National Grid any "short swing" profits realized from purchases
and sales, as determined under the Securities Exchange Act and the rules
thereunder, of New National Grid equity securities.
PROXY STATEMENTS AND REPORTS
Under Section 14(a) of the Securities Exchange Act and the rules enacted
pursuant to Section 14(a) (the "Proxy Rules"), Niagara Mohawk is required to
comply with notice and disclosure requirements relating to the solicitation of
proxies in respect of shareholder meetings. As a foreign private issuer, New
National Grid will not be subject to the Proxy Rules. However, New National Grid
will be subject to notice and disclosure requirements under the Financial
Services Act 1986, the Companies Act 1985 and the Listing Rules of the UK
Listing Authority. As a foreign private issuer with securities listed on the New
York Stock Exchange and registered under Section 12 of the Securities Exchange
Act, New National Grid
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will also be required under the Securities Exchange Act to publicly file with
the SEC and the New York Stock Exchange, as the case may be, annual reports and
other information.
NIAGARA MOHAWK VOTING RIGHTS; GENERALLY
The capital stock of Niagara Mohawk consists of the shares of common stock
and one class of preferred stock, none of which preferred stock is outstanding.
The holders of shares of common stock are entitled to one vote for each share
held on matters presented to shareholders generally.
The holders of common stock shares do not have cumulative voting rights,
which means that the holders of more than 50% of all outstanding shares can
elect 100% of the directors if they choose to do so, and, in such event, the
holders of the remaining less than 50% of the shares will not be able to elect
any person or persons to the Niagara Mohawk board of directors. Nominees who
receive the most votes by shareholders are elected directors. A quorum consists
of a majority of the shares entitled to vote, unless otherwise required by law.
See "--Special Meeting of Shareholders" below for a discussion of who may call
meetings of shareholders of Niagara Mohawk.
NEW NATIONAL GRID VOTING RIGHTS; GENERALLY
Under English law, the voting rights of shareholders are governed by a
company's articles of association, subject to the statutory rights of
shareholders, including the right to demand a poll (a vote by the number of
shares held) at a general meeting. Each shareholder present in person and
entitled to vote at a general meeting has one vote on a show of hands and, on a
poll, one vote for every share held by him. New National Grid's articles of
association provide that a poll may be demanded by:
- the Chairman of the meeting; or
- by at least five shareholders present in person or by proxy and having the
right to vote at the meeting; or
- by any shareholder or shareholders representing at least 10% of the voting
rights of all shareholders having the right to vote at the meeting or by
any shareholder or shareholders holding shares conferring a right to vote
at the meeting on which the aggregate sum paid up on the shares is equal
to not less than 10% of the total sum paid up upon all the shares
conferring the right to vote.
Cumulative voting is essentially unknown under English law. Under English
law, two shareholders present in person constitute a quorum for purposes of a
general meeting, unless the company's articles of association specify otherwise.
New National Grid's articles of association specify that two shareholders
present in person or by proxy and entitled to vote constitute a quorum. See
"Description of Ordinary Shares--Voting Rights" and "Description of American
Depositary Shares--Voting Rights" above.
Under New National Grid's articles of association, if a person, other than
specified permitted persons, including the Depositary, has or appears to New
National Grid's board of directors to have an interest, except those of a
nominee or custodian trustee, in ordinary shares which carry the right to cast
15% or more of the total votes attaching to the entire share capital of New
National Grid, that person is not entitled to attend or vote at any general
meeting of shareholders of New National Grid or to exercise any other right
conferred by ownership of the ordinary shares in relation to any shareholders'
meeting, and the right to attend, to speak and to demand and vote on a poll
which would have attached to the ordinary shares will vest in the chairman of
the meeting, who will have complete discretion to vote the ordinary shares.
Those rights will not reattach to the ordinary shares until New National Grid's
board of directors is satisfied that the person has disposed of a sufficient
amount of ordinary shares. See "Description of Ordinary Shares--General
Limitations on Shareholdings" above.
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NEW NATIONAL GRID SPECIAL SHARE
The UK Government (through the UK Secretary of State for Trade and Industry)
holds a special rights non-voting redeemable preference share which is
redeemable at par (L1) only at the option of the UK Secretary of State for Trade
and Industry. New National Grid may not redeem the special share unless
requested to do so by the UK Secretary of State for Trade and Industry. The
special share, which may only be held by the UK Government, does not carry any
rights to vote at general meetings of New National Grid but does entitle the
holder to receive notice of, attend and speak at general meetings. The articles
of association of New National Grid specify matters, in particular the
alteration of specified provisions of the articles of association including the
provision relating to limitations which prevent a person from owning or having
an interest in 15% or more of New National Grid voting shares, which require the
written consent of the holder of the special share. The UK Secretary of State
for Trade and Industry as holder of the special share does not have a right to
appoint or nominate directors to New National Grid's board of directors.
SHAREHOLDER ACTION BY WRITTEN CONSENT
Under the Niagara Mohawk certificate of incorporation, shareholders must act
at a duly called annual or special meeting and may not act by written consent.
Under English law, a company's articles of association may provide that a
resolution in writing executed by or on behalf of each shareholder who would
have been entitled to vote upon it if it had been proposed at a general meeting
at which he was present will be as valid and effective as if it had been passed
at a general meeting properly convened and held. That written resolution
requires the unanimous consent of all shareholders entitled to attend and vote.
New National Grid's articles of association do not contain such a provision.
SHAREHOLDER PROPOSALS AND SHAREHOLDER NOMINATIONS OF DIRECTORS
Niagara Mohawk shareholders wishing to present proposals for action at an
annual or other meeting of shareholders must do so in accordance with the
Niagara Mohawk bylaws. A shareholder must give timely notice of the proposed
business to the Corporate Secretary of Niagara Mohawk. To be timely for an
annual meeting, a shareholder's notice must be in writing, delivered to or
mailed and received at the principal executive offices of Niagara Mohawk not
less than 90 days nor more than 120 days before the first anniversary of the
prior year's annual meeting, with an exception provided for annual meetings held
more than 30 days off the prior year's date. For a special meeting at which
directors are elected, notice of a proposed nominee must be given no later than
the tenth day after the date of the special meeting and the identity of the
nominees have been announced.
For each matter the shareholder proposes to bring before the meeting, the
notice to the Corporate Secretary must include:
- the text of the proposal to be presented and a brief statement of the
reasons why the proposing shareholder favors the proposal;
- the name and address of the proposing shareholder;
- the class and number of Niagara Mohawk shares which are beneficially owned
by the proposing shareholder; and
- any material interest of the shareholder in the proposal (other than as a
shareholder).
The person presiding at the shareholders' meeting shall determine whether
the notice has been duly given and shall direct that proposals not be considered
if the notice has not been given.
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Niagara Mohawk shareholders wishing to directly nominate candidates for
election to the Niagara Mohawk board of directors must do so in accordance with
the Niagara Mohawk bylaws by giving timely notice in writing to the Corporate
Secretary. The notice must set forth:
- as to each person whom the shareholders proposes to nominate,
(1) all information relating to the person that is required by paragraphs
(a), (e) and (f) of Item 401 of Regulation S-K adopted by the SEC (or
the corresponding provisions of any subsequent regulations adopted by
the SEC, applicable to Niagara Mohawk);
(2) the signed consent of the person to be named in the proxy statement
to serve as a director if elected; and
- as to the shareholder giving the notice,
(1) the name and address of the shareholder; and
(2) the class and number of Niagara Mohawk shares which are beneficially
owned by the shareholder.
The person presiding at the shareholders' meeting shall determine if such
notice has been duly given and shall direct that nominees not be considered if
such notice has not been given.
Under English law, shareholders may requisition a resolution, including a
resolution to appoint a director (see "--Vacancies on the Board of Directors"
below), to be voted on at a general meeting if:
- the requisition is made by the holders of shares which represent not less
than one-twentieth of the voting rights of all shareholders having at the
date of the requisition a right to vote at the meeting to which the
requisition relates; or
- the requisition is made by not less than 100 shareholders holding shares
on which there has been paid up an average sum, per shareholder, of not
less than L100.
The requisition must be deposited at the company's registered office not
less than six weeks before the general meeting to which it relates. At a general
meeting, a resolution to appoint two or more directors by a single resolution
may not be proposed unless a resolution approving that it may be proposed is
passed by the general meeting with no dissenting votes.
New National Grid's articles of association provide that a person, other
than a retiring director or a person recommended by the board, is only eligible
for election to New National Grid's board of directors by shareholders at a
general meeting if a shareholder who is qualified to attend and vote at that
meeting directly nominates that other person by written notice to New National
Grid signed by the shareholder and by the nominee, and giving details in
relation to the proposed director.
SOURCES AND PAYMENT OF DIVIDENDS
New York law provides that, subject to any restrictions contained in the
certificate of incorporation, a New York corporation may pay dividends or make
other distributions to its shareholders except when the corporation is insolvent
or would thereby be made insolvent, provided, however, that dividends may be
declared or paid and other distributions may be paid out of surplus only, so
that the net assets of the corporation remaining after the declaration, payment
or distribution shall at least equal the amount of its stated capital.
Under English law, a company may pay dividends only out of its distributable
profits and not out of share capital, which includes share premiums. Amounts
credited to the share premium account, representing the excess of the
consideration for the issue of shares over the aggregate par value of the
shares, may not be paid out as cash dividends but may be used, among other
things, to pay up unissued shares which may then be distributed to shareholders
in proportion to their holdings. In addition, a public company, such as New
National Grid, may make a distribution at any time only if, at that time, the
amount of its net assets is not less than the aggregate of its issued and paid
up share capital and undistributable
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reserves. National Grid Group has historically paid two dividends per year. New
National Grid's board of directors has the power under New National Grid's
articles of association to declare and pay interim dividends. Subject to any
preferential rights attached to any class of shares, the ordinary shares are
entitled to all dividends paid by New National Grid. See "Description of
Ordinary Shares--Dividends and Other Distributions" above.
RIGHTS OF PURCHASE AND REDEMPTION
Under New York law, the repurchase, redemption and conversion or exchange
into cash, other property, indebtedness or stock by a New York corporation are
subject to the same limitations as to insolvency and use of surplus as are
applicable to the payment of dividends. See "--Sources and Payment of
Dividends." In addition, under New York law, shares of stock may only be
redeemed, converted or exchanged for the applicable redemption, conversion or
exchange price stated in the certificate of incorporation.
Under English law and New National Grid's articles of association, New
National Grid may issue redeemable shares. An English company may purchase its
own shares, including any redeemable shares, if so authorized by its articles of
association and provided that the purchase has been previously approved by an
ordinary resolution of its shareholders, in the case of an on-market purchase,
which approval may be general or specific, or a special resolution, in the case
of an off-market purchase. The shares may be redeemed or repurchased only if
fully paid and, in the case of public companies such as New National Grid only,
subject as provided below, out of distributable profits or the proceeds of a new
issue of shares issued for the purpose of the repurchase or redemption. New
National Grid's articles of association do permit the purchase of its own
shares. As with many other companies listed on the Official List of the UK
Listing Authority, New National Grid will seek an annual authority to approve
on-market purchases subject to specified limitations. When a company purchases
its own shares wholly out of profits, an amount equal to the nominal amount of
the shares purchased and subsequently cancelled must be transferred to the
capital redemption reserve, which is generally treated as paid-up share capital.
In addition, any amount payable by the company on the purchase of its shares in
excess of the par value may be paid out of the proceeds of a fresh issue of
shares up to an amount equal to whichever is the lesser of the aggregate of the
original premiums received by the company on the issue of those shares or the
amount of the company's share premium account as at the time of the repurchase
including any sum transferred to that account in respect of premiums on the new
issue. The UK Listing Authority usually requires that on-market purchases of 15%
or more of a company's equity share capital pursuant to a general shareholder
authority must be made by way of either a tender or partial offer to all
shareholders, and in the case of a tender offer, at a stated maximum or fixed
price. Purchases pursuant to a general shareholder authority below the 15%
threshold may be made through the market in the ordinary way provided that the
price may not usually be more than 5% above the average of the market value of
the company's shares for the five business days before the purchase date.
SPECIAL MEETING OF SHAREHOLDERS
The Niagara Mohawk certificate of incorporation provides that special
meetings of shareholders may be called by the Chairman of the Board, the
President or the Niagara Mohawk board of directors. The business permitted to be
conducted at any special meeting of shareholders is limited to the business
specified in the notice of the meeting given pursuant to the bylaws.
Under English law, an extraordinary general meeting of shareholders may be
called by the board of directors or, notwithstanding any provision to the
contrary in a company's articles of association, by a requisition of
shareholders holding not less than one-tenth of the paid-up capital of the
company carrying voting rights at general meetings. An ordinary resolution
requires 14 clear days' notice. An extraordinary resolution (as defined below)
also requires 14 clear days' notice. A special resolution requires 21 clear
days' notice. Extraordinary resolutions are relatively unusual and are confined
to matters out of the ordinary course of business such as a proposal to wind up
the affairs of the company. Special resolutions
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generally involve proposals to change the name of the company, to alter its
capital structure, to change or amend the rights of shareholders, to permit the
company to issue new shares for cash without applying the shareholders'
pre-emptive rights, to amend the company's objects (purpose) clause in its
memorandum of association, to amend the company's articles of association or to
carry out certain other matters where either the company's articles of
association or the Companies Act 1985 prescribe that a special resolution is
required. All other proposals relating to the ordinary course of the company's
business, such as the election of directors, would be the subject of an ordinary
resolution. An annual general meeting requires 21 clear days' notice, although
best practice under certain UK corporate governance guidelines would be to give
at least 20 working days' notice.
DISSENTERS' RIGHTS
Under New York law, with certain exceptions, a shareholder is entitled to
dissent from, and obtain payment of the fair value of the shareholder's shares
in the event of a merger, consolidation, share exchange or sale, lease, exchange
or other disposition of all or substantially all of the assets of the
corporation which requires shareholder approval (other than a transaction wholly
for cash to be followed by a dissolution of the corporation). Under New York
law, however, dissenters' rights do not apply to the holders of shares of any
class or series if the shares of the class or series were listed on a national
securities exchange or designated as a national market system security on an
interdealer quotation system by the National Association of Securities
Dealers, Inc. on the record date for the meeting of shareholders at which the
corporate action giving rise to dissenters' rights is to be approved. Niagara
Mohawk common stock is listed on the New York Stock Exchange and, therefore,
Niagara Mohawk common shareholders have no dissenters' rights of appraisal with
respect to the merger.
English law does not generally provide for dissenters' rights. However, see
"--Amendments of Governing Instruments," "--Shareholders' Voting Rights on
Certain Transactions" and "--Shareholders' Suits" below.
PRE-EMPTIVE RIGHTS
The Niagara Mohawk certificate of incorporation expressly eliminates
pre-emptive rights in accordance with New York law.
Under English law, the issue for cash of equity securities or rights to
subscribe for or convert into equity securities must be offered in the first
instance to the existing equity shareholders in proportion to the respective
nominal values of their holdings, unless a special resolution has been passed in
a general meeting of shareholders disapplying (whether generally or
specifically) this requirement. As is the custom of many companies listed on the
Official List of the UK Listing Authority, New National Grid intends to obtain
authority from its shareholders to allot up to a specified amount of share
capital for cash otherwise than PRO RATA to its existing shareholders.
AMENDMENT OF GOVERNING INSTRUMENTS
Under New York law, amendments or changes to the certificate of
incorporation may be authorized by vote of the board, followed by a vote of a
majority of all outstanding shares entitled to vote thereon. New York law
requires, among other things, a class vote by the holders of a class of shares
if the certificate of incorporation would be amended to exclude or limit their
right to vote, reduce the par value, change the authorized shares into a
different number of shares, fix, change or abolish the designation or any of the
relative rights, preferences and limitations of the shares, or authorize any
shares with rights superior to those of the class. New York law provides that
directors of a New York corporation may make amendments to the certificate of
incorporation without shareholder approval in certain limited circumstances.
Niagara Mohawk's certificate of incorporation generally may be amended by a
majority vote of the outstanding shares, except that a vote of two-thirds of the
shares entitled to vote thereon is required to amend the provisions in the
certificate of incorporation (and comparable provisions in the bylaws) relating
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to the adoption and amendment of bylaws by the board of directors, pre-emptive
rights, the calling of special meetings, the classification, election and
removal of directors and shareholder action only at meetings.
Under English law, the shareholders have the authority to alter, delete,
substitute or add to the objects clause in a company's memorandum of association
and all provisions of its articles of association by a special resolution
subject, in the case of alterations to the objects clause in the memorandum of
association, to the right of dissenting shareholders holding not less than 15%
in par value of the company's issued share capital or any class of it to apply
to the court to cancel the alterations. Under English law, the board of
directors is not authorized to change the memorandum of association or the
articles of association. Amendments affecting the rights of the holders of any
class of shares may, depending on the rights attached to the class and the
nature of the amendments, also require approval of the classes affected in
separate class meetings.
PREFERRED STOCK AND PREFERENCE STOCK
Niagara Mohawk's certificate of incorporation provides that serial preferred
stock may be issued in one or more series and that the board of directors is
expressly authorized prior to issuance to establish and designate each series
and fix the rights, preferences and limitations of each series, as to the
following matters:
- the distinctive serial designation;
- the number of shares;
- the dividend rate or rates (or method of determining such rate or rates)
and the dates dividends are payable;
- whether dividends are cumulative and, if so, the date or dates from which
dividends shall be cumulative;
- the amount to be paid upon voluntary or involuntary liquidation,
dissolution or winding up of Niagara Mohawk;
- provisions, if any, for the redemption or acquisition of shares;
- sinking fund provisions, if any;
- the rights of conversion, if any, and the terms and conditions of any
conversion;
- voting rights, if any; and
- any other rights, preferences or limitation not inconsistent with
applicable law.
Subject to English law and without prejudice to any rights attached to any
existing shares or class of shares, New National Grid may issue shares,
including preferred shares, with the rights or restrictions that its
shareholders may by ordinary resolution determine or, if its shareholders do not
so determine, the directors determine. See "Description of Ordinary
Shares--Variation of Rights and Alteration of Capital" above.
DEBT LIMITATIONS
Niagara Mohawk's certificate of incorporation does not provide for any
limitation on indebtedness of Niagara Mohawk.
With specified exceptions, New National Grid's articles of association
provide that the borrowings of New National Grid should not exceed a sum equal
to four times New National Grid's adjusted capital and reserves (as defined in
New National Grid's articles of association), unless approved by an ordinary
resolution of the shareholders.
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SHAREHOLDERS' VOTING RIGHTS ON CERTAIN TRANSACTIONS
Under New York law, the vote of a majority of the outstanding shares of
capital stock entitled to vote thereon generally is necessary to approve a
merger, consolidation, share exchange or a sale of all or substantially all of
the assets of a corporation incorporated after February 2, 1998. Niagara Mohawk
was incorporated on April 2, 1998. After adoption by the board of directors, a
merger agreement must be submitted to the shareholders of a New York corporation
for adoption.
Under the rules of the New York Stock Exchange, certain acquisitions
involving substantial security holders or the issuance of additional shares of
common stock of a listed company aggregating 20% or more of the outstanding
shares of common stock require the approval of the holders of a majority of the
shares voting thereon.
The New York Business Combination Law generally prohibits a New York
corporation, such as Niagara Mohawk, from engaging in certain "business
combinations" with an "interested shareholder" for a period of five years from
the date the person becomes an interested shareholder unless before the person
became an interested shareholder, the board of directors of the corporation
approved either the business combination or the transaction which resulted in
the shareholder becoming an interested shareholder. Thereafter, the business
combination (1) must be approved by the affirmative vote of at least a majority
of the outstanding voting stock not owned by the interested shareholder or
(2) certain "fair price" criteria must be met and certain "self dealing"
transactions must not have occurred in the interim.
"Interested shareholder" is defined as any person that is the beneficial
owner, directly or indirectly, of 20% or more of the outstanding voting stock of
the corporation, or an affiliate or associate of the corporation who within the
past five years was a beneficial owner of 20% or more of the outstanding voting
stock of the corporation.
Although a New York corporation may elect, under its certificate of
incorporation or bylaws, not to be governed by these provisions, Niagara Mohawk
has not done so.
English law provides for schemes of arrangement, which are arrangements or
compromises between a company and its shareholders or creditors or any class of
its shareholders, or any class of its creditors, and are used for certain types
of reconstructions, amalgamations, capital reorganizations or takeovers. They
require the approval at a meeting of the company convened by an order of the
court of a majority in number of the shareholders or creditors or class of
shareholders or creditors representing not less than 75% in value of the capital
or debt held by the shareholders or creditors or class present and voting,
either in person or by proxy, and the sanction of the court. Once the scheme
becomes effective, all shareholders and creditors (or, if it applies to a class,
the shareholders or creditors of the relevant class) are bound by the terms of
the scheme.
Under the rules of the UK Listing Authority, shareholder approval is usually
required for an acquisition or disposal by a listed company, if the gross assets
of the company or the business to be acquired or disposed of represent 25% or
more of the gross assets of the company or if various other size ratios
representing 25% or more and prescribed by the Listing Rules of the UK Listing
Authority are satisfied, and is also required in some circumstances relating to
the giving by the listed company of indemnities and similar arrangements. Where
the size of the acquisition or disposal falls below that level, information may
nevertheless be required to be published. Shareholder approval may also be
required for an acquisition or disposal of assets between a listed company and
related parties including:
(1) directors of the company or its subsidiaries;
(2) holders of 10% or more of the nominal value of any class of the
company's or any holding company's or subsidiary's shares having the
right to vote in all circumstances at general meetings of the relevant
company; or
(3) any associate of persons described in (1) or (2) above.
See also "--Certain Provisions Relating to Share Acquisitions" below.
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English law also provides that where a takeover offer is made for the shares
of a company incorporated under English law and, within four months of the date
of the offer the offeror has, by virtue of acceptances of the offer, acquired or
contracted to acquire not less than nine-tenths in value of the shares of any
class to which the offer relates, the offeror may, within two months of reaching
the nine-tenths level, by notice require shareholders who do not accept the
offer to transfer their shares on the terms of the offer. A dissenting
shareholder may apply to the court within six weeks of the date on which the
notice was given objecting to the transfer or its proposed terms. The court is
unlikely, absent unfair treatment, fraud or oppression, to exercise its
discretion to order that the acquisition shall not take effect, but it may
specify the terms of the transfer as it finds appropriate. A minority
shareholder is also entitled in these circumstances to require the offeror to
acquire his shares on the terms of the offer.
Mergers are sometimes effected through the use of a voluntary liquidation of
a company pursuant to the Insolvency Act 1986, which provides for the transfer
of the whole or part of the assets of that company to another company in return
for shares in the transferee company. To effect the transfer, a resolution
passed by 75% of shareholders conferring authority on the liquidator is
required. Any shareholder who does not vote in favor of the resolution may
express his dissent by writing to the liquidator within seven days after the
passing of the resolution, requiring the liquidator either to abstain from
carrying the resolution into effect or to purchase the shareholder's interest at
a price to be determined by agreement or by arbitration. The liquidator may
apply to the court if it disputes the shareholder's contention and the court may
make such an order on the application as it thinks just.
RIGHTS OF INSPECTION
New York law allows any shareholder of record of a New York corporation,
upon five days' written notice to the corporation, to have the right, during
usual business hours, to examine, in person or by agent, the corporation's
minutes of shareholder meetings and record of shareholders and to make extracts
therefrom for any purpose reasonably related to that person's interest as a
shareholder. Inspection rights may be denied unless an affidavit is provided by
the shareholder that the inspection is not desired for a purpose other than the
business of the corporation and that the shareholder has not offered or sold a
list of shareholders in the past five years.
Except when closed in accordance with English law, the register of names of
shareholders of an English company may be inspected during business hours by its
shareholders, without charge, and by other persons upon payment of a fee, and
copies may be obtained on payment of a fee. The shareholders of an English
public company may, without charge, also inspect the minutes of meetings of the
shareholders during business hours and obtain copies upon payment of a fee. The
published annual accounts of a public company are required to be laid before the
shareholders in a general meeting and a shareholder is entitled to a copy of the
accounts. The shareholders of New National Grid have no rights to inspect its
accounting records or minutes of meetings of its directors. Some registers
required to be kept by a company are open to public inspection and service
contracts of directors of a company which have more than 12 months unexpired or
require more than 12 months' notice to terminate must be available for
inspection during normal business hours.
STANDARD OF CONDUCT FOR DIRECTORS
New York law provides that directors of a New York corporation shall perform
their duties in good faith and with that degree of care which an ordinarily
prudent person in a like position would exercise under similar circumstances.
Decisions made on that basis are protected by the so-called "business judgment
rule." In performing their duties, directors are entitled to rely on
information, opinions, reports or statements prepared or presented by certain
officers or employees of the corporation whom the director reasonably believes
to be reliable and competent in the matters presented, by legal counsel, public
accountants or other persons as to matters which the director believes to be
within the person's professional or expert competence, or by any committee of
the board of directors if the director believes the committee merits confidence.
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Under English law, a director of a company is under a number of duties to
that company, including a duty to act in the company's bona fide best interests;
a duty not to put himself in a position where there is an actual or potential
conflict between his duty to his company and his duties to any other person or
his personal interests; and a duty to act for a proper purpose and to exercise
his powers only in accordance with the articles of association of the company.
In addition, directors are under a duty to exercise reasonable skill and care in
the performance of their duties. Various duties, including disclosure
obligations, are also imposed upon directors of a company by statute and by the
Listing Rules of the UK Listing Authority. Where applicable, executive directors
will also have duties under their service contracts.
CLASSIFICATION OF THE BOARD OF DIRECTORS
Under New York law, the certificate of incorporation of a New York
corporation may provide for the classification of the board of directors to
stagger the terms of directors. The term "classified board" generally means the
specification of selected board seats for a term of more than one year but not
more than four years, with different classes of board seats coming up for
election each year. The Niagara Mohawk certificate of incorporation and bylaws
provide for a classified board of directors consisting of three classes of
directors, each class elected for a term of three years. The Niagara Mohawk
certificate of incorporation also provides that amending, altering, changing or
repealing the director classification provisions of the Niagara Mohawk
certification of incorporation and bylaws requires the affirmative vote of
holders of at least two-thirds of the shares entitled to vote on the election of
directors (or, with respect to the bylaws only, two-thirds of the entire board
of directors).
English law permits a company to provide for the classification of the board
of directors with respect to the time for which directors severally hold office.
New National Grid's articles of association provide that there shall not be less
than two directors and no maximum number of directors. All directors are subject
to the general company law requirements concerning the removal of directors. At
each annual general meeting one-third of the directors shall retire from office
by rotation. The directors concerned may be re-appointed or deemed to be
re-appointed under the articles of association. The directors to retire are
selected on the basis of time in office since their last election but if any
director has at the start of the annual general meeting been in office for more
than three years since his last appointment or re-appointment, he must retire.
Any director appointed by the directors since the last annual general meeting is
required to retire at the next following annual general meeting and then is
eligible for election, but is not taken into account in determining which
directors are to retire by rotation at the meeting.
REMOVAL OF DIRECTORS
The Niagara Mohawk certificate of incorporation and bylaws provide that
directors (other than directors elected by holders of preferred stock) may be
removed only for cause.
Under English law, shareholders have the right to remove a director without
cause by ordinary resolution of which special notice (28 clear days' notice) has
been given to the company. New National Grid's articles of association provide
that a director may be removed from office by notice in writing served upon him
signed by all his co-directors.
VACANCIES ON THE BOARD OF DIRECTORS
Under New York law, the board of directors of a corporation may fill any
vacancy on the board of directors, including vacancies resulting from an
increase in the number of directors, other than a vacancy resulting from the
removal of directors without cause, which vacancy may only be filled by the
shareholders, unless the certificate of incorporation provides otherwise. Under
the Niagara Mohawk certificate of incorporation and bylaws, in case of a vacancy
among the directors (other than due to a removal without cause), the remaining
directors, by an affirmative vote of a majority of the directors then in office,
although less than a quorum, may fill the vacancy.
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Under English law, shareholders of a public company may, by ordinary
resolution, appoint a person who is willing to be a director either to fill a
vacancy or, subject to any maximum provided in the company's articles of
association, as an additional director. The board of directors also has the
power to appoint a director to fill a vacancy or as an additional director,
subject to the conditions that may be set out in the company's articles of
association, provided that the appointment will only last until the next
following annual general meeting of the company, at which the director concerned
may be re-elected.
LIABILITIES OF DIRECTORS AND OFFICERS
Under the Niagara Mohawk certificate of incorporation, no director of
Niagara Mohawk shall be personally liable to Niagara Mohawk or its shareholders
for any breach of duty as a director, except to the extent that exemption from
liability is not permitted under New York law. New York law does not permit the
limitation of liability if a director is adjudicated to have acted in bad faith,
engaged in intentional misconduct or a knowing violation of law, personally
gained in fact a financial profit or other advantage to which he was not legally
entitled or violated the restrictions on dividends and repurchases and
redemptions described above under "--Sources and Payments of Dividends" and
"--Rights of Purchase and Redemption."
English law does not generally permit a company to exempt any director or
other officer of the company or any person employed by the company as auditor
from any liability which by virtue of any rule of law would otherwise attach to
him in respect of any negligence, default, breach of duty or trust of which he
may be guilty in relation to the company. See "--Indemnification of Directors
and Officers" below.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
New York law permits a New York corporation to indemnify directors and
officers made, or threatened to be made, party to a proceeding because the
individual holds or held that capacity, against liabilities and expenses
incurred in such proceeding if the individual acted in good faith, for a purpose
such individual reasonably believed to be in the corporation's best interests.
In the case of any criminal proceeding, the individual must have had no
reasonable cause to believe the individual's conduct was unlawful. New York law
provides that statutory indemnification is not exclusive of rights to
indemnification which may be provided in a corporation's certificate of
incorporation or bylaws or, when authorized by the certificate of incorporation
or bylaws, through resolutions of its shareholders or board of directors or by
agreement.
The Niagara Mohawk bylaws provide that Niagara Mohawk must indemnify to the
fullest extent not prohibited by law any person who is made, or threatened to be
made, a party to an action, claim or proceeding of any kind, including a
derivative proceeding, by reason of the fact such person is or was a director or
officer of Niagara Mohawk, or serves or served, at the request of Niagara
Mohawk, in that or another capacity for another entity. Niagara Mohawk will
advance expenses in any proceeding to the fullest extent not prohibited by law.
English law does not permit a company to indemnify a director or an officer
of the company or any person employed by the company as auditor against any
liability which by virtue of any rule of law would otherwise attach to him in
respect of negligence, default, breach of duty or breach of trust in relation to
the company, except as liability incurred by the director, officer or auditor in
defending any legal proceedings in which judgement is given in his favor or in
which he is acquitted or in certain instances where, although he is liable, a
court finds that the director, officer or auditor acted honestly and reasonably
and that having regard to all the circumstances he ought fairly to be excused
and relief is granted by the court. English law enables companies to purchase
and maintain insurance for directors, officers and auditors against any
liability which would otherwise attach to them in respect of any negligence,
default, breach of duty or breach of trust in relation to the company. New
National Grid intends to purchase and maintain directors' and officers'
insurance.
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ADDITIONAL PROVISIONS OF NEW YORK LAW AND ENGLISH LAW
New York law specifically authorizes directors of a New York corporation, in
taking action, including action which may involve a change in control, to
consider both the long-term and short-term interests of the corporation and the
effects on the corporation's prospects for potential growth, development,
productivity and profitability, the corporation's current and retired employees,
the corporation's creditors and customers and the ability of the corporation to
provide, as a going concern, goods, services, employment opportunities and
employment benefits and otherwise to contribute to the communities in which it
does business.
English law specifically authorizes directors of a company to have regard in
the performance of their functions to the interests of the company's employees
in general.
SHAREHOLDERS' SUITS
Under New York law, a shareholder of a New York corporation may institute a
lawsuit against one or more directors, either on his own behalf or derivatively
on behalf of the corporation. A shareholder's derivative complaint must include
details of any demand made on the board of directors, or the reasons why a
demand was not made. No discontinuance, compromise or settlement of the
proceeding may occur without court approval.
In addition to having the right to institute a lawsuit on behalf of and in
the name of the company in certain limited circumstances, English law permits a
shareholder whose name is on the register of shareholders of the company,
including US persons, to petition the court for an order when the company's
affairs are being or have been conducted in a manner unfairly prejudicial to the
interests of the shareholders generally or some part of the shareholders,
including at least that shareholder, or when any actual or proposed act or
omission of the company is or would be so prejudicial. A court, when granting
relief by making an order in respect of the matters complained of, has wide
discretion, including authorizing civil proceedings to be brought in the name of
the company by a shareholder on terms as the court may direct and providing for
the purchase of the shares of any shareholders by other shareholders or by the
company. To become a shareholder and enforce those rights under English law,
holders of ADRs will be required to convert at least one of the ADRs into
ordinary shares in accordance with the terms of the Deposit Agreement. Except in
these limited respects, English law does not permit class action lawsuits by
shareholders on behalf of the company or on behalf of other shareholders.
CERTAIN PROVISIONS RELATING TO SHARE ACQUISITIONS
In the case of a company listed on the Official List of the UK Listing
Authority, shareholder approval must be obtained for certain acquisitions or
disposals of assets involving directors or substantial shareholders or their
associates. See "--Shareholders' Voting Rights on Certain Transactions." In
addition, takeovers of public companies are regulated by the City Code,
non-statutory rules not enforceable at law but administered by the Takeover
Panel, a body comprising representatives of certain City of London financial and
professional institutions which oversees the conduct of such takeovers. One of
the provisions of the City Code provides that, unless shareholders otherwise
approve by ordinary resolution:
- when any person acquires, whether by a series of transactions over a
period of time or not, shares which, taken together with shares held or
acquired by persons acting in concert with him, carry 30% or more of the
voting rights of a public company, or
- when any person, together with persons acting in concert with him, holds
not less than 30% but not more than 50% of the voting rights and that
person, or any person acting in concert with him, acquires additional
shares carrying voting rights,
that person must generally make an offer for all of the equity shares of the
company, whether voting or non-voting, and any class of voting non-equity
shares of the company held by the person or any person acting in concert
with him, for cash, or accompanied by a cash alternative, at not less than
the highest price paid for the relevant shares during the 12 months
preceding the date of the offer.
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DISCLOSURE OF INTERESTS
Acquirors of Niagara Mohawk shares are subject to disclosure requirements
under Section 13(d)(1) of the Securities Exchange Act and Rule 13d-1 thereunder,
which provide that any person who becomes the beneficial owner of more than 5%
of the issued and outstanding Niagara Mohawk shares must, within ten days after
such acquisition, file a Schedule 13D with the SEC disclosing certain specified
information, and send a copy of the Schedule 13D to Niagara Mohawk and to the
securities exchanges on which the security is traded.
After the merger, acquirors of ADSs will be required to comply with, among
other things, the provisions of Section 13(d) of the Securities Exchange Act and
Rule 13d-1 thereunder with respect to their attributed ownership of the
underlying ordinary shares.
See "Description of Ordinary Shares--Disclosure of Interests" for a
description of the provisions of English law and New National Grid's articles of
association concerning disclosure of interests in New National Grid's ordinary
shares.
CERTAIN UK LISTING AUTHORITY LISTING REQUIREMENTS
In addition to the provisions of New National Grid's articles of association
and the Companies Act 1985, New National Grid is subject to the Listing Rules of
the UK Listing Authority made under Section 142 of the Financial Services Act
1986 and in particular to the continuing obligations under those rules. Among
other things, these require a listed company to notify the UK Listing Authority
of any major new developments in its sphere of activity which are not public
knowledge and which may, by virtue of the effect of those developments on its
assets and liabilities or financial position or on the general course of its
business, lead to a substantial movement in the price of its listed securities.
The company must usually ensure equality of treatment for all holders of listed
securities who are in the same position and, when its securities are listed on
more than one stock exchange, must usually ensure that equivalent information is
made available to the market on each exchange on which its securities are
listed. In addition, the Listing Rules impose obligations on listed companies to
send the following information to shareholders:
- details relating to certain acquisitions, disposals, takeovers, mergers
and offers either made by or in respect of the company, and
- an explanatory circular, whenever a general meeting of the shareholders is
convened.
In addition to the above requirements, a company is required to notify the
UK Listing Authority of certain matters including notifications received by the
company of persons holding an interest in 3% or more of any class of the
company's relevant share capital, any changes to the company's board of
directors, any purchase or redemption by the company of its own equity
securities, any interest of a director, including changes, in the shares or the
debentures of his company and changes in the capital structure of the company.
Unaudited half yearly reports of results for the first six months of any fiscal
year and an unaudited preliminary announcement of results for each full fiscal
year must also be published.
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SECTION 16(a) BENEFICIAL OWNERSHIP
REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires Niagara
Mohawk's executive officers and directors, and persons who own more than 10% of
the Niagara Mohawk common stock outstanding, to file reports of ownership with
the SEC and the New York Stock Exchange. Based solely on reports and other
information submitted by executive officers and directors, Niagara Mohawk
believes that during the year ended December 31, 1999, each of its executive
officers, directors and persons who own more than 10% of the Niagara Mohawk
common stock outstanding filed all reports required by Section 16(a).
OTHER MATTERS
DEADLINE FOR SHAREHOLDER PROPOSALS
Shareholders who want to have a proposal included in Niagara Mohawk's proxy
statement and proxy card for the 2001 Annual Meeting of Shareholders must notify
the Secretary of Niagara Mohawk. The proposal must be received on or before
Friday, December 1, 2000 and should be addressed to:
Office of the Secretary
Niagara Mohawk Holdings, Inc.
300 Erie Boulevard West
Syracuse, New York 13202
A shareholder must be a registered or beneficial owner of at least one % of
Niagara Mohawk's outstanding common stock or stock with a market value of $2,000
and the shareholder must continue to own such stock through the date on which
the meeting is held.
Shareholders who wish to present a proposal at the 2001 Annual Meeting must
notify the Secretary of Niagara Mohawk in writing not less than 90 days nor more
than 120 days before the annual meeting.
UK CIRCULAR
National Grid Group will be convening an Extraordinary General Meeting to
approve the merger, and will be distributing to its shareholders a circular
relating to the merger. The contents of the circular do not form part of, nor
are they incorporated into, this joint proxy statement/prospectus.
LEGAL MATTERS
The legality of the ordinary shares to be issued under the merger agreement
is being opined upon for New National Grid by CMS Cameron McKenna, English
counsel for New National Grid. Certain tax matters in connection with the merger
are being opined upon for New National Grid by
PricewaterhouseCoopers LLP and for Niagara Mohawk by Bryan Cave LLP.
EXPERTS
The consolidated financial statements of Niagara Mohawk Holdings, Inc. and
Niagara Mohawk Power Corporation as of December 31, 1999 and 1998 and for each
of the three years in the period ended December 31, 1999 incorporated in this
proxy statement/prospectus by reference from Niagara Mohawk's Annual Report on
Form 10-K for the year ended December 31, 1999 have been so incorporated in
reliance upon the reports of PricewaterhouseCoopers LLP, independent
accountants, given on the authority of said firm as experts in accounting and
auditing.
With respect to the unaudited consolidated financial information of Niagara
Mohawk Holdings, Inc. for the three months ended March 31, 2000, the six months
ended June 30, 2000 and the nine months ended September 30, 2000, incorporated
by reference in this proxy statement/prospectus, PricewaterhouseCoopers LLP
reported that they have applied limited procedures in accordance with
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professional standards for a review of such information. However, their reports
dated May 11, 2000, August 14, 2000 and November 14, 2000 incorporated by
reference herein, state that they did not audit and that they do not express an
opinion on that unaudited consolidated financial information. Accordingly, the
degree of reliance on their reports on such information should be restricted in
light of the limited nature of the review procedures applied.
PricewaterhouseCoopers LLP is not subject to the liability provisions of
Section 11 of the Securities Act 1933 for their reports on the unaudited
consolidated financial information because those reports are not a "report" or
"part" of the registration statement prepared or certified by
PricewaterhouseCoopers LLP within the meaning of Sections 7 and 11 of the Act.
The consolidated financial statements of National Grid Group as of
March 31, 2000 and 1999 and for each of the three years in the period ended
March 31, 2000 incorporated by reference in this proxy statement/prospectus from
National Grid Group's Annual Report on Form 20-F for the year ended March 31,
2000 have been so incorporated in reliance on the report of
PricewaterhouseCoopers, independent accountants, given on the authority of said
firm as experts in accounting and auditing.
With respect to the unaudited consolidated financial information of National
Grid Group plc for the six months ended September 30, 2000, incorporated by
reference in this proxy statement/prospectus, PricewaterhouseCoopers reported
that they have applied limited procedures in accordance with professional
standards for a review of such information. However, their report dated
November 20, 2000 incorporated by reference herein, states that they did not
audit and that they do not express an opinion on that unaudited consolidated
financial information. Accordingly, the degree of reliance on their report on
such information should be restricted in light of the limited nature of the
review procedures applied. PricewaterhouseCoopers is not subject to the
liability provisions of Section 11 of the Securities Act 1933 for their report
on the unaudited consolidated financial information because that report is not a
"report" or "part" of the registration statement prepared or certified by
PricewaterhouseCoopers within the meaning of Sections 7 and 11 of the Act.
The consolidated financial statements of National Grid USA as of
December 31, 1999 and 1998 and for each of the three years in the period ended
December 31, 1999 incorporated in this proxy statement/ prospectus by reference
from National Grid Group's Report of Foreign Issuer on Form 6-K dated
September 29, 2000 have been so incorporated in reliance upon the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in accounting and auditing.
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ANNEX A
AGREEMENT AND PLAN OF MERGER
AND SCHEME OF ARRANGEMENT,
DATED AS OF SEPTEMBER 4, 2000,
BY AND AMONG
NATIONAL GRID GROUP PLC,
NIAGARA MOHAWK HOLDINGS, INC.,
NEW NATIONAL GRID PLC
(FORMERLY CALLED NEW NATIONAL GRID LIMITED)
AND
GRID DELAWARE, INC.
AS AMENDED
BY THE
FIRST AMENDMENT
TO THE
AGREEMENT AND PLAN OF MERGER
AND SCHEME OF ARRANGEMENT
<PAGE>
TABLE OF CONTENTS
<TABLE>
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ARTICLE I THE MERGER AND THE SCHEME................................... A-1
Section 1.1 The Merger..................................... A-1
Section 1.2 Effective Time of the Merger................... A-1
Section 1.3 The Scheme..................................... A-2
Section 1.4 The Scheme Effective Time...................... A-2
Section 1.5 Governing Documents............................ A-2
ARTICLE II TREATMENT OF SHARES......................................... A-2
Section 2.1 Effect of the Scheme on Parent Capital Stock... A-2
Section 2.2 Effect of the Merger on the Company Capital
Stock..................................................... A-2
Section 2.3 Exchange of Certificates....................... A-4
ARTICLE III THE CLOSING................................................. A-7
Section 3.1 Closing........................................ A-7
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE COMPANY............... A-7
Section 4.1 Organization and Qualification................. A-7
Section 4.2 Subsidiaries................................... A-8
Section 4.3 Capitalization................................. A-8
Section 4.4 Authority; Non-Contravention; Statutory
Approvals; Compliance..................................... A-8
Section 4.5 Reports and Financial Statements............... A-10
Section 4.6 Absence of Certain Changes or Events........... A-11
Section 4.7 Legal Proceedings.............................. A-11
Section 4.8 Information Supplied........................... A-11
Section 4.9 Tax Matters.................................... A-12
Section 4.10 Employee Matters; ERISA........................ A-14
Section 4.11 Labor and Employee Relations................... A-16
Section 4.12 Environmental Protection....................... A-16
Section 4.13 Regulation as a Utility........................ A-18
Section 4.14 Vote Required.................................. A-19
Section 4.15 Opinion of Financial Advisor................... A-19
Section 4.16 Brokers........................................ A-19
Section 4.17 Insurance...................................... A-19
Section 4.18 Intellectual Property.......................... A-19
Section 4.19 Nuclear Operations and NRC Actions............. A-19
Section 4.20 Ownership of Parent or Newco Common Stock...... A-20
Section 4.21 State Antitakeover Matters..................... A-20
Section 4.22 Commodity Derivatives and Credit Exposure
Matters................................................... A-20
Section 4.23 The Company Associates......................... A-20
ARTICLE V REPRESENTATIONS AND WARRANTIES OF PARENT, NEWCO AND
MERGER SUB................................................ A-20
Section 5.1 Organization and Qualification................. A-20
Section 5.2 Capitalization................................. A-21
Section 5.3 Authority; Non-Contravention; Statutory
Approvals; Compliance..................................... A-21
Section 5.4 Reports and Financial Statements............... A-23
Section 5.5 Absence of Certain Changes or Events........... A-23
Section 5.6 Legal Proceedings.............................. A-23
</TABLE>
A-i
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<TABLE>
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Section 5.7 Information Supplied........................... A-24
Section 5.8 Tax Matters.................................... A-24
Section 5.9 Environmental Protection....................... A-25
Section 5.10 Votes Required................................. A-25
Section 5.11 Brokers........................................ A-25
Section 5.12 Insurance...................................... A-26
Section 5.13 Ownership of Company Common Stock.............. A-26
ARTICLE VI CONDUCT OF BUSINESS PENDING THE MERGER...................... A-26
Section 6.1 Covenants of the Company....................... A-26
Section 6.2 Covenants of Parent............................ A-30
Section 6.3 Covenants of Newco............................. A-31
Section 6.4 Alternative Arrangement Concerning Company
Nuclear
Facilities...................................... A-31
ARTICLE VII ADDITIONAL AGREEMENTS....................................... A-31
Section 7.1 Access to Information.......................... A-31
Section 7.2 Proxy Statement and Registration Statement;
Listing; Parent
Disclosure Documents............................ A-32
Section 7.3 Regulatory Matters............................. A-33
Section 7.4 Shareholder Approval........................... A-34
Section 7.5 Directors' and Officers' Indemnification....... A-34
Section 7.6 Public Announcements........................... A-35
Section 7.7 Rule 145 Affiliates............................ A-35
Section 7.8 Labor Agreements and Workforce Matters......... A-36
Section 7.9 Employee Benefit Plans; Stock Options.......... A-36
Section 7.10 No Solicitations............................... A-37
Section 7.11 Boards of Directors............................ A-39
Section 7.12 Charitable Contributions....................... A-39
Section 7.13 Anti-Takeover Statutes......................... A-39
Section 7.14 Conveyance Taxes............................... A-40
Section 7.15 Expenses....................................... A-40
Section 7.16 Further Assurances............................. A-40
Section 7.17 Restructuring of Transactions.................. A-40
Section 7.18 Integration Team............................... A-41
Section 7.19 Newco Ordinary Shares.......................... A-41
Section 7.20 ADR Depositary Agreement....................... A-41
ARTICLE VIII CONDITIONS.................................................. A-41
Section 8.1 Conditions to Each Party's Obligation to Effect
the Merger................................................ A-41
Section 8.2 Conditions to Obligation of Newco and Parent to
Effect the
Merger.......................................... A-42
Section 8.3 Conditions to Obligation of The Company to
Effect the Merger......................................... A-43
ARTICLE IX TERMINATION, AMENDMENT AND WAIVER........................... A-44
Section 9.1 Termination.................................... A-44
Section 9.2 Effect of Termination.......................... A-45
Section 9.3 Termination Fee; Expenses...................... A-45
Section 9.4 Amendment...................................... A-46
Section 9.5 Waiver......................................... A-46
</TABLE>
A-ii
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ARTICLE X GENERAL PROVISIONS.......................................... A-46
Section 10.1 Non-Survival; Effect of Representations and
Warranties................................................ A-46
Section 10.2 Notices....................................... A-46
Section 10.3 Miscellaneous................................. A-48
Section 10.4 Interpretation................................ A-49
Section 10.5 Counterparts; Effect.......................... A-49
Section 10.6 Parties' Interest............................. A-49
Section 10.7 Governing Law................................. A-49
Section 10.8 Submission to Jurisdiction; Waivers........... A-49
Section 10.9 Enforcement of Agreement...................... A-49
Section 10.10 Waiver of Jury Trial.......................... A-49
</TABLE>
A-iii
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INDEX OF PRINCIPAL TERMS
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1935 Act.................................................... 13
Accounting Method Adjustment................................ 17
Acquisition Agreement....................................... 49
Acquisition Proposal........................................ 49
ADR Depositary.............................................. 5
ADR Depositary Agreement.................................... 5
ADS Consideration........................................... 3
ADS Election................................................ 4
ADS Election Number......................................... 4
ADS Election Shares......................................... 5
Affiliate Agreement......................................... 46
Applicable Period........................................... 49
Atomic Energy Act........................................... 13
Average Price............................................... 4
BCL......................................................... 1
Cash Amount................................................. 4
Cash Consideration.......................................... 3
Cash Election............................................... 4
Cash Election Number........................................ 4
Cash Election Shares........................................ 4
Certificate(s).............................................. 6
Circular.................................................... 15
Closing..................................................... 9
Closing Agreement........................................... 16
Closing Date................................................ 9
Code........................................................ 1
Companies Act............................................... 27
Company..................................................... 1
Company Associates.......................................... 10
Company Common Stock........................................ 3
Company Disclosure Schedule................................. 9
Company Employee Benefit Plans.............................. 18
Company Financial Statements................................ 13
Company Intellectual Property............................... 25
Company Material Adverse Effect............................. 10
Company Meeting............................................. 44
Company Nuclear Facilities.................................. 25
Company Preferred Stock..................................... 10
Company Required Consents................................... 12
Company Required Statutory Approvals........................ 12
Company SEC Reports......................................... 13
Company Shareholders' Approval.............................. 24
Company Subsidiary.......................................... 10
Confidentiality Agreement................................... 41
Conveyance Taxes............................................ 51
Court....................................................... 1
date hereof................................................. 1
DGCL........................................................ 2
DOE......................................................... 13
Election.................................................... 5
Election Deadline........................................... 6
Election Number............................................. 4
</TABLE>
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Environmental Claim......................................... 23
Environmental Documents..................................... 22
Environmental Laws.......................................... 23
Environmental Permits....................................... 21
ERISA....................................................... 18
Exchange Act................................................ 13
Exchange Fund............................................... 5
Exchange Ratio.............................................. 4
Extended Termination Date................................... 57
FCC......................................................... 13
FERC........................................................ 13
Final Order................................................. 54
Foreign Person.............................................. 16
Form of Election............................................ 6
FSA......................................................... 15
Governmental Authority...................................... 12
Hazardous Materials......................................... 23
HSR Act..................................................... 43
Indemnified Liabilities..................................... 44
Indemnified Parties......................................... 44
Indemnified Party........................................... 44
Initial Termination Date.................................... 57
IRS......................................................... 17
Knowledge................................................... 12
Licenses.................................................... 12
Listing Particulars......................................... 15
Merger...................................................... 1
Merger Consideration........................................ 3
Merger Effective Time....................................... 2
Merger Sub.................................................. 1
Mixed Election.............................................. 5
New York Advisory Board..................................... 50
Newco....................................................... 1
Newco ADRs.................................................. 3
Newco ADSs.................................................. 3
Newco Ordinary Shares....................................... 3
Newco Original Ordinary Shares.............................. 27
Newco Original Preference Shares............................ 27
Newco Special Share......................................... 3
Non-Convertible Preferred Securities........................ 34
Non-Election Shares......................................... 5
NRC......................................................... 13
Nuclear Approvals........................................... 54
Nuclear Sale................................................ 53
Nuclear Sale Agreement...................................... 57
OFGEM....................................................... 30
Option...................................................... 48
Out-of-Pocket Expenses...................................... 59
Parent...................................................... 1
Parent ADRs................................................. 3
Parent ADSs................................................. 3
Parent Court Meeting........................................ 33
Parent Disclosure Documents................................. 15
Parent Disclosure Schedule.................................. 26
</TABLE>
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Parent Financial Statements................................. 29
Parent Material Adverse Effect.............................. 28
Parent Merger Meeting....................................... 32
Parent Merger Shareholders' Approval........................ 32
Parent Ordinary Shares...................................... 3
Parent Plans................................................ 27
Parent Required Consents.................................... 28
Parent Required Statutory Approvals......................... 28
Parent Scheme Meeting....................................... 33
Parent Scheme Shareholders' Approval........................ 33
Parent SEC Reports.......................................... 29
Parent Shareholders' Approval............................... 33
Parent Significant Subsidiary............................... 39
Parent Special Share........................................ 3
Parent Subsidiary........................................... 27
PBGC........................................................ 20
PCBs........................................................ 23
Per Share Amount............................................ 3
person...................................................... 8
Post-Closing Plans.......................................... 48
Power Act................................................... 13
Proxy Statement............................................. 15
Registration Statement...................................... 15
Release..................................................... 24
Representatives............................................. 41
Scheme...................................................... 1
Scheme Document............................................. 15
Scheme Effective Time....................................... 2
Securities Act.............................................. 13
Shares...................................................... 6
Subsidiary.................................................. 10
Surviving Entity............................................ 2
Tax Change.................................................. 35
Tax Controversy............................................. 17
Tax Return.................................................. 16
Tax Rulings................................................. 16
Tax(es)..................................................... 15
Termination Fee............................................. 59
Trading Day................................................. 4
UK Listing Authority........................................ 15
US GAAP..................................................... 13
Violation................................................... 11
Voting Debt................................................. 10
</TABLE>
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<PAGE>
AGREEMENT AND PLAN OF MERGER AND SCHEME OF ARRANGEMENT, dated as of
September 4, 2000 (referred to herein as the "date hereof"), by and among
National Grid Group plc., a public limited company incorporated under the laws
of England and Wales with registration number 2367004 ("Parent"), Niagara Mohawk
Holdings, Inc., a New York corporation (the "Company"), New National Grid
Limited, a private limited company incorporated under the laws of England and
Wales with registration number 4031152 ("Newco") and Grid Delaware, Inc., a
Delaware corporation and a wholly owned subsidiary of Newco ("Merger Sub").
WHEREAS, the Company, Parent and Newco have determined that it would be in
their respective best interests and in the interests of their respective
shareholders to effect the transactions contemplated by this Agreement;
WHEREAS, the Board of Directors of Parent intends to recommend to its
shareholders a proposal to introduce Newco as a new holding company for the
Parent group pursuant to a scheme of arrangement (the "Scheme") to be sanctioned
by the High Court of Justice, London, England (the "Court"), substantially in
the form of the draft Scheme attached hereto as Exhibit A subject to such
amendments as Parent may reasonably deem necessary or desirable; provided, that
if such amendments would have a material adverse effect on the benefits of the
Merger for the holders of Company Common Stock, or such amendments are not
necessary to consummate the transactions contemplated hereby and have any
adverse effect on the benefits of the Merger to the holders of Company Common
Stock, such amendments may only be effected with the prior written consent of
the Company;
WHEREAS, the respective Boards of Directors of Parent, Newco, Merger Sub and
the Company have approved the merger (the "Merger") of Merger Sub with and into
the Company, whereby the Company will become a wholly owned subsidiary of Newco,
all pursuant to the terms and conditions set forth in this Agreement; and
WHEREAS, for United States federal income tax purposes, it is intended that
the Scheme together with the Merger shall collectively qualify as a transaction
described in Section 351 of the Internal Revenue Code of 1986, as amended (the
"Code").
NOW, THEREFORE, in consideration of the premises and the representations,
warranties, covenants and agreements contained herein, the parties hereto,
intending to be legally bound hereby, agree as follows:
ARTICLE I
THE MERGER AND THE SCHEME
Section 1.1 THE MERGER. Subject to the terms and conditions of this
Agreement, at the Merger Effective Time, Merger Sub will be merged with and into
the Company in accordance with the Business Corporation Law of the State of New
York (the "BCL") and the
General Corporation Law of the State of Delaware (the "DGCL"). The Company
will be the surviving entity in the Merger (the "Surviving Entity") and shall
continue its existence under the laws of the State of New York. The effects and
the consequences shall be as set forth in Section 1.5, Section 906 of the BCL
and Section 259 of the DGCL.
Section 1.2 EFFECTIVE TIME OF THE MERGER. On the Closing Date (as defined
in Section 3.1) a certificate of merger complying with the requirements of the
relevant provisions of the BCL shall be executed and delivered for filing with
the Department of State of the State of New York with respect to the Merger. The
Merger shall become effective upon the later of the filing of a certificate of
merger relating thereto by the Department of State of the State of New York and
the filing of a certificate of merger relating thereto with the Secretary of
State of the State of Delaware or upon such later date as is agreed upon by the
parties and specified in such certificates of merger (the "Merger Effective
Time"); provided that the Merger Effective Time shall occur as soon as
reasonably practical but no later than seven days after the Scheme Effective
Time (as defined below).
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Section 1.3 THE SCHEME. Subject to the terms and conditions of this
Agreement and the Scheme having been sanctioned by the Court and having become
effective in accordance with Section 1.4, on the Scheme Effective Time, all of
the issued and outstanding share capital of Parent shall be cancelled and Parent
shall issue and deliver to Newco such number of the Parent Ordinary Shares as
has been so cancelled in consideration of the allotment by Newco of such number
of Newco shares as shall be of an aggregate nominal amount equal to the
aggregate nominal amount of the Parent Ordinary Shares so cancelled.
Section 1.4 THE SCHEME EFFECTIVE TIME. This Scheme shall become effective
as soon as an office copy of the Court order sanctioning this Scheme has been
duly delivered to the Registrar of Companies for registration and the order and
relative minutes have been registered by him (such time being referred to herein
as the "Scheme Effective Time"); provided that the Scheme Effective Time shall
occur prior to the Merger Effective Time.
Section 1.5 GOVERNING DOCUMENTS. The memorandum and articles of
association of Parent as in effect immediately prior to the Scheme Effective
Time shall be the memorandum and articles of association of Parent following the
Scheme Effective Time, until duly amended, except that the memorandum and
articles of association of Parent following the Scheme Effective Time may
reflect a change in the name of Parent and such other changes as are appropriate
for Parent as a wholly owned subsidiary and any changes necessary to reflect any
cancellations or redemption of the Parent Special Share (as defined in
Section 2.1) pursuant to the Scheme or otherwise. The certificate of
incorporation and by-laws of the Company as in effect immediately prior to the
Merger Effective Time shall be the certificate of incorporation and by-laws of
the Company following the Merger Effective Time, until duly amended. On or prior
to the Closing Date, Newco shall adopt memorandum and articles of association
substantially similar to the memorandum and articles of incorporation of Parent
immediately prior to the Scheme Effective Time, though they shall not be
required to (but may) provide for a Newco Special Share (as defined in
Section 2.1) and Newco's name shall become "National Grid plc".
ARTICLE II
TREATMENT OF SHARES
Section 2.1 EFFECT OF THE SCHEME ON PARENT CAPITAL STOCK. As of the Scheme
Effective Time, in accordance with the terms of the Scheme (a) all ordinary
shares of 11 13/17 pence each of Parent ("Parent Ordinary Shares") outstanding
on the Scheme Effective Time will be cancelled and the holders thereof will
receive in place of the Parent Ordinary Shares then held by them an identical
number of ordinary shares of Newco ("Newco Ordinary Shares"), (b) all Parent
Ordinary Shares represented by American Depositary Shares of Parent ("Parent
ADSs"), each representing five (5) Parent Ordinary Shares and evidenced by
American Depositary Receipts ("Parent ADRs"), outstanding as of the Scheme
Effective Time will be cancelled and the holders thereof will receive in place
of the Parent ADSs then held by them an identical number of American Depositary
Shares of Newco ("Newco ADSs"), each representing five (5) Newco Ordinary Shares
and evidenced by American Depositary Receipts ("Newco ADRs"), (c) Parent will
issue and deliver Parent Ordinary Shares to Newco, and (d) if required by the
Secretary of State for Trade and Industry in the UK as a condition of giving its
consent to the Scheme, the Special Rights Redeemable Preference Share of Parent
with a nominal value of (pound)1 held by the Secretary of State for Trade and
Industry in the UK (the "Parent Special Share") shall be cancelled and one
Special Rights Redeemable Preference Share of Newco with a nominal value of
(pound)1 shall be issued by Newco to the Secretary of State for Trade and
Industry in the UK (the "Newco Special Share").
Section 2.2 EFFECT OF THE MERGER ON THE COMPANY CAPITAL STOCK. As of the
Merger Effective Time, by virtue of the Merger and without any action on the
part of any holder of Company Common Stock (as hereinafter defined):
(a) Conversion of Merger Sub Shares. As of the Merger Effective Time, and in
consideration for the Merger Consideration given by Newco, each issued and
outstanding share of common stock, par value
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$0.10 per share, of Merger Sub (the ``Merger Sub Common Stock"), will be
converted into the right to receive a number of shares of common stock to be
issued at the Merger Effective Time by the Surviving Entity equal to the number
of shares of common stock, par value $0.01 per share, of the Company (the
``Company Common Stock") divided by the number of issued and outstanding shares
of Merger Sub Common Stock, in each case at the Merger Effective Time.
(b) Cancellation of Company Treasury Stock and Sub-Owned Stock. Each Share
of Company Common Stock, that is owned by the Company, Parent or Newco or by any
wholly owned Subsidiary of the Company, Parent or Newco, will automatically be
cancelled, retired and cease to exist, and no consideration will be delivered in
exchange therefor.
(c) Conversion of Company Common Stock. Subject to the other provisions of
this Section 2.2, each issued and outstanding share of Company Common Stock
(other than shares of Company Common Stock cancelled in accordance with
Section 2.2(b)) will be converted into the right to receive the Per Share Amount
(as defined below) in the form of (x) cash (in such form, the "Cash
Consideration"), (y) a number of Newco ADSs equal to the Exchange Ratio (in such
form, the "ADS Consideration"), or (z) a combination of Cash Consideration and
ADS Consideration determined in accordance with Section 2.2(h) (the "Merger
Consideration"). The "Per Share Amount" shall be determined as follows: (i) if
the Average Price is greater than or equal to $32.50 and less than or equal to
$51.00, the Per Share Amount shall be $19.00, (ii) if the Average Price is less
than $32.50, the Per Share Amount shall be $19.00 reduced by the product of (x)
$12.67 (two-thirds of $19.00) and (y) the percentage decrease in the Average
Price below $32.50, and (iii) if the Average Price is greater than $51.00, the
Per Share Amount shall be $19.00 increased by the product of (x) $12.67
(two-thirds of $19.00) and (y) the percentage increase in the Average Price
above $51.00. "Average Price" means the average of the closing prices of Parent
Ordinary Shares, as derived from the Daily Official List of the London Stock
Exchange plc (converted to a US dollar value using the exchange rate for each
date for which the closing price is to be determined as reported in The
Financial Times) for 20 Trading Days selected at random (using procedures
mutually agreed upon by Parent and the Company) in the period of 40 consecutive
Trading Days ending on the close of business on the tenth Trading Day prior to
the Election Deadline, multiplied by five. "Trading Day" means a day on which
the London Stock Exchange plc is open for trading. The "Exchange Ratio" shall be
equal to the Per Share Amount as determined above divided by the Average Price.
(d) Cash Election. Subject to the immediately following sentence, each
record holder of shares of Company Common Stock immediately prior to the Merger
Effective Time shall be entitled to elect to receive Cash Consideration for all
or any part of such Company Common Stock (a "Cash Election"). Notwithstanding
the foregoing, the aggregate amount of Cash Consideration to be paid in the
Merger shall be $1,015,000,000 (the "Cash Amount"). As used in this Agreement,
the "Cash Election Number" shall mean the aggregate number of shares of Company
Common Stock converted into the right to receive Cash Consideration in the
Merger, which shall equal the Cash Amount divided by the Per Share Amount;
provided that Newco reserves the right in its sole discretion to increase the
Cash Election Number to more closely follow the actual elections of the
Company's shareholders (but not to a number which is greater than the number of
shares of Company Common Stock in respect of which a valid Cash Election has
been made).
(e) Cash Election Shares. If the aggregate number of shares of Company
Common Stock covered by the Cash Elections (the "Cash Election Shares") exceeds
the Cash Election Number, (1) the number of Cash Election Shares covered by each
Form of Election (defined below) will be determined by multiplying the number of
Cash Election Shares covered by such Form of Election by a fraction, the
numerator of which is the Cash Election Number and the denominator of which is
the number of Cash Election Shares, and (2) all Cash Election Shares not
exchanged for Cash Consideration will be exchanged for the right to receive ADS
Consideration (and cash in lieu of fractional shares in accordance with
Section 2.3(e))
(f) ADS Election. Subject to the immediately following sentence, each record
holder of shares of Company Common Stock immediately prior to the Merger
Effective Time shall be entitled to elect to
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<PAGE>
receive ADS Consideration for all or any part of such holder's shares of Company
Common Stock (an "ADS Election"). Notwithstanding the foregoing, the aggregate
number of shares of Company Common Stock that may be converted into the right to
receive ADS Consideration in the Merger (the "ADS Election Number") shall be the
difference between the total number of shares of Company Common Stock issued and
outstanding immediately prior to the Merger Effective Time and the Cash Election
Number.
(g) ADS Election Shares. If the aggregate number of shares of Company Common
Stock covered by ADS Elections (the "ADS Election Shares") exceeds the ADS
Election Number, (1) the number of ADS Election Shares covered by each Form of
Election (defined below) to be exchanged for Cash Consideration will be
determined by multiplying the number of ADS Election Shares covered by such Form
of Election by a fraction, the numerator of which is the Cash Election Number
less the number of Cash Election Shares and the denominator of which is the
aggregate number of ADS Election Shares, and (2) all ADS Election Shares not
exchanged for Cash Consideration will be exchanged for the right to receive ADS
Consideration (and cash in lieu of fractional shares in accordance with
Section 2.3(e)).
(h) Mixed Election. Subject to the immediately following sentence, each
record holder of shares of Company Common Stock immediately prior to the Merger
Effective Time shall be entitled to elect to receive ADS Consideration for part
of such holder's shares of Company Common Stock and Cash Consideration for the
remaining part of such holder's shares of Company Common Stock (the "Mixed
Election" and, collectively with ADS Election and Cash Election, the
"Election"). With respect to each holder of Company Common Stock who makes a
Mixed Election, the shares of Company Common Stock such holder elects to be
converted into the right to receive Cash Consideration shall be treated as Cash
Election Shares for purposes of the provisions contained in Sections 2.2(d) and
(e), and the shares such holder elects to be converted into the right to receive
ADS Consideration shall be treated as ADS Election Shares for purposes of the
provisions contained in Sections 2.2(f) and (g).
(i) Non-Election Shares. Shares of Company Common Stock in respect of which
a timely and properly completed election has not been made (the "Non-Election
Shares") shall be deemed by Newco to be Cash Election Shares or ADS Election
Shares, as Newco shall determine.
Section 2.3 EXCHANGE OF CERTIFICATES.
(a) Scheme Exchange. The exchange of certificates representing Parent
Ordinary Shares and Parent ADRs in the Scheme shall occur substantially in
accordance with the provisions of Exhibit A hereto.
(b) Appointment of ADR Depositary for Merger Exchange. As of the Merger
Effective Time, Newco and Merger Sub will enter into an agreement ("ADR
Depositary Agreement") with Newco's United States Depositary (the "ADR
Depositary"), which will provide that Newco or Merger Sub will deposit with the
ADR Depositary as of the Merger Effective Time, for the benefit of the holders
of shares of Company Common Stock for exchange in accordance with this Article
II, through the ADR Depositary, cash equal to the sum of the total aggregate
Cash Consideration and the number of Newco Ordinary Shares represented by the
Newco ADSs to be issued in the Merger (such cash and such Newco ADSs, together
with any dividends or distributions with respect thereto with a record date
after the Merger Effective Time and any cash payable in lieu of any fractional
Newco ADSs, being hereinafter referred to as the "Exchange Fund") pursuant to
Section 2.2 in exchange for outstanding shares of the Company Common Stock.
(c) Merger Exchange Procedures.
(i) Not more than 90 days nor fewer than 30 days prior to the Closing
Date, the ADR Depositary will mail a form of election (the "Form of
Election") to holders of record of shares of Company Common Stock (as of a
record date as close as practicable to the date of mailing and mutually
agreed to by the Company, Newco and Parent). In addition, the ADR Depositary
will use its best efforts to make the Form of Election available to the
persons (as defined in Section 2.3(g)) who become shareholders of the
Company during the period between such record date and the Closing Date. Any
election to receive Merger Consideration contemplated by
Section 2.2(c) will have been properly made only if the ADR Depositary shall
have received at its designated office or offices, by
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<PAGE>
5:00 p.m., New York City time, on the fifth business day immediately
preceding the Closing Date (the "Election Deadline"), a Form of Election
properly completed and accompanied by a Company Share Certificate
("Certificate(s)") for the shares to which such Form of Election relates,
duly endorsed in blank or otherwise acceptable for transfer on the books of
the Company (or an appropriate guarantee of delivery), as set forth in such
Form of Election. An election may be revoked only by written notice received
by the ADR Depositary prior to 5:00 p.m., New York City time, on the
Election Deadline. In addition, all elections shall automatically be revoked
if the ADR Depositary is notified in writing by Newco, Parent and the
Company that the Merger has been abandoned. If an election is so revoked,
the Certificate(s) (or guarantee of delivery, as appropriate) to which such
election relates will be promptly returned to the person submitting the same
to the ADR Depositary. Newco shall have the discretion, which it may
delegate in whole or in part to the ADR Depositary, to determine whether
Forms of Election have been properly completed, signed and submitted or
revoked pursuant to this Article II, and to disregard immaterial defects in
Forms of Election. The decision of Newco (or the ADR Depositary) in such
matters shall be conclusive and binding.
(ii) As soon as reasonably practicable after the Merger Effective Time,
the ADR Depositary will mail to each holder of record of a Certificate,
whose shares of the Company Common Stock (the "Shares") were converted into
the right to receive Merger Consideration and who failed to return a
properly completed Form of Election, (i) a letter of transmittal (which will
specify that delivery will be effected, and risk of loss and title to the
Certificates will pass, only upon delivery of the Certificates to the ADR
Depositary and will be in such form and have such other provisions as Newco,
Parent and the Company may specify consistent with this Agreement) and
(ii) instructions for use in effecting the surrender of the Certificates in
exchange for the Merger Consideration determined by Newco pursuant to
Section 2.2(i).
(iii) At the Merger Effective Time, with respect to properly made
elections in accordance with Section 2.3(c)(i), and upon surrender in
accordance with Section 2.3(c)(ii) of a Certificate for cancellation to the
ADR Depositary or to such other agent or agents as may be appointed by
Newco, Parent and the Company, together with such letter of transmittal,
duly executed, and such other documents as may reasonably be required by the
ADR Depositary, the holder of such Certificate will be entitled to receive
in exchange therefor the Merger Consideration that such holder has the right
to receive pursuant to the provisions of this Article II, and the
Certificate so surrendered will forthwith be cancelled. In the event of a
transfer of ownership of Shares that are not registered in the transfer
records of the Company, payment may be issued to a person other than the
person in whose name the Certificate so surrendered is registered if such
Certificate is properly endorsed or otherwise in proper form for transfer
and the person requesting such issuance pays any transfer or other taxes
required by reason of such payment to a person other than the registered
holder of such Certificate or establishes to the satisfaction of Newco,
Parent and the Company that such tax has been paid or is not applicable.
Until surrendered as contemplated by this Section 2.3, each Certificate will
be deemed at any time after the Merger Effective Time to represent only the
right to receive upon such surrender the Merger Consideration that the
holder thereof has the right to receive in respect of such Certificate
pursuant to the provisions of this Article II. No interest will be paid or
will accrue on any cash payable to holders of Certificates pursuant to the
provisions of this Article II.
(d) Distributions with Respect to Unexchanged Shares. No dividends or other
distributions with respect to the Newco ADSs with a record date after the Merger
Effective Time shall be paid to the holder of any unsurrendered Certificate with
respect to the Newco ADSs represented thereby, and no cash payment in lieu of
any fractional shares shall be paid to any such holder pursuant to
Section 2.3(e), and all such dividends, other distributions and cash in lieu of
fractional Newco ADSs shall be paid by Newco to the ADR Depositary and shall be
included in the Exchange Fund, in each case until the surrender of such
Certificate in accordance with this Article II. Subject to the effect of
unclaimed property, escheat and other applicable laws, following surrender of
any such Certificate, there shall be paid to the holder of the Certificate
representing whole Newco ADSs issued in exchange therefor, without interest, (i)
at the time of
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<PAGE>
such surrender, the amount of any cash payable in lieu of a fractional Newco ADS
to which such holder is entitled pursuant to Section 2.3(e) and the amount of
dividends or other distributions with a record date after the Merger Effective
Time theretofore paid with respect to such whole Newco ADSs and (ii) at the
appropriate payment date, the amount of dividends or other distributions with a
record date after the Merger Effective Time but prior to such surrender and with
a payment date subsequent to such surrender payable with respect to such whole
Newco ADSs. Newco shall make available to the ADR Depositary cash for the
foregoing purposes.
(e) No Fractional Securities. No Newco Certificates or scrip representing
fractional Newco ADSs shall be issued upon the surrender for exchange of
Certificates, and such fractional shares shall not entitle the owner thereof to
vote or to any other rights of a holder of Newco ADSs or Newco Ordinary Shares.
A holder of Shares converted in the Merger who would otherwise have been
entitled to a fractional Newco ADS shall be entitled to receive a cash payment
(without interest) in lieu of such fractional share in an amount determined by
multiplying (i) the fractional share interest to which such holder would
otherwise be entitled by (ii) the closing price per Parent ADS as reported on
the NYSE Composite Transaction Tape on the Closing Date.
(f) No Further Ownership Rights in Company Common Stock. All Newco ADSs
issued upon the surrender for exchange of Certificates in accordance with the
terms of this Article II (including any cash paid pursuant to this Article II)
shall be deemed to have been issued (and paid) in full satisfaction of all
rights pertaining to the Shares theretofore represented by such Certificates,
subject, however, to any obligation of Newco or the Surviving Entity to pay any
dividends or make any other distributions with a record date prior to the Merger
Effective Time which may have been authorized or made with respect to shares of
Company Common Stock that remain unpaid at the Merger Effective Time, and there
shall be no further registration of transfers on the stock transfer books of the
Surviving Entity of shares of Company Common Stock that were outstanding
immediately prior to the Merger Effective Time. If, after the Merger Effective
Time, Certificates are presented to Newco, the Surviving Entity or the ADR
Depositary for any reason, they shall be cancelled and exchanged as provided in
this Section 2.3, except as otherwise provided by law.
(g) Termination of Exchange Fund. Any portion of the Exchange Fund which
remains undistributed to the holders of the Certificates for six months after
the Merger Effective Time shall be delivered by the ADR Depositary to Newco, and
any holders of the Certificates who have not theretofore complied with this
Article II shall thereafter look only to Newco for payment of their claim for
such Newco ADSs or funds to which such holder may be due, subject to applicable
law. None of Newco, Parent, the Company, the Surviving Entity or the ADR
Depositary shall be liable to any person (as defined below) in respect of any
such Newco ADSs or funds from the Exchange Fund delivered to a public official
pursuant to any applicable abandoned property, escheat or similar law. As used
in this Agreement, the term "person" shall mean any natural person, corporation,
general or limited partnership, limited liability company, joint venture, trust,
association or entity of any kind.
(h) Investment of Exchange Fund. The ADR Depositary will invest any cash
included in the Exchange Fund, as directed by Newco, on a daily basis. Any
interest and other income resulting from such investments will be paid to Newco.
(i) Lost Certificates. If any Certificate is lost, stolen or destroyed, upon
the making of an affidavit of that fact by the person claiming such Certificate
to be lost, stolen or destroyed and, if required by Newco or the Surviving
Entity, as the case may be, the posting by such person of a bond in such
reasonable amount as Newco or the Surviving Entity, as the case may be, may
direct as indemnity against any claim that may be made against it with respect
to such Certificate, the ADR Depositary will issue in exchange for such lost,
stolen or destroyed Certificate the Merger Consideration and, if applicable, any
cash in lieu of fractional shares, and unpaid dividends and distributions on
Newco ADSs, pursuant to this Agreement.
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(j) Certain Adjustments. If, after the date hereof and on or prior to the
Closing Date, the outstanding Parent Ordinary Shares or Parent ADSs shall be
changed into a different number of shares by reason of any reclassification,
recapitalization, issue by capitalization of reserves, split-up, combination,
exchange of shares or rights issue, or any dividend payable in stock or other
securities is declared thereon with a record date within such period, or any
similar event shall occur, the Merger Consideration will be adjusted accordingly
to provide to the holders of the Company Common Stock, the same economic effect
as contemplated by this Agreement prior to such reclassification,
recapitalization, issue by capitalization of reserves, split-up, combination,
exchange, rights issue or dividend or similar event.
(k) Withholding Rights. Each of the Surviving Entity and Newco shall be
entitled to deduct and withhold from the consideration otherwise payable
pursuant to this Agreement to any holder of shares of the Company Common Stock
such amounts as it is required to deduct and withhold with respect to the making
of such payment under the Code, or any provision of state, local or foreign tax
law, other than Conveyance Taxes (as defined in Section 7.14). To the extent
that amounts are so withheld by the Surviving Entity or Newco, as the case may
be, such withheld amounts shall be treated for all purposes of this Agreement as
having been paid to the holder of the shares of the Company Common Stock in
respect of which such deduction and withholding was made by the Surviving Entity
or Newco, as the case may be.
ARTICLE III
THE CLOSING
Section 3.1 CLOSING. The closing of the Merger (the "Closing") shall take
place at the offices of LeBoeuf, Lamb, Greene & MacRae, L.L.P., 125 West 55th
Street, New York, New York 10019 at 10:00 A.M., local time, on the business day
that is no later than the first business day that is forty days following the
date on which the last of the conditions set forth in Article VIII hereof (other
than the condition set forth in Section 8.2(h)) is fulfilled or waived and which
is also after, but no more than seven days after, the condition set forth in
Section 8.2(h) hereof is fulfilled or waived, or at such other time, date and
place as the Company, Newco and Parent shall mutually agree (the "Closing
Date").
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Parent, Newco and Merger Sub as
follows:
Section 4.1 ORGANIZATION AND QUALIFICATION. Except as set forth in
Section 4.1 of the schedule delivered by the Company on the date hereof (the
"Company Disclosure Schedule"), the Company and each Company Subsidiary (as
defined below) is a corporation duly organized, validly existing and in good
standing under the laws of its jurisdiction of incorporation or organization,
has all requisite power and authority, and has been duly authorized by all
necessary approvals and orders to own, lease and operate its assets and
properties to the extent owned, leased and operated and to carry on its business
as it is now being conducted and is duly qualified and in good standing to do
business in each jurisdiction in which the nature of its business or the
ownership or leasing of its assets and properties makes such qualification
necessary other than in such jurisdictions where the failure so to qualify could
not reasonably be expected to have a material adverse effect on the business,
assets, condition (financial or otherwise), current or reasonably anticipated
future results of operations (measured by net income plus the after-tax effect
of the Master Restructuring Agreement amortization as reported in the most
recent Company Financial Statement (as defined in Section 4.5)) of the Company
and the Company Subsidiaries taken as a whole, other than effects resulting from
execution of this Agreement or affecting the electric utility business in the
United States generally or the specific matters set forth in Section 4.1 of the
Company Disclosure Schedule, or on the Company's ability to consummate the
Merger (a "Company Material Adverse Effect"). As used in this Agreement,
(a) the term "Subsidiary" of a person shall mean any corporation or other entity
(including partnerships and other business associations) of which at least a
majority of the voting power represented by the outstanding capital stock or
other voting securities or interests having
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voting power under ordinary circumstances to elect directors or similar members
of the governing body of such corporation or entity shall at the time be held or
owned, directly or indirectly, by such person, and (b) the term "Company
Subsidiary" shall mean a Subsidiary of the Company.
Section 4.2 SUBSIDIARIES. (a) Section 4.2(a) of the Company Disclosure
Schedule sets forth a list as of the date hereof of (i) all of the Company
Subsidiaries and (ii) all Company Associates and a list of any existing
agreements requiring the Company or any of Company Subsidiaries to make any
additional material investment in, or material loan or capital contribution to,
or guarantee any material obligation of, such Company Associates. For purposes
of this Agreement, "Company Associates" shall mean any corporation or other
entity (including partnerships and other business associations) that is not a
Company Subsidiary, in which the Company and/or one or more of its Subsidiaries,
directly or indirectly, owns an equity interest (other than investments in the
ordinary course of business in publicly-traded companies which constitute less
than 5% of the outstanding voting securities of such entity).
(b) Except as set forth in Section 4.2(b) of the Company Disclosure
Schedule, all of the issued and outstanding shares of capital stock of each
Company Subsidiary are validly issued, fully paid, nonassessable and free of
preemptive rights, and are owned, directly or indirectly, by Company free and
clear of any liens, claims, encumbrances, security interests, charges and
options of any nature whatsoever and there are no outstanding subscriptions,
options, calls, contracts, voting trusts, proxies or other commitments,
understandings, restrictions, arrangements, rights or warrants, including any
right of conversion or exchange under any outstanding security, instrument or
other agreement, obligating any such Company Subsidiary to issue, deliver or
sell, or cause to be issued, delivered or sold, additional shares of its capital
stock or obligating it to grant, extend or enter into any such agreement or
commitment.
Section 4.3 CAPITALIZATION. As of the date hereof, the authorized capital
stock of the Company consists of 300,000,000 shares of Company Common Stock, and
50,000,000 shares of Preferred Stock, par value $0.01 per share (the "Company
Preferred Stock"). At the close of business on September 1, 2000,
(i) approximately 160,239,983 shares of Company Common Stock were issued and
outstanding, (ii) no shares of Company Preferred Stock were issued and
outstanding, and (iii) no bonds, debentures, notes or other indebtedness having
the right to vote (or convertible into securities having the right to vote) on
any matters on which shareholders may vote ("Voting Debt"), were issued or
outstanding. As of the date hereof, all outstanding shares of Company Common
Stock are validly issued, fully paid and nonassessable and are not subject to
preemptive rights. As of the Closing Date, all outstanding shares of Company
Common Stock will be validly issued, fully paid and nonassessable and will not
be subject to preemptive rights. As of the date of this Agreement, except as set
forth in Section 4.3(a) of the Company Disclosure Schedule or pursuant to this
Agreement, there are no options, warrants, calls, rights, commitments or
agreements of any character to which the Company or any material Company
Subsidiary is a party or by which it is bound obligating the Company or any
material Company Subsidiary to issue, deliver or sell, or cause to be issued,
delivered or sold, additional shares of capital stock or any Voting Debt of the
Company or any material Company Subsidiary or obligating the Company or any
material Company Subsidiary to grant, extend or enter into any such option,
warrant, call, right, commitment or agreement. Except as set forth in
Section 4.3(b) of the Company Disclosure Schedule, at the Merger Effective Time,
there will be no option, warrant, call, right, commitment or agreement
obligating the Company or any material Company Subsidiary to issue, deliver or
sell, or cause to be issued, delivered or sold, any shares of capital stock or
any Voting Debt of the Company or any material Company Subsidiary, or obligating
the Company or any material Company Subsidiary to grant, extend or enter into
any such option, warrant, call, right, commitment or agreement.
Section 4.4 AUTHORITY; NON-CONTRAVENTION; STATUTORY APPROVALS; COMPLIANCE.
(a) Authority. The Company has all requisite power and authority to enter
into this Agreement and, subject to the receipt of Company Shareholders'
Approval (as defined in Section 4.14) and Company Required Statutory Approvals
(as defined in Section 4.4(c)), to consummate the transactions contemplated
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hereby. The execution and delivery of this Agreement and the consummation by the
Company of the transactions contemplated hereby have been duly authorized by all
necessary corporate action on the part of the Company, subject to obtaining
Company Shareholders' Approval. This Agreement has been duly and validly
executed and delivered by the Company and, assuming the due authorization,
execution and delivery hereof by the other signatories hereto, constitutes the
valid and binding obligation of the Company enforceable against it in accordance
with its terms, except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or
other similar laws affecting or relating to the enforcement of creditors rights
generally or general principles of equity (regardless of whether enforcement is
considered in a proceeding at law or in equity).
(b) Non-Contravention. Except as set forth in Section 4.4(b) of the Company
Disclosure Schedule, the execution and delivery of this Agreement by the Company
does not, and the consummation of the transactions contemplated hereby shall
not, in any respect, violate, conflict with or result in a breach of any
provision of, or constitute a default (with or without notice or lapse of time
or both) under, or result in the termination or modification of, or accelerate
the performance required by, or result in a right of termination, cancellation
or acceleration of any obligation or the loss of a benefit under, or result in
the creation of any lien, security interest, charge or encumbrance upon any of
the properties or assets of the Company or any of the Company Subsidiaries (any
such violation, conflict, breach, default, right of termination, modification,
cancellation or acceleration, loss or creation, is referred to herein as a
"Violation" with respect to the Company and such term when used in Article V has
a correlative meaning with respect to Parent) pursuant to any provisions of (i)
the charters, by-laws or similar governing documents of the Company or any of
the Company Subsidiaries, (ii) subject to obtaining the Company Required
Statutory Approvals and the receipt of the Company Shareholders' Approval, any
statute, law, ordinance, rule, regulation, judgment, decree, order, injunction,
writ, permit or license of any Governmental Authority (as defined in
Section 4.4(c)) applicable to the Company or any of the Company Subsidiaries or
any of their respective properties or assets or (iii) subject to obtaining the
third-party consents set forth in Section 4.4(b)(iii) of the Company Disclosure
Schedule (the "Company Required Consents"), any note, bond, mortgage, indenture,
deed of trust, license, franchise, permit, concession, contract, lease or other
instrument, obligation or agreement of any kind to which the Company or any of
the Company Subsidiaries is a party or by which they or any of their properties
or assets may be bound or affected, except in the case of clause (ii) or
(iii) above for any such Violation which could not reasonably be expected to
have a Company Material Adverse Effect.
(c) Statutory Approvals. No declaration, filing or registration with, or
notice to or authorization, consent or approval of, any court, federal, state,
local or foreign governmental or regulatory body (including a stock exchange or
other self-regulatory body) or authority (each, a "Governmental Authority") is
necessary for the execution and delivery of this Agreement by the Company or the
consummation by the Company of the transactions contemplated hereby except as
described in Section 4.4(c) of the Company Disclosure Schedule (the "Company
Required Statutory Approvals"). References in this Agreement to "obtaining" such
Company Required Statutory Approvals shall mean making such declarations,
filings or registrations, giving such notices, obtaining such authorizations,
consents or approvals, and having such waiting periods expire as are necessary
to avoid a violation of law.
(d) Compliance. Except as set forth in Section 4.4(d), Section 4.7,
Section 4.10, Section 4.11 and Section 4.12 of the Company Disclosure Schedule,
or as disclosed in the Company SEC Reports (as defined in Section 4.5) filed
prior to the date hereof, neither the Company nor any of the Company
Subsidiaries is in violation of, is, to the Knowledge of the Company, under
investigation with respect to any violation of, or has been given notice or been
charged with any violation of, any law, statute, order, rule, regulation,
ordinance or judgment (excluding Environmental Laws, compliance with which is
the subject of Section 4.12) of any Governmental Authority, except for possible
violations which individually or in the aggregate could not reasonably be
expected to have a Company Material Adverse Effect. As used herein, "Knowledge"
means the knowledge of the executive officers of the Company and Niagara Mohawk
Power
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Corporation. Except as set forth in Section 4.4(d) and Section 4.12 of the
Company Disclosure Schedule, or as expressly disclosed in the Company SEC
Reports, the Company and the Company Subsidiaries have all permits, licenses,
franchises and other governmental authorizations, consents and approvals (the
"Licenses") necessary to conduct their businesses as presently conducted except
such failures which individually or in the aggregate could not reasonably be
expected to have a Company Material Adverse Effect. All such Licenses are in
full force and effect, and there is no proceeding or investigation pending or,
to the Knowledge of the Company, threatened that could reasonably be expected to
lead to the revocation, amendment, failure to renew, limitation, suspension or
restriction of any such License which action could reasonably be expected to
have a Company Material Adverse Effect. Except as set forth in Sections 4.4(d),
4.7, 4.10 and 4.11 of the Company Disclosure Schedule, none of the Company or
the Company Subsidiaries is in breach or violation of or in default in the
performance or observance of any term or provision of, and no event has occurred
which, with the lapse of time or action by a third party, could result in a
default by the Company or any Company Subsidiary under (i) their respective
charter or by-laws or (ii) any contract, commitment, agreement, indenture,
mortgage, loan agreement, note, lease, bond, license, approval or other
instrument to which it is a party or by which the Company or any Company
Subsidiary is bound or to which any of their respective property is subject,
except for possible violations, breaches or defaults which individually or in
the aggregate could not reasonably be expected to have a Company Material
Adverse Effect.
Section 4.5 REPORTS AND FINANCIAL STATEMENTS. Except as set forth in
Section 4.5 of the Company Disclosure Schedule, all material filings required to
be made by the Company and the Company Subsidiaries since January 1, 1998 under
the Securities Act of 1933, as amended (the "Securities Act"), the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), the Public Utility
Holding Company Act (the "1935 Act"), the Federal Power Act (the "Power Act"),
the Atomic Energy Act of 1954 (the "Atomic Energy Act"), the Communications Act
of 1934, applicable state public utility laws and regulations or pursuant to the
requirements of any other Governmental Authority have been filed with the SEC,
the Federal Energy Regulatory Commission (the "FERC"), the Nuclear Regulatory
Commission (the "NRC"), the Federal Communications Commission (the "FCC"), the
Department of Energy (the "DOE"), or the appropriate state public utilities
commission or such other appropriate Governmental Authority, as the case may be,
including all forms, statements, reports, agreements (oral or written) and all
documents, exhibits, amendments and supplements appertaining thereto, and
complied, as of their respective dates or as of the date of any amendment
thereto, in all material respects with all applicable requirements of the
appropriate statutes and the rules and regulations thereunder. The Company has
made available to Parent a true and complete copy of each report, schedule,
registration statement and definitive proxy statement filed with the SEC by the
Company pursuant to the requirements of the Securities Act or Exchange Act since
January 1, 1998 (as such documents have since the time of their filing been
amended, the "Company SEC Reports"). Except as set forth in Section 4.5 of the
Company Disclosure Schedule, as of their respective dates, the Company SEC
Reports did not contain any untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. Except as set forth in Section 4.5 of the Company Disclosure
Schedule, the audited consolidated financial statements and unaudited interim
financial statements of the Company included in the Company SEC Reports
(collectively, the "Company Financial Statements") have been prepared in
accordance with US generally accepted accounting principles ("US GAAP") (except
as may be indicated therein or in the notes thereto and except with respect to
unaudited statements as permitted by Form 10-Q of the SEC) and fairly present
the financial position of the Company as of the dates thereof and the results of
its operations and cash flows for the periods then ended, subject, in the case
of the unaudited interim financial statements, to normal audit adjustments which
will not be material in amount or effect. True, accurate and complete copies of
the charter and by-laws of the Company, as in effect on the date hereof, are
included (or incorporated by reference) in the Company SEC Reports.
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Section 4.6 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as disclosed in
the Company SEC Reports filed prior to the date hereof or as set forth in
Section 4.6 of the Company Disclosure Schedule, since December 31, 1999, the
Company and each of the Company Subsidiaries have conducted their respective
businesses only in the ordinary course of business consistent with past practice
(other than with respect to the cessation of operations of non-material Company
Subsidiaries) and there has not been (a) any change that has had or that could
reasonably be expected to have a Company Material Adverse Effect, (b) any
declaration, setting aside or payment of any dividend or other distribution
(whether in cash, stock or property) with respect to any of the Company's
outstanding capital stock (other than regular quarterly cash dividends in
accordance with the Company's present dividend policy), (c) any split,
combination or reclassification of any of its outstanding capital stock or any
issuance or the authorization of any issuance of any other securities in respect
of, in lieu of or in substitution for shares of its outstanding capital stock,
(d) any entry by the Company or any of the Company Subsidiaries into any
employment, severance, change-of-control, termination or similar agreement with
any officer, director or other employee, or any increase in the severance or
termination benefits payable to any director, officer or other employee of the
Company or any of the Company Subsidiaries, other than any such agreement or
increase made in the ordinary course of business consistent in process and
amounts with past practice and any such agreement or increase offered pursuant
to a collective bargaining agreement or arrangement described in
Section 6.1(m), (e) any increase in the compensation or benefits not described
in subsection (d) above other than increases made in the ordinary course of
business consistent in process and amounts with past practice and increases made
pursuant to a collective bargaining agreement or arrangement described in
Section 6.1(m), or (f) any change in the method of accounting or policy used by
the Company or any of the Company Subsidiaries and disclosed in the financial
statements included in the Company SEC Reports.
Section 4.7 LEGAL PROCEEDINGS. Except as disclosed in the Company SEC
Reports filed prior to the date hereof or as set forth in Section 4.7,
Section 4.9, Section 4.11 or Section 4.12 of the Company Disclosure Schedule,
(a) there are no claims, suits, actions, proceedings or hearings before any
court, governmental department, commission, agency, instrumentality or authority
or any arbitrator, pending or, to the Knowledge of the Company, threatened, nor
are there, to the Knowledge of the Company, any civil investigations, audits or
reviews by any court, governmental department, commission, agency,
instrumentality or authority or any arbitrator pending or threatened against,
relating to or affecting the Company or any of the Company Subsidiaries which
would have a Company Material Adverse Effect; (b) to the Knowledge of the
Company, there are no criminal investigations by any court, governmental
department, commission, agency, instrumentality or authority or any arbitrator
pending or threatened against, relating to or affecting the Company or any of
the Company Subsidiaries, (c) there have not been any significant developments
since December 31, 1999 with respect to such disclosed claims, suits, actions,
proceedings, hearings, investigations, audits or reviews that would have a
Company Material Adverse Effect and (d) there are no judgments, decrees,
injunctions, rules or orders of any court, governmental department, commission,
agency, instrumentality or authority or any arbitrator applicable to the Company
or any of the Company Subsidiaries except for such that could not reasonably be
expected to have a Company Material Adverse Effect.
Section 4.8 INFORMATION SUPPLIED. (a) None of the information supplied or
to be supplied by or on behalf of the Company for inclusion or incorporation by
reference in (i) the registration statement on Form F-4 to be filed with the SEC
by Newco in connection with the issuance of Newco ADSs in the Merger (the
"Registration Statement") will, at the time the Registration Statement is filed
with the SEC and at the time it becomes effective under the Securities Act,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading and (ii) the proxy statement included in the Registration
Statement relating to the Company Meeting (as defined in Section 7.4(b)) to be
held in connection with the Merger (the "Proxy Statement") and any other
documents to be filed by the Company with the SEC (including, without
limitation, under the 1935 Act) or any other Governmental Authority in
connection with the Merger will, at the dates mailed to shareholders and at the
times of such meetings, contain any untrue statement of a material fact or omit
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to state any material fact required to be stated therein or necessary in order
to make the statements therein, in light of the circumstances under which they
are made, not misleading. The Proxy Statement shall comply as to form in all
material respects with the provisions of the Securities Act and the Exchange Act
and the rules and regulations thereunder.
(b) The information supplied or to be supplied by the Company for inclusion
in any filing by Newco or Parent with the SEC or the Financial Services
Authority (the "UK Listing Authority") in respect of the Merger or Scheme
(including, without limitation, the Class 1 circular to be issued to
shareholders of Parent (the "Circular")), the listing particulars under Part IV
of the Financial Services Act 1986 of the United Kingdom (the "FSA") relating to
Newco Ordinary Shares (the "Listing Particulars") and the document, including an
explanatory statement, to be sent to shareholders of Parent in connection with
the Scheme (the "Scheme Document") (collectively with any amendments or
supplements thereto, the "Parent Disclosure Documents") will not, at all
relevant times, contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they were
made, not misleading and will be in accordance with the facts and will not omit
anything likely to affect the import of such information.
(c) Notwithstanding the foregoing provisions of this Section 4.8, no
representation or warranty is made by the Company with respect to statements
made or incorporated by reference in the Registration Statement, the Proxy
Statement or the Parent Disclosure Documents based on information supplied by
Parent, Newco or Merger Sub for inclusion or incorporation by reference therein.
Section 4.9 TAX MATTERS.
"Tax(es)," as used in this Agreement, means any federal, state, county,
local or foreign taxes, charges, fees, levies, or other assessments, including
all net income, gross income, sales and use, ad valorem, transfer, gains,
profits, windfall profits, excise, franchise, real and personal property, gross
receipts, capital stock, production, business and occupation, disability,
employment, payroll, license, estimated, stamp, custom duties, severance or
withholding taxes or other taxes or similar charges imposed by any Governmental
Authority, whether imposed directly on a person or resulting under Treasury
Regulation Section 1.1502-6 (or any similar provision of state, local or foreign
law), as a transferee or successor, by contract or otherwise and includes any
interest and penalties (civil or criminal) on or additions to any such taxes or
in respect of a failure to comply with any requirement relating to any Tax
Return and any expenses incurred in connection with the determination,
settlement or litigation of any tax liability. "Tax Return," as used in this
Agreement, means a report, return or other information supplied to a
Governmental Authority with respect to Taxes including, where permitted or
required, combined or consolidated returns for any group of entities that
includes the Company or any of the Company Subsidiaries, on the one hand, or
Parent or any of the Parent Subsidiaries (or Newco following the Scheme
Effective Time), on the other hand. "Tax Rulings," as used in this Agreement,
shall mean a written ruling of a taxing authority relating to Taxes. "Closing
Agreement," as used in this Agreement, shall mean a written and legally binding
agreement with a taxing authority relating to Taxes. "Foreign Person" as used in
this Agreement, means any person other than a "United States person" as such
term is defined in Code Section 7701(a)(30).
Except as disclosed in Section 4.9 of the Company Disclosure Schedule:
(a) Timely Filing of Tax Returns. The Company and each of the Company
Subsidiaries have filed all material Tax Returns required to be filed by each of
them under applicable law. All such Tax Returns were in all material respects
(and, as to such Tax Returns not filed as of the date hereof, will be) true,
complete and correct and filed on a timely basis (taking into account applicable
extensions).
(b) Payment of Taxes. The Company and each of the Company Subsidiaries have,
within the time and in the manner prescribed by law, paid (and until the Closing
Date will pay within the time and in the manner prescribed by law) all material
Taxes that are currently due and payable, except for those Taxes contested in
good faith.
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(c) Tax Liens. There are no material Tax liens upon the assets of the
Company or any of the Company Subsidiaries except liens for Taxes not yet due or
for Taxes which are being contested in good faith.
(d) Extensions of Time for Filing Tax Returns. Except with respect to Tax
Returns related to real property Taxes, neither the Company nor any of the
Company Subsidiaries has requested any extension of time within which to file
any material Tax Return which Tax Return has not since been filed.
(e) Waivers of Statute of Limitations. Except with respect to Tax Returns
related to real property Taxes, neither the Company nor any of the Company
Subsidiaries has executed any outstanding waivers or comparable consents
regarding the application of the statute of limitations with respect to any
material Taxes or material Tax Returns.
(f) Expiration of Statute of Limitations. The statute of limitations for the
assessment of all material Taxes has expired for all applicable material Tax
Returns of the Company and each of the Company Subsidiaries or those Tax Returns
have been examined by the appropriate taxing authorities for all periods through
1990, except with respect to Tax Returns that the statute of limitations has not
expired solely by reason of the carryback of a net operating loss from an open
Tax year and Tax Returns related to real property Taxes.
(g) Audit, Administrative and Court Proceedings. No audits or other
administrative proceedings or court proceedings are presently pending with
regard to any material Taxes or material Tax Returns of the Company or any of
the Company Subsidiaries and, to the Knowledge of the Company, no issue has been
raised in writing by any taxing authority in connection with any material Tax or
material Tax Return (a "Tax Controversy"), except with respect to Tax
Controversies involving real property Taxes that could not, individually or in
the aggregate, be reasonably expected to result in a Company Material Adverse
Effect.
(h) Availability of Tax Returns. Except with respect to Real Property Taxes,
the Company and the Company Subsidiaries have made available to Parent complete
and accurate copies, covering all open years, of (i) all material Tax Returns,
and any amendments thereto, filed by the Company or any of the Company
Subsidiaries, (ii) all material audit reports received from any taxing authority
relating to any Tax Return filed by the Company or any of the Company
Subsidiaries, including any proposed, asserted or assessed deficiencies for
Taxes that have not been resolved and paid in full, (iii) any material Tax
Rulings and material Closing Agreements entered into by the Company or any of
the Company Subsidiaries with any taxing authority, and all powers of attorney
currently in force granted by the Company or any of the Company Subsidiaries
covering all years ending on or before the Closing Date, and (iv) any material
agreements relating to the allocation or sharing of Taxes between or among the
Company and any of the Company Subsidiaries.
(i) Code Section 168. To the Knowledge of the Company, no property of the
Company or any of the Company Subsidiaries is property that the Company or any
such Subsidiary or any party to this transaction is or will be required to treat
as being owned by another person pursuant to the provisions of Code
Section 168(f)(8) (as in effect prior to its amendment by the Tax Reform Act of
1986).
(j) Code Section 481 Adjustments. (i) Neither the Company nor any of the
Company Subsidiaries is required to include in income on any Tax Return that has
not been filed and made available to Parent any material adjustment pursuant to
Code Section 481(a) (an "Accounting Method Adjustment") by reason of a voluntary
change in accounting method initiated by the Company or any of the Company
Subsidiaries and (ii) to the Knowledge of the Company, the Internal Revenue
Service (the "IRS") has not proposed any such Accounting Method Adjustment with
respect to any Tax Return that the statute of limitations for the assessment of
all Taxes has not expired.
(k) Indebtedness. No material indebtedness of the Company or any of the
Company Subsidiaries is (i) "corporate acquisition indebtedness" within the
meaning of Code Section 279(b) or (ii) exempt facility
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bonds described in Code Section 142 or industrial development bonds described in
Section 103 of the Internal Revenue Code of 1954, as amended, prior to the
enactment of the Tax Reform Act of 1986.
(l) Intercompany Transactions. Neither the Company nor any of the Company
Subsidiaries has engaged in any intercompany transactions within the meaning of
Treasury Regulations Section 1.1502-13 for which any material income or material
gain will remain unrecognized as of the close of the last taxable year prior to
the Closing Date.
(m) Code Section 897(c). To the Knowledge of the Company, no Foreign Person
owns within the meaning of Code Section 897 and the Treasury Regulations
thereunder more than five percent (5%) of the Company Common Stock during the
period described in Code Section 897(c)(1)(A)(ii).
(n) Code Section 355(e). Neither the Company nor any of the Company
Subsidiaries has constituted a "distributing corporation" in a distribution of
stock qualifying for tax-free treatment under Section 355 of the Code (i) in the
past 24-month period or (ii) in a distribution which could otherwise constitute
part of a "plan" or "series of related transactions" (within the meaning of
Section 355(e) of the Code) in conjunction with the Merger.
(o) Tax Basis. As of December 31, 1999, to the Knowledge of the Company, the
aggregate tax basis of (i) the stock held, directly or indirectly, by the
Company other than the stock of Niagara Mohawk Power Corporation and (ii) the
property, plant and equipment held by Niagara Mohawk Power Corporation is not,
taken together, greater than $4,400,000,000.
(p) Neither the Company nor any of the Company subsidiaries has taken any
action or has any Knowledge of any fact or circumstance that is reasonably
likely to (i) prevent the Merger and the Scheme taken together from qualifying
as a transaction described in Section 351 of the Code or (ii) cause the Merger
to be subject to Code Section 367(a)(1).
Section 4.10 EMPLOYEE MATTERS; ERISA.
(a) Each "employee benefit plan" (as defined in Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA")), bonus, deferred
compensation, share option or similar option, employment agreement, severance
plan or similar option, plan, agreement or other written agreement relating to
employment, compensation, employment benefits, and any other compensation or
fringe benefits for employees, former employees, officers or directors of the
Company or any Company Subsidiaries effective as of the date hereof or providing
benefits as of the date hereof to current employees, former employees, officers,
trustees, or directors of the Company or pursuant to which the Company or any of
its Subsidiaries has or could reasonably be expected to have any liability
(collectively, the "Company Employee Benefit Plans") is listed in
Section 4.10(a) of the Company Disclosure Schedule (other than any such
agreement with an individual who was never an officer or a director of the
Company or any Company Subsidiary, if such agreement is not material when
considered individually and would not be material if considered in the aggregate
with all other such agreements with individuals who never were officers or
directors of the Company or any Company Subsidiary), is in material compliance
with applicable law except as set forth in Section 4.10(a) of the Company
Disclosure Schedule, and has been administered and operated in all material
respects in accordance with its terms. Each Company Employee Benefit Plan which
is intended to be qualified within the meaning of Section 401(a) of the Code has
received a favorable determination letter from the IRS as to such qualification
and, to the Knowledge of the Company, no event has occurred and no condition
exists which could reasonably be expected to result in the revocation of, or
have any adverse effect on, any such determination.
(b) Complete and correct copies of the following documents have been made
available to Parent as of the date of this Agreement: (i) all Company Employee
Benefit Plans and any related trust agreements, insurance contracts or other
funding arrangements and any amendments to each, (ii) the most current summary
plan descriptions of each Company Employee Benefit Plan subject to ERISA and any
summary of material modifications issued since such summary plan descriptions,
(iii) the three most recent
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Form 5500s and Schedules thereto for each Company Employee Benefit Plan subject
to such reporting, (iv) the most recent determination of the Internal Revenue
Service with respect to the qualified status of each Company Employee Benefit
Plan that is intended to qualify under Section 401(a) of the Code, (v) the most
recent accountings with respect to each Company Employee Benefit Plan funded
through a trust or through a funding arrangement and (vi) the most recent
actuarial report of the enrolled actuary of each Company Employee Benefit Plan
with respect to which actuarial valuations are conducted.
(c) Except as set forth in Section 4.10(c) of the Company Disclosure
Schedule, neither the Company nor any Company Subsidiary maintains or is
obligated to provide benefits under any Company Employee Benefit Plan (other
than as an incidental benefit under a Plan qualified under Section 401(a) of the
Code) which provides health or welfare benefits to retirees or other terminated
employees other than benefit continuations as required pursuant to Section 601
of ERISA. Each Company Employee Benefit Plan subject to the requirements of
Section 601 of ERISA has been operated in material compliance therewith. Neither
the Company nor any Company Subsidiaries have contributed to a nonconforming
group health plan (as defined in Code Section 5000(c)). No person or entity
other than the Company or a Company Subsidiary is, or has in the last five years
been, considered to be within a controlled group with the Company or any Company
Subsidiary or under common control with the Company or a Company Subsidiary
within the meaning of Section 414 of the Code or Section 4001 of ERISA.
(d) Except as set forth in Section 4.10(d) of the Company Disclosure
Schedule, each Company Employee Benefit Plan covers only employees who are
employed by the Company or a Company Subsidiary (or former employees or
beneficiaries with respect to service with the Company or a Company Subsidiary).
(e) Except as set forth in Section 4.10(e) of the Company Disclosure
Schedule, neither the Company nor any Company Subsidiary, within the five-year
period preceding the date of this Agreement, at any time contributed to any
"multiemployer plan," as that term is defined in Section 4001 of ERISA. Neither
the Company nor any Company Subsidiary is subject to "withdrawal liability" as
that term is defined in Part I, Subtitle E, Title IV, of ERISA and if the
Company or any Company Subsidiary were to withdraw from a "multiemployer plan"
at the Merger Effective Time, neither the Company, nor any Company Subsidiary
would have any "withdrawal liability" as that term is defined in Part I,
Subtitle E, Title IV, of ERISA.
(f) No event has occurred, and there exists no condition or set of
circumstances in connection with any Company Employee Benefit Plan, under which
the Company or any Company Subsidiary, directly or indirectly (through any
indemnification agreement or otherwise), is likely to be liable under
Section 409 of ERISA, Section 502(i) of ERISA, Title IV of ERISA or
Section 4975 of the Code.
(g) Neither the Company nor any ERISA Affiliate has incurred any liability
to the Pension Benefit Guaranty Corporation (the "PBGC") under
Section 302(c)(ii), 4062, 4063, 4064 or 4069 of ERISA, or otherwise that has not
been satisfied in full and no event or condition exists or has existed which
could reasonably be expected to result in any such material liability. No
"reportable event" within the meaning of Section 4043 of ERISA for which the
30-day reporting requirement has not been waived or extended has occurred with
respect to any Company Employee Benefit Plan that is a defined benefit plan
under Section 3(35) of ERISA within the 12-month period ending on the date
hereof.
(h) Except as set forth in Section 4.10(h) of the Company Disclosure
Schedule, no employer securities, employer real property or other employer
property is included in the assets of any Company Employee Benefit Plan.
(i) Full payment has been made of all material amounts which the Company or
any Company Subsidiary was required under the terms of the Company Employee
Benefit Plans to have paid as contributions to such plans on or prior to the
Merger Effective Time (excluding any amounts not yet due) and no Company
Employee Benefit Plan which is subject to Part III of Subtitle B of Title I of
ERISA has
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incurred any "accumulated funding deficiency" within the meaning of Section 302
of ERISA or Section 412 of the Code, whether or not waived.
(j) Except as set forth in Section 4.10(j) of the Company Disclosure
Schedule, no amounts payable under any Company Employee Benefit Plan or other
agreement, contract, or arrangement, as a result of or in connection with the
Merger, is expected to fail to be deductible for federal income tax purposes by
virtue of Section 280G or Section 162(m) of the Code.
Section 4.11 LABOR AND EMPLOYEE RELATIONS. As of the date hereof, except
as disclosed in Section 4.11(a) of the Company Disclosure Schedule or in the
Company SEC Reports, (i) neither the Company nor any of the Company Subsidiaries
is a party to any collective bargaining agreement or other labor agreement with
any union or labor organization and (ii) to the Knowledge of the Company or any
Company Subsidiary, there is no current union representation question involving
employees of the Company or any of the Company Subsidiaries, nor does the
Company or any Company Subsidiary have Knowledge of any activity or proceeding
of any labor organization (or representative thereof) or employee group to
organize any such employees. The Company has delivered or otherwise made
available to Parent true, correct and complete copies of the collective
bargaining agreements listed in Section 4.11 of the Company Disclosure Schedule,
together with all amendments, modifications or supplements thereto. Except as
disclosed in Section 4.11(a) of the Company Disclosure Schedule or in the
Company SEC Reports filed prior to the date hereof, there is no unfair labor
practice, employment discrimination or other material grievance, arbitration,
claim, suit, action, proceeding or employment related complaint against the
Company or any of the Company Subsidiaries pending, or to the Knowledge of the
Company or any Company Subsidiary, threatened against or affecting the Company
or any Company Subsidiary before any court, governmental department, commission,
agency, instrumentality or authority or any arbitrator, (b) there is no strike,
lockout or dispute, slowdown or work stoppage pending or, to the Knowledge of
the Company or any Company Subsidiary, threatened against or involving the
Company or any Company Subsidiary, and (c) there is no proceeding, claim, suit,
action or governmental investigation pending or, to the Knowledge of the
Company, threatened in respect of which any director, officer, employee or agent
of the Company or any Company Subsidiary is or may be entitled to claim
indemnification from the Company or such Company Subsidiary pursuant to their
respective charters or by-laws or as provided in the indemnification agreements
listed in Section 4.11(c) of the Company Disclosure Schedule. Except as set
forth in Section 4.11(a) of the Company Disclosure Schedule, to the Knowledge of
the Company and each Company Subsidiary, the Company and each such Company
Subsidiary are in material compliance with any and all laws in any relevant
jurisdiction, including common law, all applicable federal, state and local laws
with respect to employment practices, labor relations, safety and health
regulations and mass layoffs and plant closings.
Section 4.12 ENVIRONMENTAL PROTECTION.
(a) Except as set forth in Section 4.12 of the Company Disclosure Schedule
or in the Company SEC Reports filed prior to the date hereof:
(i) Compliance. The Company and each of the Company Subsidiaries has
been and is in compliance with all applicable Environmental Laws (as defined
in Section 4.12(d)(ii)) except where the failure to so comply would not in
the aggregate have a Company Material Adverse Effect, and neither the
Company nor any of the Company Subsidiaries has received any communication
(written or oral) from any person or Governmental Authority that alleges
that the Company or any of the Company Subsidiaries is not in such
compliance with applicable Environmental Laws, except as would not in the
aggregate have a Company Material Adverse Effect. To the Knowledge of the
Company and the Company Subsidiaries, compliance with all applicable
Environmental Laws will not require the Company or any Company Subsidiary to
incur additional costs over the next five years, beyond those currently
recorded or budgeted for the five Company fiscal years beginning with
January 1, 2000, including, but not limited to, (i) the costs of pollution
prevention or control equipment that are known
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or anticipated to be required over the next five years; and (ii)
investigatory, removal, remediation or response costs or investigatory,
removal, remediation or response costs known to be required over the next
five years, in each case, both on-site and off-site, except for such
additional costs that reasonably would not be expected to result in the
aggregate in a Company Material Adverse Effect.
(ii) Environmental Permits. The Company and each of the Company
Subsidiaries has obtained or has applied for all environmental, health and
safety permits and governmental authorizations, consents or licenses
(collectively, the "Environmental Permits") necessary for their operations
as presently conducted, and all such Environmental Permits are in good
standing or, where applicable, a renewal application has been timely filed
and is pending before the appropriate Governmental Authority, except for
such Environmental Permits that would not reasonably be expected in the
aggregate to have a Company Material Adverse Effect. The Company and the
Company Subsidiaries are in compliance with all terms and conditions of the
Environmental Permits, except where the failure to so comply could not in
the aggregate reasonably be expected to have a Company Material Adverse
Effect.
(iii) Environmental Claims. There are no written Environmental Claims (as
defined in Section 4.12(d)(i)) or, to the knowledge of the Company's
environmental, health and safety managers, facts or circumstances which are
reasonably likely to result in any Environmental Claim which would have in
the aggregate a Company Material Adverse Effect pending (A) against the
Company or any of the Company Subsidiaries, (B) against any person or entity
whose liability for any such Environmental Claim, the Company or any of the
Company Subsidiaries has retained or assumed either contractually or by
operation of Environmental Law, or (C) against any real or personal
property, facility or operations which the Company or any of the Company
Subsidiaries owns, leases, occupies, uses or manages or has formerly owned,
leased, occupied, used or managed, in whole or in part.
(iv) Releases. To the knowledge of the Company's environmental, health
and safety managers, there are no Releases (as defined in
Section 4.12(d)(iv)) of any Hazardous Material (as defined in
Section 4.12(d)(iii)) that would be reasonably likely to result in any
Environmental Claim against the Company or any of the Company Subsidiaries,
or against any person or entity whose liability for any Environmental Claim,
the Company or any of the Company Subsidiaries has or may have retained or
assumed either contractually or by operation of Environmental Law, except
for any Environmental Claims which could not reasonably be expected to have
in the aggregate a Company Material Adverse Effect.
(v) Predecessors. To the knowledge of the Company's environmental,
health and safety managers, there are no pending or threatened Environmental
Claims or facts or circumstances which are reasonably likely to result in
any Environmental Claim with respect to any known predecessor of the Company
or any of the Company Subsidiaries which would have in the aggregate a
Company Material Adverse Effect.
(b) Except as would not have in the aggregate a Company Material Adverse
Effect, the Company has provided or otherwise made available to Parent:
(i) copies of all material Environmental Permits, as well as material
environmental compliance reports, audits, studies, assessments, complaints,
notices of violations, orders or information requests (collectively,
"Environmental Documents") received by or conducted or prepared by or on behalf
of the Company or any of the Company Subsidiaries relating to the business,
operations, facilities or properties currently or formerly owned, leased,
managed, occupied, used or otherwise controlled by the Company or any of the
Company Subsidiaries; and (ii) based on records in the possession or the control
of the Company or any of the Company Subsidiaries, a complete list of all
material Hazardous Materials used, stored or generated in the course of the
Company's or any of the Company Subsidiaries' business or operations and all
off-site Hazardous Materials treatment, storage or disposal facilities used by
the Company or any of the Company Subsidiaries.
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(c) Notwithstanding any other representations and warranty in this
Article IV, the representations and warranties contained in this Section 4.12
constitute the sole representations and warranties of the Company with respect
to any Environmental Law, Environmental Permit, Environmental Claim, Releases or
Hazardous Material.
(d) Definitions. As used in this Agreement:
(i) "Environmental Claim" means any and all administrative, regulatory
or judicial actions (whether civil or criminal), suits, demands, demand
letters, directives, claims, liens, investigations, proceedings or written
notices of noncompliance or violation by any person or entity (including any
Governmental Authority), alleging potential liability (including, without
limitation, potential responsibility or liability for enforcement,
investigatory costs, cleanup costs, governmental response costs, removal
costs, remedial costs, natural resources damages, property damages, personal
injuries or penalties) arising out of, based on or resulting from (A) the
presence, Release or threatened Release into the environment of any
Hazardous Materials at any location, whether or not owned, operated, leased
or managed by the Company or any of the Company Subsidiaries (for purposes
of this Section 4.12) or by Parent or any of the Parent Subsidiaries (for
purposes of Section 5.9),(B) circumstances forming the basis of any
violation or alleged violation of any Environmental Law or (C) any and all
claims by any third party seeking damages, contribution, indemnification,
cost recovery, compensation or injunctive relief resulting from the presence
or Release of any Hazardous Materials.
(ii) "Environmental Laws" means any and all laws in any relevant
jurisdiction, including common law, all applicable federal, state and local
laws, codes, ordinances, directives, orders, rules and regulations and
binding administrative or judicial interpretations thereof relating to
pollution, the environment (including, without limitation, ambient air,
water (including groundwater and drinking water, land surface or subsurface
strata), natural resources as well as protection of human health and safety
from exposure to Hazardous Materials, including without limitation, laws and
regulations relating to Releases or threatened Releases of Hazardous
Materials, remedial cleanup or otherwise relating to the manufacture,
generation processing, distribution, use, treatment, storage, disposal,
deposit, transport or handling of Hazardous Materials.
(iii) "Hazardous Materials" means (A) any petroleum or petroleum
products, oil, coal ash, radioactive materials, coal tar or other forms of
MGP waste or by-products, radon gas, asbestos in any form that is or could
become friable, urea formaldehyde, foam insulation, lead-based paint and any
materials, transformers or other equipment that contain dielectric fluid
containing regulated concentrations of polychlorinated biphenyls ("PCBs"),
(B) any chemicals, materials or substances which exhibit the characteristics
of or are now defined as or included in the definitions of "hazardous
substances," "hazardous wastes," "hazardous materials," "extremely hazardous
wastes," "restricted hazardous wastes," "toxic substances," "contaminants",
"toxic pollutants," or words of similar import under any Environmental Law
and (C) any other chemical, material, substance or waste, exposure to which
is now prohibited, limited or regulated under any applicable Environmental
Law or harm from which would be actionable under any Environmental Law.
(iv) "Release" means any release, spill, emission, leaking, injection,
deposit, disposal, discharge, dispersal, leaching or migration into the
atmosphere, soil, water (including groundwater) or property and related
improvements.
Section 4.13 REGULATION AS A UTILITY. (a) The Company is a public utility
holding company exempt under Section 3(a)(1) from all provisions of the 1935 Act
except Section 9(a)(2) thereof. Section 4.13 of the Company Disclosure Schedule
lists the subsidiaries of the Company that are "public utility companies" within
the meaning of Section 2(a)(5) of the 1935 Act and lists the jurisdictions where
each such Subsidiary is subject to regulation as a public utility company or
public service company. Except as set forth above and as set forth in
Section 4.13 of the Company Disclosure Schedule, neither the Company nor any
"subsidiary
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company" or "affiliate" of the Company is subject to regulation as a public
utility or public service company (or similar designation) by the Federal
government of the United States, any state in the United States or any political
subdivision thereof, or any foreign country.
(b) As used in this Section 4.13, the terms "subsidiary company" and
"affiliate" shall have the respective meanings ascribed to them in
Section 2(a)(8) and Section 2(a)(11), respectively, of the 1935 Act.
Section 4.14 VOTE REQUIRED. The approval of the Merger by the holders of a
majority of the votes entitled to be cast by all holders of Company Common Stock
(the "Company Shareholders' Approval") is the only vote of the holders of any
class or series of the capital stock of the Company or any of the Company
Subsidiaries required to approve this Agreement, the Merger and the other
transactions contemplated hereby.
Section 4.15 OPINION OF FINANCIAL ADVISOR. The Company has received the
opinion of Donaldson, Lufkin & Jenrette Securities Corporation, dated the date
of this Agreement, to the effect that, as of such date, Merger Consideration is
fair from a financial point of view to the holders of Company Common Stock.
Section 4.16 BROKERS. Except as relates to the services provided by
Donaldson, Lufkin & Jenrette Securities Corporation as financial advisor to the
Company, neither the Company nor any of its officers, directors or employees has
employed any broker, or finder or incurred any liability for a finder's fee,
brokerage commission or similar payment in connection with the transactions
contemplated hereby.
Section 4.17 INSURANCE. Except as set forth in Section 4.17 of the Company
Disclosure Schedule, neither the Company nor any of the Company Subsidiaries has
received any notice of cancellation or termination with respect to any material
insurance policy of the Company or any of the Company Subsidiaries.
Section 4.18 INTELLECTUAL PROPERTY. The Company and the Company
Subsidiaries own or have adequate rights to use all trademarks, trade names,
patents, service marks, brand marks, brand names, computer programs, databases,
industrial designs and copyrights used in the operation of their business
(collectively, the "Company Intellectual Property"), subject to such exceptions
as to such ownership and restrictions on such rights as could not reasonably be
expected, individually or in the aggregate, to have a Company Material Adverse
Effect. All of the Company Intellectual Property owned by the Company or one of
the Company Subsidiaries is free and clear of any and all Encumbrances, subject
to such exceptions as could not reasonably be expected, individually or in the
aggregate, to have a Company Material Adverse Effect, and neither the Company
nor any of the Company Subsidiaries has forfeited or otherwise relinquished any
Company Intellectual Property which forfeiture or relinquishment could
reasonably be expected to have a Company Material Adverse Effect. To the
Knowledge of the Company, the use of the Company Intellectual Property by the
Company or the Company Subsidiaries does not infringe upon, violate or
constitute a misappropriation of any right, title or interest in any
intellectual property right (including, without limitation, any trademark, trade
name, patent, service mark, brand mark, brand name, computer program, database,
industrial design or copyright) of any other person, and neither the Company nor
any of the Company Subsidiaries has received written notice of any claim or
threatened claim that any of the Company Intellectual Property is invalid,
infringes the asserted rights of any other person, and, to the Knowledge of the
Company, the Company Intellectual Property owned by the Company has not been
used or enforced or has failed to be used or enforced in a manner that would
result in the abandonment, cancellation or unenforceability of any of such
Company Intellectual Property, except for such infringements, violations,
misappropriations, interferences, claims, invalidity, use, abandonments,
cancellations or unenforceability that could not, individually or in the
aggregate, reasonably be expected to have a Company Material Adverse Effect.
Section 4.19 NUCLEAR OPERATIONS AND NRC ACTIONS. (a) The Company owns Nine
Mile Point Nuclear Station Unit No. 1 and a 41% tenant-in-common interest in
Nine Mile Point Nuclear Station Unit
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No. 2 (the "Company Nuclear Facilities"). Except as disclosed in the Company SEC
Reports filed prior to the date hereof, the operations of the Company Nuclear
Facilities are and have at all times been conducted in compliance with
applicable health, safety, regulatory and other legal requirements, and no
Company Nuclear Facility is in violation of any applicable health, safety,
regulatory or other legal requirements applicable to the Company Nuclear
Facilities, except for such failures to comply as could not in the aggregate be
reasonably expected to have a Company Material Adverse Effect. The Company
Nuclear Facilities maintain emergency plans designed to respond to an unplanned
release therefrom of radioactive materials into the environment and liability
insurance to the extent required by law, and such further insurance (other than
liability insurance) as is consistent with the Company's view of the risks
inherent in the operation of a nuclear power facility and with the general
practices of the nuclear power industry.
(b) Except as disclosed in the Company SEC Reports filed prior to the date
hereof, neither the Company nor any of its Subsidiaries has been given written
notice of or been charged with actual or potential violation of, or, to the
Knowledge of the Company, is the subject of any ongoing proceeding, inquiry,
special inspection, diagnostic evaluation or other NRC action of which the
Company or any of its Subsidiaries has received notice under the Atomic Energy
Act, any applicable regulations thereunder or the terms and conditions of any
license granted to the Company or any of its Subsidiaries regarding the Company
Nuclear Facilities that would have, or is reasonably likely to have, a Company
Material Adverse Effect. No Company Nuclear Facility is, as of the date of this
Agreement, on the List of Nuclear Power Plants Warranting Increased Regulatory
Attention maintained by the NRC.
Section 4.20 OWNERSHIP OF PARENT OR NEWCO COMMON STOCK. None of the
Company or any of the Company Subsidiaries beneficially owns any Parent Ordinary
Shares, Parent ADSs, Newco Ordinary Shares or Newco ADSs.
Section 4.21 STATE ANTITAKEOVER MATTERS. Assuming the accuracy of the
representation contained in Section 5.13, no "fair price," "moratorium,"
"business combination," "control share acquisition," or other form of
anti-takeover statute or regulation under New York law is applicable to the
Merger and other transactions contemplated hereby.
Section 4.22 COMMODITY DERIVATIVES AND CREDIT EXPOSURE MATTERS. Except as
set forth in Section 4.22 of the Company Disclosure Schedule, as of September 1,
2000, the Company and the Company Subsidiaries do not in the aggregate have
(qualified on a marked-to- market basis and calculated with respect to physical
and financial positions exposure) (a) natural gas or electricity forward price
exposure exceeding $1 million, (b) pipeline transportation (basis) exposure
exceeding $1 million, or (c) credit exposures (which is unsecured and not backed
by letters of credit or enforceable guarantees from A-rated credit providers) to
any one counterparty that exceeds $1 million.
Section 4.23 THE COMPANY ASSOCIATES. The representations and warranties
set forth (a) in Sections 4.4(b) and (c) are true and correct with regard to the
Company Associates, and (b) in Sections 4.4(d), 4.6, 4.7, 4.10, 4.11 and 4.12
are, to the Knowledge of the Company, true and correct, as of the date hereof,
with regard to the Company Associates.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PARENT, NEWCO AND MERGER SUB
Parent, Newco and Merger Sub represent and warrant to the Company as
follows:
Section 5.1 ORGANIZATION AND QUALIFICATION. (a) Except as set forth in
Section 5.1 of the schedule delivered by Parent on the date hereof (the "Parent
Disclosure Schedule"), Parent and each of the Parent Subsidiaries (as defined
below) is a corporation or other entity duly organized, validly existing and in
good standing (with respect to jurisdictions that recognize the concept of good
standing) under the laws of its jurisdiction of incorporation or organization,
has all requisite power and authority, and has been duly authorized by all
necessary approvals and orders to own, lease and operate its assets and
properties to the
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extent owned, leased and operated and to carry on its business as it is now
being conducted and is duly qualified and in good standing (with respect to
jurisdictions that recognize the concept of good standing) to do business in
each jurisdiction in which the nature of its business or the ownership or
leasing of its assets and properties makes such qualification necessary other
than in such jurisdictions where the failure so to qualify could not reasonably
be expected to have a Parent Material Adverse Effect (as defined in
Section 5.3(b)). As used in this Agreement, the term "Parent Subsidiary" shall
mean a Subsidiary of Parent.
(b) Newco is a corporation duly organized and validly existing under the
laws of England and Wales. Newco holds all of the issued and outstanding shares
of capital stock of Merger Sub, which is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware. Newco and
Merger Sub have been incorporated solely for the purposes of engaging in the
transactions contemplated by this Agreement and have not conducted any other
business prior to the date hereof and will not conduct any other business prior
to the Closing Date except in connection with any activity related to the
consummation of the Scheme or the Merger.
Section 5.2 CAPITALIZATION. (a) As of the date hereof, the authorized
share capital of Parent consists of 2,125,000,000 Parent Ordinary Shares and the
Parent Special Share. At the close of business on September 1, 2000 (i)
1,484,609,903 Parent Ordinary Shares were issued and outstanding, (ii) one
Parent Special Share was outstanding and (iii) except as set forth in
Section 5.2 of the Parent Disclosure Schedule, no Voting Debt is issued or
outstanding. All outstanding Parent Ordinary Shares are validly issued and fully
paid and are not subject to preemptive rights, except as provided in Section 89
of the Companies Act of 1985 of the United Kingdom (the "Companies Act") and
except as set forth in Section 5.2 of the Parent Disclosure Schedule. As of the
date of this Agreement, except as set forth in Section 5.2 of the Parent
Disclosure Schedule or pursuant to this Agreement and the employment, severance,
deferred compensation or similar agreements that are maintained or contributed
to as of the date of this Agreement (the "Parent Plans"), there are no options,
warrants, calls, rights, commitments or agreements of any character to which
Parent or any Parent Subsidiary is a party or by which it is bound obligating
Parent or any Parent Subsidiary to issue, deliver or sell, or cause to be
issued, delivered or sold, additional capital or other shares or any Voting Debt
securities of Parent or any Parent Subsidiary or obligating Parent or any Parent
Subsidiary to grant, extend or enter into any such option, warrant, call, right,
commitment or agreement. Except as set forth in Section 5.2 of the Parent
Disclosure Schedule, or other than in connection with the Parent Plans, after
the Scheme Effective Time, there will be no option, warrant, call, right,
commitment or agreement obligating Parent or any Parent Subsidiary to issue,
deliver or sell, or cause to be issued, delivered or sold, any capital or other
shares or any Voting Debt of Parent or any Parent Subsidiary, or obligating
Parent or any Parent Subsidiary to grant, extend or enter into any such option,
warrant, call, right, commitment or agreement.
(b) The authorized share capital of Newco consists of 100 ordinary shares
("Newco Original Ordinary Shares"), of which one share is issued and
outstanding. Prior to the Scheme Effective Time, two Newco Original Ordinary
Shares and 49,998 redeemable preference shares ("Newco Original Preference
Shares") shall be issued and outstanding.
(c) Prior to the Merger Effective Time, the authorized capital stock of
Merger Sub will consist of 100 common shares, par value $0.10 per share, all of
which will be issued and outstanding and owned by Newco. All such outstanding
common shares will be duly authorized, validly issued, fully paid and
nonassessable and not subject to preemptive rights.
Section 5.3 AUTHORITY; NON-CONTRAVENTION; STATUTORY APPROVALS; COMPLIANCE.
(a) Authority. Parent, Newco and Merger Sub have all requisite power and
authority to enter into this Agreement and subject to the receipt of the Parent
Required Statutory Approvals (as defined in Section 5.3(c)) and the Parent
Shareholders' Approvals (as defined in Section 5.10), to consummate the Merger,
the Scheme and related transactions contemplated hereby. The execution and
delivery of this
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Agreement and the consummation of the transactions contemplated hereby have been
duly authorized by all necessary corporate action on the part of Parent, Newco
and Merger Sub, subject to obtaining Parent Shareholders' Approvals. This
Agreement has been duly and validly executed and delivered by Parent, Newco and
Merger Sub and, assuming the due authorization, execution and delivery hereof by
the other signatories hereto, constitutes the valid and binding obligation of
Parent, Newco and Merger Sub enforceable against such parties in accordance with
its terms, except as enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, fraudulent conveyance, moratorium or other similar
laws affecting or relating to the enforcement of creditors rights generally or
general principles of equity (regardless of whether enforcement is considered in
a proceeding at law or in equity).
(b) Non-Contravention. Except as set forth in Section 5.3(b) of the Parent
Disclosure Schedule, the execution and delivery of this Agreement by Parent,
Newco and Merger Sub does not, and the consummation of the transactions
contemplated hereby shall not, result in a Violation pursuant to any provisions
of (i) the charter, by-laws or similar governing documents of Parent or any of
the Parent Subsidiaries or Newco or Merger Sub, (ii) subject to obtaining Parent
Required Statutory Approvals and the receipt of Parent Shareholders' Approvals,
any statute, law, ordinance, rule, regulation, judgment, decree, order,
injunction, writ, permit or license of any Governmental Authority applicable to
Parent or any of the Parent Subsidiaries or Newco or Merger Sub or any of their
respective properties or assets or (iii) subject to obtaining the third- party
consents set forth in Section 5.3(b) of the Parent Disclosure Schedule (the
"Parent Required Consents"), any note, bond, mortgage, indenture, deed of trust,
license, franchise, permit, concession, contract, lease or other instrument,
obligation or agreement of any kind to which Parent or any of the Parent
Subsidiaries or Newco or Merger Sub is a party or by which they or any of their
respective properties or assets may be bound or affected, except in the case of
clause (ii) or (iii) above for any such Violation which could not reasonably be
expected to have a material adverse effect on the business, assets, condition
(financial or otherwise), current or reasonably anticipated future results of
operations of Parent and the Parent Subsidiaries, taken as a whole, or on
Parent's ability to consummate the Merger (a "Parent Material Adverse Effect").
(c) Statutory Approvals. No declaration, filing orwith, or notice to or
authorization, consent or approval of, any Governmental Authority is necessary
for the execution and delivery of this Agreement by Parent, Newco and Merger Sub
or the consummation by Parent, Newco and Merger Sub of the transactions
contemplated hereby except as described in Section 5.3(c) of the Parent
Disclosure Schedule (the "Parent Required Statutory Approvals"). References in
this Agreement to "obtaining" such Parent Required Statutory Approvals shall
mean making such declarations, filings or registrations, giving such notices,
obtaining such authorizations, consents or approvals, and having such waiting
periods expire as are necessary to avoid a violation of law.
(d) Compliance. Except as set forth in Section 5.3(d), Section 5.6 and
Section 5.9 of the Parent Disclosure Schedule, or as disclosed in the Parent SEC
Reports (as defined in Section 5.4) filed prior to the date hereof, neither
Parent nor any of the Parent Subsidiaries is in violation of, is under
investigation with respect to any violation of, or has been given notice or been
charged with any violation of, any law, statute, order, rule, regulation,
ordinance or judgment (excluding any applicable Environmental Laws, compliance
with which is the subject of Section 5.9) of any Governmental Authority, except
for possible violations which individually or in the aggregate could not
reasonably be expected to have a Parent Material Adverse Effect. Except as set
forth in Section 5.3(d) of the Parent Disclosure Schedule, or as expressly
disclosed in the Parent SEC Reports or Parent Disclosure Documents, Parent and
the Parent Subsidiaries have all permits, licenses, franchises and other
governmental authorizations, consents and approvals necessary to conduct their
businesses as presently conducted which are material to the operation of the
businesses of Parent and the Parent Subsidiaries. Except as set forth in
Section 5.3(d) of the Parent Disclosure Schedule, each of Parent and the Parent
Subsidiaries is not in breach or violation of or in default in the performance
or observance of any term or provision of, and no event has occurred which, with
the lapse of time or action by a third party, could result in a default by
Parent or any Parent Subsidiary under (i) their respective charters or by-laws
or (ii) any contract, commitment, agreement, indenture,
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mortgage, loan agreement, note, lease, bond, license, approval or other
instrument to which they are a party or by which Parent or any Parent Subsidiary
is bound or to which any of their property is subject, except for possible
violations, breaches or defaults which individually or in the aggregate could
not reasonably be expected to have a Parent Material Adverse Effect.
Section 5.4 REPORTS AND FINANCIAL STATEMENTS. (a) All material filings
required to be made by Parent and the Parent Subsidiaries since January 1, 1995
under the Securities Act, the Exchange Act, the 1935 Act, the Power Act, and
applicable state public utility laws and regulations have been filed with the
SEC, the FERC, the NRC, the FCC, the DOE or the appropriate state public
utilities commission, as the case may be, including all forms, statements,
reports, agreements (oral or written) and all documents, exhibits, amendments
and supplements appertaining thereto, and complied, as of their respective
dates, in all material respects with all applicable requirements of the
appropriate statutes and the rules and regulations thereunder. Parent has made
available to the Company a true and complete copy of each report, schedule,
registration statement and definitive proxy statement filed with the SEC by
Parent pursuant to the requirements of the Securities Act or Exchange Act since
October 7, 1999 (as such documents have since the time of their filing been
amended, the "Parent SEC Reports"). As of their respective dates, the Parent SEC
Reports did not contain any untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. The audited consolidated financial statements and unaudited
interim financial statements of Parent included in the Parent SEC Reports
(collectively, the "Parent Financial Statements") complied as to form in all
material respects with the published rules and regulations of the SEC with
respect thereto, were prepared in accordance with generally accepted accounting
principles in the United Kingdom applied on a consistent basis during the
periods involved (except as may be indicated therein or in the notes thereto and
except with respect to unaudited statements) and fairly present (subject, in the
case of the unaudited interim financial statements, to normal, recurring
year-end audit adjustments (which are not expected to be, individually or in the
aggregate, materially adverse to Parent and Parent Subsidiaries taken as a
whole)) the consolidated financial position of Parent and its consolidated
subsidiaries as at the dates thereof and the consolidated results of operations
and cash flows for the periods then ended. True, accurate and complete copies of
the memorandum and articles of association of Parent, as in effect on the date
hereof, are included (or incorporated by reference) in the Parent SEC Reports.
(b) All material filings required to be made by Parent or any Parent
Subsidiaries since March 31, 1996 in the United Kingdom under the Electricity
Act 1989, have been filed with the Office of Gas and Electricity Markets
("OFGEM") or any other appropriate Governmental Authority, as the case may be,
including all material forms, statements, reports, agreements and all material
documents, exhibits, amendments and supplements appertaining thereto, including
but not limited to all material rates, tariffs, franchises, service agreements
and related documents, complied, as of their respective dates, in all material
respects with all applicable requirements of the statute and the rules and
regulations thereunder.
Section 5.5 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as disclosed in
the Parent SEC Reports filed prior to the date hereof or as set forth in
Section 5.5 of the Parent Disclosure Schedule, since March 31, 2000, Parent and
each of the Parent Subsidiaries have conducted their business only in the
ordinary course of business consistent with past practice and there has not
been, and no fact or condition exists which has had or could reasonably be
expected to have a Parent Material Adverse Effect.
Section 5.6 LEGAL PROCEEDINGS. Except as disclosed in the Parent SEC
Reports filed prior to the date hereof or as set forth in Section 5.6,
Section 5.8 or Section 5.9 of the Parent Disclosure Schedule, (a) there are no
claims, suits, actions or proceedings by any court, governmental department,
commission, agency, instrumentality or authority or any arbitrator, pending or,
to the knowledge of Parent, threatened, nor are there, to the knowledge of
Parent, any investigations or reviews by any court, governmental department,
commission, agency, instrumentality or authority or any arbitrator pending or
threatened against, relating to or affecting Parent or any of the Parent
Subsidiaries, which would have a Parent Material Adverse Effect, (b) there have
not been any significant developments since March 31, 2000 with respect to such
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disclosed claims, suits, actions, proceedings, hearings, investigations, audits
or reviews that would have a Parent Material Adverse Effect and (c) there are no
judgments, decrees, injunctions, rules or orders of any court, governmental
department, commission, agency, instrumentality or authority or any arbitrator
applicable to Parent or any of the Parent Subsidiaries, except for such that
could not reasonably be expected to have a Parent Material Adverse Effect.
Section 5.7 INFORMATION SUPPLIED. (a) The Parent Disclosure Documents (as
defined in Section 4.8(b)) will, at all relevant times, include (i) all
information relating to Parent, and information which is within the knowledge of
each of the directors of Parent (or which it would be reasonable for them to
obtain by making inquiries) or (ii) all information relating to Newco and
information which is within the knowledge of each of the directors of Newco (or
which it would be reasonable for them to obtain by making inquiries), which, in
each case, is required to enable the Parent Disclosure Documents and the parties
hereto to comply in all material respects with all United Kingdom statutory and
other legal and regulatory provisions (including, without limitation, the
Companies Act, the FSA, and the rules and regulations made thereunder, and the
rules and requirements of the UK Listing Authority) and all such information
contained in the Circular and Scheme Document will be in accordance with the
facts and will not omit anything likely to affect the import of such
information.
(b) None of the information supplied or to be supplied by or on behalf of
Parent, Newco or Merger Sub for inclusion or incorporation by reference in
(i) the Registration Statement (as defined in Section 4.8(a)) will, at the time
the Registration Statement is filed with the SEC and at the time it becomes
effective under the Securities Act, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading and (ii) the Proxy
Statement (as defined in Section 4.8(a)) will, at the dates mailed to the
Company shareholders and at the times of the Company Meeting (as defined in
Section 7.4(b)), contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they are
made, not misleading. The Registration Statement and the Proxy Statement
included therein shall comply as to form in all material respects with the
provisions of the Securities Act and the Exchange Act and the rules and
regulations thereunder.
(c) Notwithstanding the foregoing provisions of this Section 5.7, no
representation or warranty is made by Parent, Newco or Merger Sub with respect
to statements made or incorporated by reference in the Registration Statement,
the Proxy Statement or the Parent Disclosure Documents based on information
supplied by the Company for inclusion or incorporation by reference therein or
based on information which is not made in or incorporated by reference in such
documents but which should have been disclosed pursuant to this Section 5.7.
Section 5.8 TAX MATTERS.
(a) Newco, Merger Sub, Parent and the Parent Subsidiaries have filed all
material Tax Returns required to be filed by it, or requests for extensions to
file such Tax Returns have been timely filed or granted and have not expired and
all Tax Returns are complete and accurate in all material respects. Newco,
Merger Sub, Parent and the Parent Subsidiaries have paid (or Parent, if
applicable, has paid on their behalf) all Taxes shown as due on such Tax
Returns. The most recent financial statements contained in the Parent SEC
Reports reflect an adequate reserve for all Taxes payable by Parent and the
Parent Subsidiaries for all taxable periods and portions thereof accrued through
the date of such financial statements, and no deficiencies for any Taxes have
been proposed, asserted or assessed against Newco, Merger Sub, Parent or any of
the Parent Subsidiaries that are not adequately reserved for, except for
inadequately reserved Taxes and inadequately reserved deficiencies that would
not, individually or in the aggregate, have a Parent Material Adverse Effect. No
requests for waivers of the time to assess any taxes against Newco, Merger Sub,
Parent or any of the Parent Subsidiaries have been granted or are pending,
except for requests with respect to such Taxes that, to the extent not
adequately reserved, the assessment of which would not, individually or in the
aggregate, have a Parent Material Adverse Effect.
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(b) Neither Newco, Parent nor any of the Parent Subsidiaries has taken any
action or has any knowledge of any fact or circumstance that is reasonably
likely to (i) prevent the Merger and the Scheme taken together from qualifying
as a transaction described in Section 351 of the Code or (ii) cause the Merger
to be subject to Code Section 367(a)(1).
(c) On the Closing Date, Newco will directly own the whole of the issued
share capital of Merger Sub.
Section 5.9 ENVIRONMENTAL PROTECTION.
Except as would not, in the aggregate, reasonably be expected to have a
Parent Material Adverse Effect, and except as set forth in Section 5.9(a) of the
Parent Disclosure Schedule or in the Parent SEC Reports,
(a) Compliance. To Parent's knowledge, Parent and the Parent Subsidiaries
are in substantial compliance with all applicable Environmental Laws and the
terms and conditions of all applicable Environmental Permits, and neither Parent
nor any of the Parent Subsidiaries has received any written notice from
Governmental Authority that alleges that Parent or any of the Parent
Subsidiaries is not in such compliance with applicable Environmental Laws or the
terms and conditions of all such Environmental Permits;
(b) Environmental Claims/Releases. There are no Environmental Claims, to
Parent's knowledge, pending or threatened: (i) against Parent or any of the
Parent Subsidiaries; (ii) against any person or entity whose liability for any
Environmental Claim Parent or any of the Parent Subsidiaries has retained or
assumed either contractually or by operation of Environmental Law;
(iii) against any properties or operations that Parent or any of the Parent
Subsidiaries owns; or (iv) as the result of a Release of Hazardous Materials in
contravention of applicable Environmental Laws, at any properties or operations
that Parent or any of the Parent Subsidiaries owns.
(c) Parent Representations. Notwithstanding any other representations and
warranties in this Article V, the representations and warranties contained in
this Section 5.9 constitute the sole representations and warranties of the
Parent with respect to any Environmental Law, Environmental Permit,
Environmental Claim, Releases or Hazardous Material.
Section 5.10 VOTES REQUIRED. (a) The only votes of the holders of any
class of shares of Parent that are required to approve (i) the Merger and other
transactions contemplated thereby are the affirmative vote of a majority of such
ordinary shareholders of Parent as (being entitled to do so) are present in
person and vote (or, in the case of a vote taken on a poll, the affirmative vote
by shareholders representing a majority of the Parent Ordinary Shares in respect
of which votes were validly exercised) (the "Parent Merger Shareholders'
Approval") at a general meeting of Parent Shareholders in relation to the Merger
and other transactions contemplated hereby (the "Parent Merger Meeting") and
(ii) the Scheme and other transactions contemplated thereby are, (x) at the
meeting of Parent shareholders convened by an order of the Court (the "Parent
Court Meeting"), the affirmative vote of a majority in number representing 75
percent of the value of Parent Ordinary Shares present and voting (either in
person or by proxy) and (y) with respect to approval of the Scheme resolutions
at an extraordinary general meeting of Parent shareholders (the "Parent Scheme
Meeting"), the affirmative vote of 75 percent of ordinary shareholders of Parent
as (being entitled to do so) are present in person and vote (or, on the case of
a vote taken on a poll, the affirmative vote by shareholders representing 75
percent of the Parent Ordinary Shares in respect of which votes were validly
exercised) (together, the "Parent Scheme Shareholders' Approval" and with the
Parent Merger Shareholders' Approval, the "Parent Shareholders' Approvals").
(b) Newco and Merger Sub have received all necessary approvals, if any, from
their respective shareholders required to consummate the transactions
contemplated hereby.
Section 5.11 BROKERS. Except as relates to the services provided by
Rothschild, Inc. as financial advisor to Parent, all negotiations relative to
the Scheme and the Merger and the transactions contemplated hereby have been
carried out by Parent and Newco directly with the Company, without the
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intervention of any person on behalf of Parent or Newco in such manner as to
give rise to any valid claim by any person against the Company, Parent, Newco or
any of their respective Subsidiaries for a finder's fee, brokerage commission or
similar payment.
Section 5.12 INSURANCE. Except as set forth in Section 5.12(b) of Parent
Disclosure Schedule, neither Parent nor any of the Parent Subsidiaries has
received any notice of cancellation or termination with respect to any material
insurance policy of Parent or any of the Parent Subsidiaries.
Section 5.13 OWNERSHIP OF COMPANY COMMON STOCK. None of Parent or Newco
nor any of their Subsidiaries beneficially own any shares of Company Common
Stock.
ARTICLE VI
CONDUCT OF BUSINESS PENDING THE MERGER
Section 6.1 COVENANTS OF THE COMPANY. After the date hereof and prior to
the Merger Effective Time or earlier termination of this Agreement, the Company
agrees as follows, each as to itself and to each of the Company Subsidiaries,
except as expressly contemplated or permitted in this Agreement or as set forth
in Section 6.1 of the Company Disclosure Schedule or to the extent Parent shall
otherwise consent in advance in writing, which decision regarding consent shall
be made as soon as reasonably practical:
(a) Ordinary Course of Business. The Company shall, and shall cause the
Company Subsidiaries to, carry on their respective businesses in the usual,
regular and ordinary course in substantially the same manner as heretofore
conducted and use all commercially reasonable efforts to preserve intact their
respective present business organizations and goodwill, preserve the goodwill
and relationships with customers, suppliers and others having business dealings
with it and, subject to prudent management of work force needs and ongoing
programs currently in force, keep available the services of their respective
present officers and employees. The Company shall not, and shall not permit the
Company Subsidiaries to, enter into a new line of business involving any
investment of assets or resources or any exposure to liability or loss to the
Company and the Company Subsidiaries taken as a whole; provided, however, that
notwithstanding the above and notwithstanding any other provision in
Section 6.1, the Company and any of the Company Subsidiaries may make equity
infusions into a Company Subsidiary to the extent required by law or a state
regulatory commission.
(b) Dividends. The Company shall not, and shall not permit any of the
Company Subsidiaries to: (i) declare or pay any dividends on or make other
distributions in respect of any of their respective capital stock except (A) to
the Company or the Company Subsidiaries, (B) Company Subsidiaries may continue
the declaration and payment of regularly scheduled dividends on, and
distributions required by the terms of, preferred stock or similar securities
not convertible into common equity securities ("Non-Convertible Preferred
Securities") (ii) split, combine or reclassify any of their respective capital
stock or issue or authorize or propose the issuance of any other securities in
respect of, in lieu of, or in substitution for, shares of their respective
capital stock or (iii) redeem, repurchase or otherwise acquire any shares of
their respective capital stock, other than (x) for the purpose of funding
employee stock ownership plans and dividend reinvestment programs in accordance
with past practice and (y) redemptions, purchases or acquisitions required by
the terms of any Non-Convertible Preferred Securities of Company Subsidiaries.
(c) Issuance of Securities. The Company shall not, nor shall it permit any
of its Subsidiaries to issue or sell, or authorize or propose the issuance or
sale of, any shares of its capital stock or any option with respect thereto
(other than (i) the issuance of options or awards pursuant to the Company Share
Plans in accordance with their present terms and only in connection with the
hiring of new employees, and the issuance of shares of Company capital stock
upon exercise of such options or awards or (ii) the issuance by a wholly owned
Subsidiary of its capital stock to its direct or indirect parent corporation, or
modify or amend any right of any holder of outstanding shares of capital stock
or options with respect thereto).
(d) Charter Documents. The Company shall not amend or propose to amend its
charter or by-laws except as contemplated herein.
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(e) No Acquisitions. The Company shall not, nor shall it permit any of the
Company Subsidiaries to, acquire (by merging or consolidating with, or by
purchasing a substantial equity interest in or substantial portion of the assets
of, or by any other manner) any business or any corporation, partnership,
association or other business organization or division thereof or otherwise
acquire or agree to acquire any assets other than in the ordinary course of its
business consistent with past practice.
(f) No Dispositions. Except for dispositions in the ordinary course of
business consistent with past practice, the Company shall not, and it shall not
permit any of the Company Subsidiaries to, sell, lease (whether such lease is an
operating or capital lease), encumber or otherwise dispose of, or agree to sell,
lease, encumber or otherwise dispose of, any of its assets.
(g) Limitation on Investment in Joint Ventures. Except as required by
applicable law or any agreement to which the Company or any of the Company
Subsidiaries is a party on the date hereof, the Company will not make, and will
not permit any Subsidiary to make, any additional investments in, or loans or
capital contributions to, or to undertake any guaranties or other obligations
with respect to any joint venture or partnership.
(h) Tax-Exempt Status. The Company shall not, and the Company shall not
permit any of the Company Subsidiaries to, take any action that (or fail to take
any action if such failure) could reasonably be expected to jeopardize the
qualification of the Company's outstanding revenue bonds which qualify on the
date hereof under Section 142(a) of the Code as "exempt facility bonds" or as
tax-exempt pollution control bonds under Section 103(b) (4) of the Internal
Revenue Code of 1954, as amended, prior to the Tax Reform Act of 1986.
(i) Tax Matters. Neither the Company nor any of its Subsidiaries shall
(i) make or rescind any material express or deemed election relating to Taxes or
grant any power of attorney with respect to any Tax matters, (ii) make a request
for a Tax Ruling or enter into a Closing Agreement, (iii) settle or compromise
any material claim, action, suit, litigation, proceeding, arbitration,
investigation, audit or controversy relating to Taxes, or (iv) change in any
material respect any of its methods of reporting income or deductions for
federal income tax purposes from those employed in the preparation of its
federal income tax return for the taxable year ending December 31, 1998, (in
each case, a "Tax Change"); except for Tax Changes (A) required by applicable
law, (B) with respect to any Tax period that involve Tax issues where the amount
of income, gain, loss, deduction, credit, gross receipts, property value or any
similar item does not exceed $75,000,000 with respect to such Tax period (or
more than $75,000,000 in any subsequent Tax period); provided that, the Company
has informed and consulted with Parent and Newco prior to making such Tax Change
or (C) that are made with the written consent of Parent, which consent will not
be unreasonably withheld. Notwithstanding the requirements of this
Section 6.1(i), any Tax Change relating to the Nuclear Sale shall not be subject
to this Section 6.1(i). The Company agrees to consult with and inform Parent and
Newco of any events that are reasonably likely to result in a Tax Change
relating to the Nuclear Sale and shall not make any such Tax Change without such
consultation.
(j) Capital Expenditures. Except (i) as required by law, or (ii) as
reasonably deemed necessary by the Company after consulting with Parent
following a catastrophic event, such as a major storm, the Company shall not,
and the Company shall not permit any of the Company Subsidiaries to, make
capital expenditures during any fiscal year, except for capital expenditures
incurred by Niagara Mohawk Power Corp. not in excess of 110% of the amount
budgeted for such fiscal year by the Company for capital expenditures as set
forth in Section 6.1 of the Company Disclosure Schedule.
(k) Indebtedness. The Company shall not, nor shall it permit any of its
Subsidiaries to incur or guarantee any indebtedness (including any debt borrowed
or guaranteed or otherwise assumed, including, without limitation, the issuance
of debt securities or warrants or rights to acquire debt) or enter into any
"keep well" or other agreement to maintain any financial condition of another
Person or enter into any arrangement having the economic effect of any of the
foregoing other than (i) short-term indebtedness in the ordinary course of
business consistent with past practice (such as the issuance of commercial paper
or the use of existing credit facilities) in amounts not exceeding the amounts
set forth in Section 6.1 of the
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Company Disclosure Schedule, except as reasonably deemed necessary by the
Company after consulting with Parent following a catastrophic event,
(ii) long-term indebtedness in connection with the refinancing of existing
indebtedness either at its stated maturity or at a lower cost of funds
(calculating such cost on an aggregate after-tax basis) or (iii) guarantees or
"keep well" agreements in favor of wholly owned Subsidiaries of the Company in
connection with the conduct of the business of such wholly owned Subsidiaries of
the Company.
(l) Compensation, Benefits. Except as set forth in Section 6.1 of the
Company Disclosure Schedule or as may be required by applicable law or as
contemplated by this Agreement, the Company shall not, and the Company shall not
permit any Company Subsidiary to, enter into or amend or increase the amount or
accelerate the payment or vesting or termination of any benefit or amount
payable under any employee benefit or compensation plan or other contract,
agreement, commitment, arrangement, plan, trust, fund or policy maintained by,
contributed to or entered into by the Company or any Company Subsidiary or
increase, or enter into any contract, agreement, commitment or arrangement to
increase in any manner, the compensation or fringe benefits, or otherwise to
extend, expand or enhance the term of employment, compensation or benefits of
any former, present or future director, officer or employee of the Company or
any Company Subsidiary, except for increases and accelerations that are made in
the ordinary course of business consistent in process and amounts with the past
practice or that are otherwise required pursuant to the current terms of the
Company Employee Benefit Plans, which in the aggregate for any group of
employees, officers or directors, do not result in a material increase in
benefits or compensation expense as of the effective date of this Agreement and
which would not result in (i) any material change in the amount of compensation
which will fail to be deductible for federal income tax purposes by virtue of
Section 280G or Section 162(m) of the Code or (ii) an acceleration or material
increase in "parachute payments" set forth in Section 4.10(a) of the Company
Disclosure Schedule as of the effective date of this Agreement.
Notwithstanding the foregoing, the Company shall not and the Company shall
not permit any Company Subsidiary to adopt, establish, enter into or implement
any new employee plan, benefit or compensation program or policy, or any new
employment, severance or retention agreement, or other new contract, agreement
or arrangement which would provide for any form of benefits or other
compensation, or pay any compensation or benefits to any former, present, or
future director, officer or employee of the Company or any Company Subsidiary
which was not in effect as of the effective date of this Agreement; provided,
however, that this sentence shall not apply to any such compensation or benefits
(A) provided pursuant to a collective bargaining agreement or arrangement
described in Section 6.1(m) or a discharge of liability permitted in
Section 6.1(t), (B) provided pursuant to any compensation or benefit plan,
program or arrangement that is mutually agreed to, in writing, by the parties or
(C) that are otherwise required pursuant to the current terms of the Company
Employee Benefit Plans; provided further, that nothing in this Section 6.1(l)
shall prevent the Company from entering into severance agreements intended
solely to implement the terms of severance policies or programs in effect on the
date hereof or from entering into retention or other arrangements as described
in Section 6.1 of the Company Disclosure Schedule.
(m) Labor Matters. Notwithstanding any other provision of this Agreement to
the contrary, the Company or the Company Subsidiaries may negotiate successor
collective bargaining agreements to those referenced in Section 4.11(a) of the
Company Disclosure Schedule. The Company shall keep Parent informed as to the
status of, and shall consult with Parent as to the strategy for, all material
negotiations with collective bargaining representatives. The Company and Company
Subsidiaries shall act reasonably, consistent with their obligations under
applicable law in such negotiations.
(n) 1935 Act. The Company shall not, and the Company shall not permit any of
the Company Subsidiaries to, except as required or contemplated by this
Agreement, engage in any activities which would cause a change in its status, or
that of the Company Subsidiaries, under the 1935 Act.
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(o) Accounting. The Company shall not, and the Company shall not permit any
of the Company Subsidiaries to, make any changes in their accounting methods,
except as required by law, rule, regulation or US GAAP or except as mutually
agreed to by the parties.
(p) Affiliate Transactions. The Company shall not permit any of the Company
Subsidiaries to, enter into any material agreement or arrangement with any of
their respective Affiliates (other than wholly owned Subsidiaries), on terms
less favorable to such party than could be reasonably expected to have been
obtained with an unaffiliated third-party on an arm's length basis.
(q) Rate Matters. Subject to applicable law and except for non-material
filings in the ordinary course of business consistent with past practice, the
Company shall consult with Parent prior to initiating any proposed changes in
its or any of the Company Subsidiaries' rates or charges (other than automatic
cost pass-through rate adjustment clauses), standards of service or accounting
or executing any agreement with respect thereto that is otherwise permitted
under this Agreement. The Company shall, and shall cause the Company
Subsidiaries to, deliver to Parent a copy of each filing or agreement related to
rates, changes, standards of service, accounting or regulatory policy which
could lead to a material change in any of those areas at least four days prior
to the filing or execution thereof so that Parent may comment thereon. The
Company shall, and shall cause its Subsidiaries to, make all such filings only
in the ordinary course of business (i) consistent with past practice or (ii) as
required by a Governmental Authority or regulatory agency with appropriate
jurisdiction or under existing settlement agreements to which the Company is a
party.
(r) Contracts. The Company shall not, and the Company shall not permit any
of the Company Subsidiaries to, except in the ordinary course of business
consistent with past practice, modify, amend, terminate, renew or fail to use
commercially reasonable efforts to renew any contract or agreement to which the
Company or the Company Subsidiary is a party, which is material to the Company
and the Company Subsidiaries taken as a whole, to waive, release or assign any
material rights or claims therein, or agree to any provisions thereof which
would impede the ability of the Company to consummate the Merger, or in respect
of which the Merger would constitute a default, or would result in the Merger
triggering a right of termination by any unaffiliated parties.
(s) Insurance. The Company shall, and shall cause the Company Subsidiaries
to, maintain with financially responsible insurance companies insurance in such
amounts and against such risks and losses as are consistent with the insurance
maintained by the Company in the ordinary course of business in accordance with
past practice.
(t) Discharge of Liabilities. The Company shall not, and the Company shall
not permit any of the Company Subsidiaries to, pay, settle, discharge or satisfy
any claims, liabilities or obligations (absolute, accrued, asserted or
unasserted, contingent or otherwise and whether criminal, civil or
administrative in nature) material to the Company and the Company Subsidiaries
taken as a whole, other than the payment, discharge or satisfaction, in the
ordinary course of business consistent with past practice (which includes the
payment of final and unappealable judgments) or in accordance with their terms,
of liabilities reflected or reserved against in, or contemplated by, the most
recent consolidated financial statements (or the notes thereto) of the Company
included in the Company's reports filed with the SEC, or incurred in the
ordinary course of business consistent with past practice.
(u) Third Party Standstill Agreements. During the period from the date of
this Agreement through the Merger Effective Time, neither the Company nor any of
the Company Subsidiaries shall terminate, amend, modify or waive any provision
of any standstill agreement or any standstill provisions of other agreements to
which it is a party. During such period, the Company shall take all appropriate
steps to enforce the provisions of any such agreement.
(v) Cooperation, Notification. The Company shall (i) confer on a regular and
frequent basis with one or more representatives of Parent to discuss, subject to
applicable law, material business and operational matters and the general status
of its ongoing operations, (ii) promptly notify Parent of any material
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changes in its business, properties, assets, condition (financial or other),
results of operations or prospects, (iii) promptly advise Parent of any change
or event which has had or, insofar as reasonably can be foreseen, is reasonably
likely to result in a Company Material Adverse Effect and (iv) promptly provide
Parent with copies of all filings made by the Company or any of the Company
Subsidiaries with any state or federal court, administrative agency, commission
or other Governmental Authority in connection with this Agreement and the
transactions contemplated hereby.
(w) Third-Party Consents. The Company shall, and shall cause the Company
Subsidiaries to, use all commercially reasonable efforts to obtain all the
Company Required Consents. The Company shall promptly notify Parent of any
failure or prospective failure to obtain any such consents and, if requested by
Parent, shall provide copies of all the Company Required Consents obtained by
the Company to Parent.
(x) Tax-Free Status. The Company shall not, nor shall it permit any of its
Subsidiaries to, take any actions that would or would be reasonably likely to,
(i) adversely affect the status of the Merger and the Scheme taken together as a
transaction described in Section 351 of the Code or (ii) cause the Merger to be
subject to Code Section 367(a)(1), and the Company shall use all reasonable
efforts to achieve such result.
(y) No Breach, Etc. The Company shall not, and the Company shall not permit
any of the Company Subsidiaries to, willfully take any action that would or is
reasonably likely to result in a material breach of any provision of this
Agreement or in any of its representations and warranties set forth in this
Agreement being untrue in a material respect on and as of the Closing Date.
Section 6.2 COVENANTS OF PARENT. After the date hereof and prior to the
Merger Effective Time or earlier termination of this Agreement, Parent agrees as
follows, as to itself and to each of the Parent Significant Subsidiaries, except
as expressly contemplated or permitted in this Agreement, or as set forth in
Section 6.2 of the Parent Disclosure Schedule or to the extent the Company shall
otherwise consent in writing, which decision regarding consent shall be made as
soon as reasonably practical (as used herein, the term "Parent Significant
Subsidiary" shall mean any Parent Subsidiary that constitutes a "significant
subsidiary" within the meaning of Rule 1-02(w)(3) of Regulation S-X of the US
Securities and Exchange Commission):
(a) Ordinary Course of Business. Parent shall cause the Parent Significant
Subsidiaries to carry on their respective businesses in the usual, regular and
ordinary course in substantially the same manner as heretofore conducted and use
all commercially reasonable efforts to preserve intact their respective present
business organizations and goodwill, preserve the goodwill and relationships
with customers, suppliers and others having business dealings with them. Parent
shall not, and shall not permit the Parent Significant Subsidiaries to enter
into a new line of business involving any material investment of assets or
resources or any material expense, liability or loss to the Parent and the
Parent Significant Subsidiaries taken as a whole; it being agreed that the
limitations contained in this Section 6.2(a) do not limit the Parent or any of
the Parent Significant Subsidiaries from entering into any line of business in
which Parent or any of the Parent Significant Subsidiaries or any of its other
affiliates is engaged on the date of this Agreement.
(b) Certain Mergers. Parent shall not, and shall not permit any of its
Subsidiaries to, acquire or agree to acquire by merging or consolidating with,
or by purchasing a substantial portion of the assets of or equity in, or by any
other manner, any business or any corporation, partnership, association or other
business organization or division thereof, or otherwise acquire or agree to
acquire any assets if the entering into of a definitive agreement relating to or
the consummation of such acquisition, merger or consolidation could reasonably
be expected to materially delay the consummation of the Merger.
(c) Tax-Free Status. Parent shall not, nor shall it permit any of its
Subsidiaries to, take any actions that would, or would be reasonably likely to,
(i) adversely affect the status of the Merger and the Scheme taken together as a
transaction described in Section 351 of the Code or (ii) cause the Merger to be
subject to Code Section 367(a)(1), and Parent shall use all reasonable efforts
to achieve such result.
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(d) Other Actions. Parent shall not, and shall not permit any of the Parent
Subsidiaries to, take or fail to take any other action, including, without
limitation, amending or proposing to amend their respective charters, by-laws or
regulations, or similar organic documents (except as contemplated herein),
engage in any activities which would cause a change in its status, or that of
the Parent Subsidiaries, under the 1935 Act, or to make any changes in their
accounting methods (except as required by law, rule, regulation or applicable
generally accepted accounting principles), which would reasonably be expected to
prevent or materially impede, interfere with or delay the Merger or the Scheme.
(e) Cooperation, Notification. Parent shall confer on a regular and frequent
basis with the Company to discuss, subject to applicable law, (i) any material
changes in its business, results of operations or prospects, and (ii) any change
or event which has had or, insofar as reasonably can be foreseen, is reasonably
likely to result in a Parent Material Adverse Effect or materially impair the
ability of Parent to consummate the Merger or the Scheme, and will promptly
provide the Company with copies of all filings made by Parent or any of the
Parent Subsidiaries with any state or federal court, administrative agency,
commission or other Governmental Authority in connection with this Agreement and
the transactions contemplated hereby.
(f) Third-Party Consents. Parent shall, and shall cause the Parent
Subsidiaries to, use all commercially reasonable efforts to obtain all Parent
Required Consents. Parent shall promptly notify the Company of any failure or
prospective failure to obtain any such consents and, if requested by the
Company, shall provide copies of all Parent Required Consents obtained by Parent
to the Company.
(g) No Breach, Etc. Parent shall not, and Parent shall not permit any of the
Parent Subsidiaries to, willfully take any action that would or is reasonably
likely to result in a material breach of any provision of this Agreement or in
any of its representations and warranties set forth in this Agreement being
untrue on and as of the Closing Date.
Section 6.3 COVENANTS OF NEWCO. (a) Prior to the Merger Effective Time
except as may be required by applicable law and subject to the other provisions
of this Agreement, Newco shall not engage, directly or indirectly, in any
business or activity of the type or kind, and not enter into any agreement or
arrangement with any person, or be subject to or bound by any obligation or
undertaking, which is inconsistent with this Agreement or the Scheme.
(b) Conduct of Business of Merger Sub. Prior to the Merger Effective Time,
except as may be required by applicable law and subject to the other provisions
of this Agreement, Newco shall cause Merger Sub to (i) perform its obligations
under this Agreement in accordance with its terms and (ii) not engage, directly
or indirectly, in any business or activity of the type or kind, and not enter
into any agreement or arrangement with any person, or be subject to or bound by
any obligation or undertaking, which is inconsistent with this Agreement.
Section 6.4 ALTERNATIVE ARRANGEMENT CONCERNING COMPANY NUCLEAR
FACILITIES. If, following the date hereof, the Company and Parent determine
that the Company Nuclear Facilities are likely to be sold but not on a timely
basis in order to satisfy the condition contained in Section 8.1(e)(i), the
Company and Parent agree to consider in good faith alternatives to a Nuclear
Sale prior to the Closing, including but not limited to alternative governance,
operational and ownership arrangements under which Parent would be willing and
able to close the transactions contemplated by this Agreement without the
Nuclear Sale having occurred, consistent with the requirements of the Atomic
Energy Act and applicable NRC rules and regulations.
ARTICLE VII
ADDITIONAL AGREEMENTS
Section 7.1 ACCESS TO INFORMATION. Upon reasonable notice, (a) the Company
shall, and shall cause its Subsidiaries to, afford the officers, directors,
employees, accountants, counsel, investment bankers,
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financial advisors and other representatives (collectively, "Representatives")
of Parent reasonable access, during normal business hours throughout the period
prior to the Merger Effective Time, to all of its properties, facilities,
operations, books, contracts, commitments and records (including, but not
limited to, Tax Returns and any information relating to any audits or other
examinations of such Tax Returns) and personnel (including the Company's
environmental, health and safety personnel) and (b) Parent shall, and shall
cause the Parent Significant Subsidiaries to, afford to the Representatives of
the Company, reasonable access to senior executives of Parent for the purpose of
discussing Parent's business (with reasonable access to the documents related
thereto) during the period prior to the Merger Effective Time. Each party shall,
and shall cause its Subsidiaries to, in addition to the advance approval
requirements set forth in Section 7.3(b), furnish promptly to the other
(a) access to each report, schedule and other document filed or received by it
or any of its Subsidiaries pursuant to the requirements of federal or state
securities laws or filed with or sent to the SEC, the FERC, the NRC, the DOE,
the Department of Justice, the Federal Trade Commission or any other federal or
state regulatory agency or commission that relates to the transactions
contemplated hereby or, subject to the terms of any then existing
confidentiality requirements, that is otherwise material to the financial
condition or operations of the Company and its Subsidiaries taken as a whole, or
to Parent and its Subsidiaries taken as a whole, as the case may be and
(b) access to all information concerning themselves, their Subsidiaries,
directors, officers and shareholders and such other matters as may be reasonably
requested by the other party in connection with any filings, applications or
approvals required or contemplated by this Agreement or for any other reason
related to the transactions contemplated by this Agreement. Each party shall,
and shall cause its Subsidiaries and Representatives to, hold in strict
confidence all documents and information concerning the other furnished to it in
connection with the transactions contemplated by this Agreement in accordance
with the Confidentiality Agreement, dated December 13, 1999, between the Company
and Parent (the "Confidentiality Agreement").
Section 7.2 PROXY STATEMENT AND REGISTRATION STATEMENT; LISTING; PARENT
DISCLOSURE DOCUMENTS.
(a) Preparation and Filing of Proxy Statement and the Registration
Statement; Listing. As soon as practicable after the date of this Agreement, the
Company shall, in cooperation with Parent and Newco, prepare and file the Proxy
Statement and Newco shall, in cooperation with the Company and Parent, prepare
and file the Registration Statement, in which the Proxy Statement will be
included as the prospectus. Parent, Newco and the Company shall cooperate in the
preparation of the Proxy Statement and the Registration Statement and any
amendments thereto and shall promptly notify each other of the receipt of any
comments from the SEC or any requests for any amendment or supplement thereto or
for additional information. The parties hereto shall each use reasonable efforts
to cause the Registration Statement to be declared effective under the
Securities Act as promptly as practicable after such filing. Each party hereto
shall also take such action as may be reasonably required to cause the Newco
ADRs issuable in connection with the Merger to be registered or to obtain an
exemption from registration under applicable state "blue sky" or securities
laws; provided, however, that Newco shall not be required to register or qualify
as a foreign corporation or to take other action which would subject it to
service of process in any jurisdiction where Newco will not be, following the
Merger, so subject. The parties shall cause the shares of Newco ADRs issuable in
the Merger to be approved for listing on the NYSE upon official notice of
issuance. Each of the parties hereto shall furnish all information concerning
itself which is required or customary for inclusion in the Proxy Statement and
the Registration Statement. The information provided by any party hereto for use
in the Proxy Statement and the Registration Statement shall be true and correct
in all material respects without omission of any material fact which is required
to make such information not false or misleading. No representation, covenant or
agreement is made by any party hereto with respect to information supplied by
any other party for inclusion in the Proxy Statement or the Registration
Statement.
(b) Letter of the Company's Accountants. The Company shall use its best
efforts to cause to be delivered to Parent and Newco a letter of
PricewaterhouseCoopers, dated a date within two business days
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before the date of the Registration Statement, and addressed to Parent and
Newco, in form and substance reasonably satisfactory to Parent and Newco and
customary in scope and substance for "cold comfort" letters delivered by
independent public accountants in connection with registration statements on
Form F-4.
(c) Letter of Parent's Accountants. Parent shall use best efforts to cause
to be delivered to the Company a letter of PricewaterhouseCoopers, dated a date
within two business days before the date of the Registration Statement, and
addressed to the Company, in form and substance reasonably satisfactory to the
Company and customary in scope and substance for "cold comfort" letters
delivered by independent public accountants in connection with registration
statements on Form F-4.
(d) Parent Disclosure Documents. Subject to applicable law, Parent and Newco
shall, as soon as reasonably practicable after the date of this Agreement and in
accordance with the listing rules of the UK Listing Authority, prepare and
submit to the UK Listing Authority for approval the Circular, and shall use its
reasonable endeavors to have the Circular approved by the UK Listing Authority
as soon as reasonably practicable after the date of this Agreement. Newco,
Parent and the Company shall cooperate with each other in the preparation of the
Parent Disclosure Documents and any amendments or supplements thereto as well as
the preparation of any responses to the UK Listing Authority in connection
therewith. Each of the parties hereto shall furnish all information concerning
itself which is required or customary for inclusion in the Parent Disclosure
Documents. Each of Newco, Parent and the Company agrees to use its reasonable
best efforts to respond promptly to any requests of the UK Listing Authority.
(e) Mailing to Shareholders. Each of the Company and Parent shall,
consistent with the requirements of the securities laws of the United States and
the United Kingdom, use their reasonable best efforts to cause the Proxy
Statement and the Circular to be mailed or dispatched to their respective
shareholders entitled to vote on the Merger and other transactions contemplated
hereby.
Section 7.3 REGULATORY MATTERS.
(a) HSR Filings. Each party hereto shall file or cause to be filed with the
Federal Trade Commission and the Department of Justice any notifications
required to be filed under the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended (the "HSR Act"), and the rules and regulations promulgated
thereunder with respect to the transactions contemplated hereby. Each party
hereto will use all commercially reasonable efforts to make such filings in a
timely manner and to respond on a timely basis to any requests for additional
information made by either of such agencies.
(b) Other Regulatory Approvals. Each party hereto shall cooperate and use
its best efforts to prepare and file promptly all necessary documentation, to
effect all necessary applications, notices, petitions, filings and other
documents, and to use all commercially reasonable efforts to obtain all
necessary permits, consents, approvals, clearance and authorizations of all
Governmental Authorities necessary or advisable to obtain the Company Required
Statutory Approvals and the Parent Required Statutory Approvals. The parties
agree that they will consult with each other with respect to obtaining the
Company Required Statutory Approvals and Parent Required Statutory Approvals;
provided, however, that it is agreed that Parent shall have primary
responsibility for the preparation and filing of any related applications,
filings or other material with Governmental Authorities other than the Nuclear
Approvals (as defined in Section 8.1(e)(ii)), with respect to which the Company
shall have primary responsibility. Each of Parent and the Company shall have the
right to review and approve in advance drafts and final applications, notices,
petitions, filings and other documents submitted to or filed with applicable
Governmental Authorities, which approval shall not be unreasonably withheld or
delayed. The Company shall not agree to the imposition of any condition in the
Company Required Statutory Approvals without the prior consent of Parent.
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Section 7.4 SHAREHOLDER APPROVAL.
(a) Approval of Parent Shareholders. Parent shall, through its Board of
Directors, (i) duly call, give notice of, convene and hold the Parent Merger
Meeting, for the purpose of securing the Parent Merger Shareholders' Approval as
soon as reasonably practicable after the date hereof and (ii) duly call, give
notice of, convene and hold the Parent Scheme Meeting and apply to the Court to
convene the Parent Court Meeting required to complete the Parent Scheme
Shareholders' Approval at such time as Parent determines is appropriate to
insure that the Parent Scheme Shareholders' Approval may be obtained not later
than forty days following satisfaction or waiver of the conditions set forth in
Article VIII hereof (other than the condition set forth in Section 8.2(h)).
Subject to its fiduciary obligations with respect to a transaction involving a
change in control of Parent and the requirements of applicable law, Parent shall
include in the Circular the recommendation of the Board of Directors of Parent
that the shareholders of Parent approve the Merger and the other transactions
contemplated hereby and shall include in the Scheme Document the recommendation
of the Board of Directors of Parent that the shareholders of Parent approve the
Scheme, and shall use its reasonable endeavors to obtain such approvals in
accordance with its usual practices.
(b) Approval of the Company Shareholders. The Company shall, through its
Board of Directors, duly call, give notice of, convene and hold a meeting of its
shareholders (the "Company Meeting"), for the purpose of securing the Company
Shareholders' Approval as soon as reasonably practicable after the date hereof.
Subject to fiduciary obligations and the requirements of applicable law, the
Company shall include in the Proxy Statement the recommendation of the Board of
Directors of the Company that the shareholders of the Company approve the Merger
and the other transactions contemplated hereby, and shall use its reasonable
best efforts to obtain such approval.
(c) Meeting Date for Merger Approvals. The Parent Merger Meeting for the
purpose of securing the Parent Merger Shareholders' Approval, and the Company
Meeting for the purpose of securing the Company Shareholders' Approval shall be
held on such dates as the Company and Parent shall mutually determine.
Section 7.5 DIRECTORS' AND OFFICERS' INDEMNIFICATION.
(a) Indemnification. To the extent, if any, not provided by an existing
right of indemnification or other agreement or policy, Newco shall, to the
fullest extent permitted by applicable law, indemnify, defend and hold harmless
(i) from and after the Merger Effective Time, each person who is now, or has
been at any time prior to the date hereof, or who becomes prior to the Merger
Effective Time, an officer, director or employee of the Company or any of the
Company Subsidiaries and (ii) from and after the Scheme Effective Time, each
person who is now, or who has been at anytime prior to the date hereof, or who
becomes prior to the Scheme Effective Time, an officer director or employee of
Parent (each an "Indemnified Party" and collectively, the "Indemnified Parties")
against (i) all losses, expenses (including reasonable attorneys' fees and
expenses), claims, damages or liabilities or, subject to the proviso of the next
succeeding sentence, amounts paid in settlement, arising out of actions or
omissions occurring at or prior to the Merger Effective Time or the Scheme
Effective Time, as the case may be (and whether asserted or claimed prior to, at
or after the Merger Effective Time or Scheme Effective Time, as the case may be)
that are, in whole or in part, based on or arising out of the fact that such
person is or was a director, officer or employee of such party (the "Indemnified
Liabilities"), and (ii) all Indemnified Liabilities to the extent they are based
on or arise out of or pertain to the transactions contemplated by this
Agreement. In the event of any such loss, expense, claim, damage or liability
(whether or not arising before the Merger Effective Time or the Scheme Effective
Time, as the case may be), (i) Newco shall pay the reasonable fees and expenses
of counsel selected by the Indemnified Parties, which counsel shall be
reasonably satisfactory to Newco, promptly after statements therefor are
received and otherwise advance to such Indemnified Party upon request
reimbursement of documented expenses reasonably incurred, (ii) Newco will
cooperate in the defense of any such matter and (iii) any determination required
to be made with respect to whether an Indemnified Party's conduct complies with
the standards set forth under relevant law and the
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memorandum of association or by-laws of Newco shall be made by independent
counsel mutually acceptable to Newco and the Indemnified Party; provided,
however, that Newco shall not be liable for any settlement effected without its
written consent (which consent shall not be unreasonably withheld). The
Indemnified Parties as a group may retain only one law firm with respect to each
related matter except to the extent there is, in the opinion of counsel to an
Indemnified Party, under applicable standards of professional conduct, a
conflict on any significant issue between positions of such Indemnified Party
and any other Indemnified Party or Indemnified Parties.
(b) Insurance. For a period of six years after the Merger Effective Time and
the Scheme Effective Time, Newco at Newco's election (i) shall cause to be
maintained in effect an extended reporting period for current policies of
directors' and officers' liability insurance for the benefit of such persons who
are currently covered by such policies of the Company or Parent on terms no less
favorable than the terms of such insurance coverage or (ii) provide tail
coverage for such persons which provides coverage for a period of six years for
acts prior to the Merger Effective Time or the Scheme Effective Time, as the
case may be, on terms no less favorable than the terms of such current insurance
coverage.
(c) Successors. In the event Newco or any of its successors or assigns
(i) consolidates with or merges into any other person or entity and shall not be
the continuing or surviving corporation or entity of such consolidation or
merger or (ii) transfers or conveys all or substantially all of its properties
and assets to any person or entity, then, and in each such case, proper
provision shall be made so that the successors and assigns of Newco shall assume
the obligations set forth in this Section 7.5 and in Sections 7.8 and 7.9.
(d) Survival of Indemnification. To the fullest extent permitted by law,
(i) from and after the Merger Effective Time, all rights to indemnification as
of the date hereof in favor of the employees, agents, directors and officers of
the Company and the Company Subsidiaries with respect to their activities as
such prior to the Merger Effective Time, as provided in the charter and by-laws
or similar governing documents in effect on the date thereof, or otherwise in
effect on the date hereof and disclosed to Newco in writing prior to the date
hereof, shall survive the Merger and shall continue in full force and effect for
a period of not less than six years from the Merger Effective Time and
(ii) from and after the Scheme Effective Time, all rights to indemnification as
of the date hereof in favor of the employees, agents, directors and officers of
Parent and the Parent Subsidiaries with respect to their activities prior to the
Scheme Effective Time, as provided in the memorandum or articles of association,
charter, by-laws or similar governing documents on the date thereof, or
otherwise in effect on the date hereof and disclosed to Newco in writing prior
to the date hereof, shall survive the Scheme and shall continue in full force
and effect for a period of not less than six years from the Scheme Effective
Time.
(e) Benefit. The provisions of this Section 7.5 are intended to be for the
benefit of, and shall be enforceable by, each Indemnified Party, his or her
heirs and his or her representatives and (ii) are in addition to, and not in
substitution for, any other rights to indemnification that such person may have
by contract or otherwise.
Section 7.6 PUBLIC ANNOUNCEMENTS. Except as otherwise required by law or
the rules of any applicable securities exchange or national market system or any
other Governmental Authority, so long as this Agreement is in effect, Newco,
Parent and the Company will not, and will not permit any of their respective
Subsidiaries or Representatives to, issue or cause the publication of any press
release or make any other public announcement with respect to the Merger and
other transactions contemplated by this Agreement without the prior consent of
the other party, which consent shall not be unreasonably withheld or delayed.
Newco, Parent and the Company will cooperate with each other in the development
and distribution of all press releases and other public announcements with
respect to the Merger and other transactions contemplated hereby, and will
furnish the other with drafts of any such releases and announcements as far in
advance as practicable.
Section 7.7 RULE 145 AFFILIATES. Within 30 days after the date of this
Agreement, the Company shall identify in a letter to Newco all persons who are,
and to such person's best knowledge who will be at the
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Closing Date, "affiliates" of the Company, as the case may be, as such term is
used in Rule 145 under the Securities Act. The Company shall use commercially
reasonable efforts to cause its affiliates (including any person who may be
deemed to have become such an affiliate after the date of the letter referred to
in the prior sentence) to deliver to Newco on or prior to the Closing Date a
written agreement substantially in the form attached as Exhibit 7.7 (each, an
"Affiliate Agreement").
Section 7.8 LABOR AGREEMENTS AND WORKFORCE MATTERS.
(a) Labor Agreements. Newco shall honor or cause the appropriate subsidiary
to honor all collective bargaining agreements in effect as of the Merger
Effective Time until their expiration, and shall assume all of the rights and
obligations provided under such collective bargaining agreements.
(b) Workforce Matters. Subject to applicable law and obligations under
applicable collective bargaining agreements, for a period of two years following
the Merger Effective Time, reductions in workforce, if any, in respect of US
employees of Newco and its Subsidiaries shall be made on a fair and equitable
basis as determined by Newco, and any employee whose employment is terminated or
job is eliminated during such period shall be entitled to participate on a fair
and equitable basis as determined by Newco in the job opportunity and employment
placement programs offered by Newco or any of its Subsidiaries for US employees
for which they are eligible. Workforce reductions, if any, carried out following
the Merger Effective Time by the Surviving Entity shall be done in accordance
with all applicable collective bargaining agreements, and all laws and
regulations governing the employment relationship and termination thereof
including, without limitation, the Worker Adjustment and Retraining Notification
Act and regulations promulgated thereunder, and any comparable state or local
law.
Section 7.9 EMPLOYEE BENEFIT PLANS; STOCK OPTIONS.
(a) For a period of two years immediately following the Closing Date, the
compensation, benefits and coverage provided to current employees and retirees
of the Company or any Company Subsidiary, other than those covered by a
collective bargaining agreement, who continue employment with Newco or one of
its Subsidiaries (the "Affected Employees") pursuant to compensation and
employee benefit plans or arrangements maintained by Newco or one of its
Subsidiaries shall be, in the aggregate, not less favorable (as determined by
Newco and the Surviving Entity using reasonable assumptions and benefit
valuation methods) than those provided, in the aggregate, to such Affected
Employees by the Company and any Company Subsidiary immediately prior to the
Closing Date. Newco shall, and shall cause the Surviving Entity and its other
Subsidiaries to, honor in accordance with their terms and applicable law
(i) all compensation, benefit, and funding obligations as in effect as of the
date hereof or as may later be in effect in accordance with the terms of this
Agreement to current and former officers of the Company or any Company
Subsidiary, and to their beneficiaries, that are described in any applicable
employment agreement or other Company Employee Benefit Plan (including, but not
limited to, the Company's Supplemental Executive Retirement Plan) of the Company
or any Company Subsidiary and that are accrued, owed or mutually agreed to on or
before the Merger Effective Time as set forth in Section 4.10(a) of the Company
Disclosure Schedule and (ii) all other obligations to Affected Employees and
current and former directors of the Company and any Company Subsidiary, and to
their beneficiaries, under employment, severance, consulting and retention
agreements or arrangements and all Company Employee Benefit Plans that are
accrued, owed or mutually agreed to on or before the Merger Effective Time, as
set forth in Section 4.10(a) of the Company Disclosure Schedule. In addition to
the foregoing, Newco shall and shall cause the Surviving Entity or its other
Subsidiaries to pay any Affected Employees whose employment is terminated by
Newco, the Surviving Entity or other Subsidiary within 24 months of the Closing
Date, a severance benefit package equivalent to the severance-related benefits
in effect under the following Company plans and programs as of the effective
date hereof (subject to the modification described in the following (i)): (i)
the Niagara Mohawk Involuntary Severance Plan (Section 1.9 of the Niagara Mohawk
Involuntary Severance Plan shall be amended prior to the Merger Effective Date
to provide that a job offer by Newco or one of its Subsidiaries shall not
prevent an involuntarily terminated
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Affected Employee from receiving severance benefits under such Plan if such job
offer is for employment that is more than fifty miles one-way from the Affected
Employee's work location at the time of such involuntary termination); (ii) the
Niagara Mohawk Medical and Prescription Drug Plan For Eligible Participants In
the Involuntary Severance Plan; and (iii) the "Career Center" and "Reimbursement
For Job Training Educational Expenses" benefits described in the Company's
"Transition Benefits" summary that describes transition benefits for eligible
management employees whose jobs are abolished as a direct result of the
Company's restructuring efforts.
(b) The compensation, benefits and coverage provided to employees who are
covered by a collective bargaining agreement described in Section 7.8(a) shall
be provided subject to the terms of such collective bargaining agreement.
(c) Newco shall, or shall cause its Subsidiaries to, give the Affected
Employees full credit for purposes of eligibility, vesting, benefit accrual
(including, without limitation, benefit accrual under any defined benefit
pension plans) and determination of the level of benefits under any employee
benefit or fringe benefit plans or arrangements maintained by Newco or one of
its Subsidiaries for such Affected Employees' service with the Company or any
Company Subsidiary (or any prior employer) to the same extent recognized by the
Company or any Company Subsidiary immediately prior to the Closing Date, except
where such credit would provide duplication of benefits. With respect to any
employee benefit plan or arrangement established by Newco or one of its
Subsidiaries after the Closing Date (the "Post-Closing Plans") that is not
intended to replace any Company benefit for Affected Employees in existence
immediately prior to the Merger Effective Time, service shall be credited in
accordance with the terms of such Post-Closing Plans consistent with the
crediting of service for employees of Parent and Parent Subsidiaries who
participate in such plan or arrangement.
(d) Newco shall, or shall cause its Subsidiaries to, (i) waive all
limitations as to preexisting conditions, exclusions and waiting periods with
respect to participation and coverage requirements applicable to the Affected
Employees under any welfare benefit plan of Newco or its Subsidiaries in which
such Affected Employees may be eligible to participate after the Closing Date,
other than limitations or waiting periods that are already in effect with
respect to such Affected Employees and that have not been satisfied as of the
Closing Date under any welfare benefit plan maintained for the Affected
Employees immediately prior to the Closing Date, and (ii) provide each Affected
Employee with credit for any co-payments and deductibles paid prior to the
Closing Date in satisfying any applicable deductible or out-of-pocket
requirements under any welfare benefit plans that such Affected Employees are
eligible to participate in after the Closing Date.
(e) Except as may be limited by any applicable law or collective bargaining
agreement, Newco and its Subsidiaries shall neither be required to or prevented
from merging the Company's benefit plans, agreements, or arrangements into Newco
or its Subsidiaries benefit plans, agreements, or arrangements or from replacing
the Company's benefit plans, agreements or arrangements with Newco or its
Subsidiaries benefit plans, agreements or arrangements.
(f) At the Merger Effective Time each stock option outstanding pursuant to
the Company's 1992 Stock Option Plan (the "Option"), whether or not then
exercisable, shall be cancelled and shall only entitle the holder thereof to
receive an amount in cash from the Company equal to the result of multiplying
(i) the number of shares of Company Common Stock previously subject to such
Option by (ii) the excess of the Cash Consideration over the per Share exercise
price of such Option. The Company shall use its reasonable efforts to take all
action necessary to effectuate the foregoing provision.
Section 7.10 NO SOLICITATIONS. (a) From and after the date hereof, the
Company (i) shall not, nor shall it permit any of its Subsidiaries to, nor shall
it authorize or permit any of its Representatives to, directly or indirectly,
(A) solicit, initiate or encourage (including by way of furnishing information),
or take any other action designed to facilitate, any inquiries or the making of
any offer or proposal (including, without limitation, any offer or proposal to
its shareholders) which constitutes or may reasonably be
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expected to lead to an Acquisition Proposal (as defined herein) from any third
party or (B) engage in any discussions or negotiations or furnish any
confidential information or data to any person or group relating to any
Acquisition Proposal and (ii) shall immediately cease and cause to be terminated
any existing activities, discussions or negotiations with any parties with
respect to any Acquisition Proposal; provided, however, that if, at any time
prior to the date on which the Company Shareholders' Approval has been obtained
(the "Applicable Period"), the Board of Directors of the Company (A) determines
in good faith, based upon the written opinion of outside counsel that such
Board's fiduciary duties under applicable law with respect to the Acquisition
Proposal require it to do so in order to act in a manner consistent with its
fiduciary duties to the Company shareholders under applicable law and
(B) concludes in good faith based on the written advice of its financial
advisors that the person or group making such Acquisition Proposal has adequate
sources of financing to consummate such Acquisition Proposal and that such
Acquisition Proposal, if consummated as proposed, is materially more favorable
to the Company shareholders from a financial point of view than the Merger, the
Company may, in response to an Acquisition Proposal which was not solicited by
it or which did not otherwise result from a breach of this Section 7.10(a), and
subject to providing prior written notice of its decision to take such action to
Parent in compliance with Section 7.10(b), (x) furnish to such third party
information with respect to itself and its business, properties and assets
pursuant to a customary confidentiality agreement on terms not in the aggregate
materially more favorable to such third party than the terms contained in the
Confidentiality Agreement and (y) engage in discussions or negotiations
regarding such Acquisition Proposal. As used herein, "Acquisition Proposal"
shall mean any proposal or offer (other than by another party hereto) for a
tender or exchange offer, merger, consolidation or other business combination
involving the Company or any of its material Subsidiaries or any proposal to
acquire in any manner, directly or indirectly, 10% or more of the shares of
capital stock in or a substantial portion of the assets of the Company or any of
its material Subsidiaries.
(b) Except as expressly permitted by this Section 7.10, neither the Board of
Directors of the Company nor any committee thereof shall (i) withdraw or modify,
in any manner adverse to Parent, the approval or recommendation by such Board of
Directors or such committee of the Merger or this Agreement, (ii) fail to
reaffirm such approval or recommendation upon Parent's request, (iii) approve or
recommend any Acquisition Proposal or (iv) cause the Company to enter into any
letter of intent, agreement in principle, acquisition agreement or other similar
agreement (each, an "Acquisition Agreement") relating to any Acquisition
Proposal. Notwithstanding the foregoing, in the event that during the Applicable
Period the Board of Directors of the Company (i) determines in good faith based
upon the written opinion of outside counsel that such Board's fiduciary duties
under applicable law with respect to the Acquisition Proposal require, to do so
in order to act in a manner consistent with its fiduciary duties to the Company
shareholders and (ii) concludes in good faith based on the written advice of its
financial advisors that the person or group making such Acquisition Proposal has
adequate sources of financing to consummate such Acquisition Proposal and that
such Acquisition Proposal, if consummated as proposed, is materially more
favorable to the Company shareholders from a financial point of view than the
Merger, such Board of Directors may terminate this Agreement pursuant to
Section 9.1(e) (and concurrently with or after such termination, if it so
chooses, cause the Company to enter into any Acquisition Agreement with respect
to any Acquisition Proposal), but only at a time that is (x) during the
Applicable Period and is after the fifth business day following receipt by
Parent of written notice advising Parent that the Board of Directors of the
Company is prepared to accept an Acquisition Proposal, specifying the material
terms and conditions of such Acquisition Proposal and identifying the person
making such Acquisition Proposal, (y) after the Company and its respective
financial and legal advisors have given Parent a reasonable opportunity during
such five-day period following receipt by Parent of such written notice to make
such adjustments in the terms and conditions of this Agreement as would enable
the Company to proceed with the Merger or other transactions contemplated hereby
on such adjusted terms, and (z) after the Company and such advisors have
negotiated in good faith with Parent with respect to any such adjustments;
provided that the Company's ability to terminate this Agreement pursuant to
Section 9.1(e) is conditioned upon the concurrent payment by the Company to
Parent of any amounts owed by it pursuant to Section 9.3(c).
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(c) In addition to the obligations of the Company set forth in paragraphs
(a) and (b) of this Section 7.10, the Company shall immediately advise Parent
orally and in writing of any request for information or of any Acquisition
Proposal, the material terms and conditions of such request or Acquisition
Proposal and the identity of the person making such request or Acquisition
Proposal. The Company shall keep Parent informed of the status and details
(including amendments or proposed amendments) of any such request or Acquisition
Proposal.
(d) Nothing contained in this Section 7.10 shall prohibit the Company from
taking and disclosing to its shareholders a position contemplated by Rule 14e-2
promulgated under the Exchange Act or from making any disclosure to its
shareholders if, in the good faith judgment of the Board of Directors of the
Company, after consultation with outside counsel, failure so to disclose would
be inconsistent with its obligations under applicable law.
Section 7.11 BOARDS OF DIRECTORS.
(a) Newco Board. Newco shall take such action as may be necessary to appoint
(i) all members serving on the Parent Board of Directors immediately prior to
the Effective Time, (ii) the current Chief Executive Officer of the Company and
(iii) one additional person presently serving as an outside director of the
Board of Directors of the Company on the date hereof, as determined by Parent,
to serve on the Newco Board of Directors following the Effective Time.
(b) Advisory Board. Promptly following the Merger Effective Time, Newco
shall cause the Surviving Entity to establish an advisory board (the "New York
Advisory Board") which shall be maintained for at least two years and which
shall be comprised of up to 12 persons who were, immediately prior to the Merger
Effective Time, serving as non-executive members of the Company's Board of
Directors, who are not appointed to serve on Newco Board of Directors and who
are willing to serve in such capacity on the New York Advisory Board. The
function of the New York Advisory Board shall be to advise the Surviving
Entity's Board of Directors with respect to general business as well as
opportunities and activities in the State of New York and to maintain and
develop customer relationships in the State of New York. The New York Advisory
Board shall meet no less frequently than three times a year. The members of the
New York Advisory Board shall each be named to serve as members thereof for a
period of two years; provided, however, that Newco shall have no obligation to
cause the Surviving Entity to elect or appoint, and may cause the Surviving
Entity to remove, any member of the New York Advisory Board if Newco reasonably
determines that such member has a conflict of interest that compromises such
member's ability to serve effectively as a member of the New York Advisory Board
or any cause exists that otherwise would allow for removal of such person as a
director of the Surviving Entity if such person were a member of the Surviving
Entity's Board of Directors.
(c) National Grid USA Board. For a period of two years commencing at the
Effective Time, the current Chief Executive Officer of the Company shall serve
as Chairman of the Board of Directors of National Grid USA and two other current
executive officers of the Company as determined by Parent will serve on the
Board of Directors of National Grid USA.
Section 7.12 CHARITABLE CONTRIBUTIONS. The parties agree that provision of
charitable contribution and community support within the region served by the
Company serves a number of important goals. After the Merger Effective Time,
Newco intends to cause the Surviving Entity to provide charitable contributions
and community support within the region served by the Company at annual levels
substantially comparable to the annual level of charitable contributions and
community support provided, directly or indirectly, by the Company and its
public utility subsidiary within the region served by the Company during 1999.
Section 7.13 ANTI-TAKEOVER STATUTES. If any "fair price," "moratorium,"
"business combination," "control share acquisition" or other form of
anti-takeover statute or regulation shall become applicable to the Merger or any
other transaction contemplated hereby, each of Parent and the Company and the
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members of their respective boards of directors shall grant such approvals and
take such actions consistent with their fiduciary duties and in accordance with
applicable law as are reasonably necessary so that the Merger and such other
transactions contemplated hereby may be consummated as promptly as practicable
on the terms contemplated hereby and otherwise act to eliminate or minimize the
effects of such statute or regulation on the Merger and other transactions
contemplated hereby.
Section 7.14 CONVEYANCE TAXES. The Company, Parent and Newco shall
cooperate in the preparation, execution and filing of all returns,
questionnaires, applications or other documents regarding any real property
transfer or gains, sales, use, transfer, value added, stock transfer and stamp
Taxes, any transfer, recording, registration and other fees, and any similar
Taxes ("Conveyance Taxes") which become payable in connection with the
transactions contemplated by this Agreement that are required or permitted to be
paid on or before the Merger Effective Time. Newco shall pay, without deduction
or withholding from any amount payable to the holders of any shares of the
Company Common Stock, any such Conveyance Taxes which become payable in
connection with the transactions contemplated by this Agreement, on behalf of
the shareholders of the Company.
Section 7.15 EXPENSES. Subject to Section 9.3, all costs and expenses
incurred in connection with this Agreement and the transactions contemplated
hereby shall be paid by the party incurring such expenses, except that those
expenses incurred in connection with printing the Proxy/Registration Statement,
the filing fee relating to the Proxy/Registration Statement and for expert
witnesses retained for the purpose of advising and supporting approvals where
both Company and Parent have filed for approval from the same regulator, shall
be shared equally by the Company and Parent.
Section 7.16 FURTHER ASSURANCES. Each party shall, and shall cause its
Subsidiaries to, execute such further documents and instruments and take such
further actions as may reasonably be requested by any other party in order to
consummate the Merger in accordance with the terms hereof. Parent and Newco
shall, and shall cause their respective Subsidiaries to, execute such further
documents and instruments and take such further actions as may reasonably be
requested by any other party in order to consummate the Scheme in accordance
with the terms hereof, provided that Parent and Newco may amend the terms of the
Scheme as they deem reasonably necessary or desirable, provided further that if
any such amendment would have a material adverse effect on the benefits of the
Merger to the shareholders of the Company, such amendment will require the
consent of the Company.
Section 7.17 RESTRUCTURING OF TRANSACTIONS. It may be preferable to
effectuate a business combination between Parent and the Company by means of an
alternative structure to the Merger and the Scheme. Accordingly, if, prior to
satisfaction of the conditions contained in Article VIII hereto, Parent proposes
the adoption of an alternative structure that otherwise substantially preserves
for Parent, the Company and the holders of the Company Common Stock the economic
and Tax benefits of the transactions contemplated thereby then the parties shall
use their respective best efforts to effect a business combination among
themselves by means of a mutually agreed upon structure other than the Merger
that so preserves such benefits, including without limitation, a structure that
does not require consummation of the Scheme. In particular, in the event that
Parent determines that approval of the Scheme is uncertain and it waives the
condition set forth in Section 8.2(h), Parent and the Company agree to adopt an
alternative business combination transaction that does not require consummation
of the Scheme. In the event that the parties adopt a restructured transaction,
the Agreement shall be revised to reflect such transaction as determined
necessary by the parties hereto and prior to closing any such restructured
transaction, all material third party and Governmental Authority declarations,
filings, registrations, notices, authorizations, consents or approvals necessary
for the effectuation of such alternative business combination shall have been
obtained and all other conditions to the parties' obligations to consummate the
Merger and other transactions contemplated hereby, as applied to such
alternative business combination, shall have been satisfied or waived.
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Section 7.18 INTEGRATION TEAM. As soon as practicable after the date
hereof, Parent and Company shall, subject to limitations imposed by applicable
law, create an integration steering team with representatives appointed by the
CEOs of Parent and the Company, and chaired by Parent. The integration steering
team shall be responsible for facilitating the integration of the two companies
as subsidiaries of Newco.
Section 7.19 NEWCO ORDINARY SHARES. Newco agrees that the Newco Ordinary
Shares delivered by it on the Closing Date shall be validly issued and fully
paid.
Section 7.20 ADR DEPOSITARY AGREEMENT. Newco, Merger Sub and the ADR
Depositary shall enter into the ADR Depositary Agreement in a form satisfactory
to Newco, Parent and the Company.
ARTICLE VIII
CONDITIONS
Section 8.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE
MERGER. The respective obligations of each party to effect the transactions
contemplated by this Agreement shall be subject to the satisfaction on or prior
to the Closing Date of the following conditions, except, to the extent permitted
by applicable law, that such conditions may be waived by the parties in writing
pursuant to Section 9.5:
(a) Shareholders' Approvals. The Parent Shareholders' Merger Approval and
the Company Shareholders' Approval shall have been obtained.
(b) No Injunction. No court of competent jurisdiction or other competent
Governmental Authority shall have enacted, issued, promulgated, enforced or
entered any law or order (whether temporary, preliminary or permanent) which is
then in effect and has the effect of making illegal or otherwise restricting,
preventing or prohibiting consummation of the Scheme, the Merger or other
transactions contemplated hereby.
(c) Proxy/Registration Statement. The Proxy/Registration Statement shall
have become effective in accordance with the provisions of the Securities Act,
and no stop order suspending such effectiveness shall have been issued and
remain in effect.
(d) Listing of Shares. The UK Listing Authority shall have agreed to admit
to the Official List of the UK Listing Authority (subject to allotment) (i) the
Newco Ordinary Shares represented by the Newco ADSs issuable in the Merger
pursuant to Article II, and (ii) the Newco Ordinary Shares issued pursuant to
the Scheme and such agreement shall not have been withdrawn, and the Newco ADSs
issuable in the Merger pursuant to Article II shall have been approved for
listing on the NYSE upon official notice of issuance.
(e) Statutory Approvals.
(i) Either (x) the sale by the Company of its Nuclear Facilities (the
"Nuclear Sale") shall have closed, the Company shall have received the
purchase price therefor, and conforming license amendments shall have been
issued by NRC to reflect the change in ownership or (y) Parent and the
Company shall have agreed to an alternative to the Nuclear Sale in
accordance with the provisions of Section 6.4 hereof with respect to which
all required approvals, authorizations and consents from Governmental
Authorities, including, without limitation, any necessary order of the NRC
consenting to the transfer of the operating licenses for the Company's
Nuclear Facilities and any necessary conforming license amendments, have
been received.
(ii) Each of (x) the Company Required Statutory with respect to the
approval of the New York Public Service Commission, Approvals, including,
confirmation that PowerChoice will remain in effect in accordance with its
terms in all material respects following consummation of the Merger, (y) the
Parent Required Statutory Approvals, and (z) any declaration, filing,
registration with, or notice to or
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authorization, consent or approval of any Governmental Authority required in
connection with (A) the Nuclear Sale, as well as a determination by the New
York Public Service Commission of the level of recovery of stranded costs
resulting from the Nuclear Sale or (B) any alternative arrangement to the
Nuclear Sale agreed to in accordance with the provisions of Section 6.4
hereof (collectively, the "Nuclear Approvals"), shall have been obtained at
or prior to the Merger Effective Time, such approvals shall have become
Final Orders (as defined below), and such Final Orders shall not,
individually or in the aggregate, impose terms or conditions which (x) with
respect to the Company Required Statutory Approvals and the Nuclear
Approvals, could reasonably be expected to have a Company Material Adverse
Effect taking into account the allowed recovery of any stranded costs from
the Nuclear Sale, (y) with respect to the Parent Required Statutory
Approvals, could reasonably be expected to have a Parent Material Adverse
Effect or (z) with respect to the Company Required Statutory Approvals, the
Parent Required Statutory Approvals and the Nuclear Approvals, could
reasonably be expected to materially impair the ability of the parties to
complete the Merger and the transactions contemplated hereby. A "Final
Order" means action by the relevant regulatory authority which has not been
reversed, stayed, enjoined, set aside, annulled or suspended, with respect
to which any waiting period prescribed by law before the transactions
contemplated hereby may be consummated has expired, and as to which all
conditions to the consummation of such transactions prescribed by law,
regulation or order have been satisfied.
(f) HSR Act. The waiting period (and any extension thereof) applicable to
the Merger under the HSR Act shall have been terminated or shall have otherwise
expired.
Section 8.2 CONDITIONS TO OBLIGATION OF NEWCO AND PARENT TO EFFECT THE
MERGER. The obligation of Parent and Newco to effect the transactions
contemplated by this Agreement shall be further subject to the satisfaction, on
or prior to the Closing Date, of the following conditions, except as may be
waived by Parent and Newco in writing pursuant to Section 9.5:
(a) Performance of Obligations of the Company. The Company (and/or the
appropriate Company Subsidiaries, as applicable) shall have performed in all
material respects its agreements and covenants contained in or contemplated by
this Agreement which are required to be performed by it at or prior to the
Merger Effective Time.
(b) Representations and Warranties. The representations and warranties of
the Company set forth in this Agreement shall be true and correct (i) on and as
of the date hereof and (ii) on and as of the Closing Date with the same effect
as though such representations and warranties had been made on and as of the
Closing Date (except for representations and warranties that expressly speak
only as of a specific date or time which need only be true and correct as of
such date or time), except where the failure of representations or warranties to
be true and correct could not, individually or in the aggregate, be reasonably
expected to result in a Company Material Adverse Effect. For purposes of this
Section 8.2(b), qualifications in any representation or warranty as to
"materiality" or a "Company Material Adverse Effect" shall be disregarded.
(c) Closing Certificates. Parent and Newco shall have received a certificate
signed by the chief financial officer of the Company, dated the Closing Date, to
the effect that, to the best of such officer's knowledge, the conditions set
forth in Section 8.2(a) and Section 8.2(b) have been satisfied.
(d) Tax Opinion. Parent and Newco shall have received an opinion from
PricewaterhouseCoopers, counsel to Parent and Newco, in form and substance
reasonably satisfactory to Parent and Newco, dated as of the Closing Date,
substantially to the effect that the Merger, together with the Scheme will be
treated for United States federal income tax purposes as a transaction described
in Section 351 of the Code, and no gain or loss will be recognized by Parent or
Newco as a result thereof. In rendering such opinion, PricewaterhouseCoopers may
require and rely upon representations reasonably satisfactory to
PricewaterhouseCoopers contained in certificates of officers of the Company,
Parent, Newco and Merger Sub.
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(e) Company and Parent Required Consents. All material Company Required
Consents and Parent Required Consents shall have been obtained and OFGEM shall
not have imposed any modifications to any conditions of the license held by
National Grid Company plc under the Electricity Act 1989 that would reasonably
be expected to have a Parent Material Adverse Effect.
(f) Affiliate Agreements. Newco shall have received Affiliate Agreements,
duly executed by each "Affiliate" of the Company, substantially in the form of
Exhibit 7.7, as provided in Section 7.7.
(g) Permits. To the extent that the continued lawful operations of the
business of the Company or any Company Subsidiary after the Merger requires that
any license, permit (including, without limitation, Environmental Permits) or
other governmental approval be transferred to Parent or any Parent Subsidiary or
issued to Parent or any Parent Subsidiary, such licenses, permits or other
authorizations shall have been transferred or reissued to Parent or such Parent
Subsidiary at or before the Closing Date, except where the failure to transfer
or reissue such licenses, permits or other authorizations would not have a
Company Material Adverse Effect immediately after the Merger Effective Time.
(h) Court Sanction. The Court shall have sanctioned the Scheme on terms
contemplated by this Agreement, and the Parent Shareholders' Scheme Approvals
shall have been obtained.
Section 8.3 CONDITIONS TO OBLIGATION OF THE COMPANY TO EFFECT THE
MERGER. The obligation of the Company to effect the Merger shall be further
subject to the satisfaction, on or prior to the Closing Date, of the following
conditions, except as may be waived by the Company in writing pursuant to
Section 9.5:
(a) Performance of Obligations of Parent and Newco. Parent (and/or the
appropriate Parent Subsidiaries, as applicable) and Newco shall have performed
in all material respects its agreements and covenants contained in or
contemplated by this Agreement which are required to be performed by it at or
prior to the Merger Effective Time.
(b) Representations and Warranties. The representations and warranties of
Parent, Newco and Merger Sub set forth in this Agreement shall be true and
correct (i) on and as of the date hereof
and (ii) on and as of the Closing Date with the same effect as though such
representations and warranties had been made on and as of the Closing Date
(except for representations and warranties that expressly speak only as of a
specific date or time which need only be true and correct as of such date or
time), except where the failure of representations or warranties to be true and
correct could not, individually or in the aggregate, be reasonably expected to
result in a Parent Material Adverse Effect. For purposes of this
Section 8.3(b), qualifications in any representation or warranty as to
"materiality" or a "Parent Material Adverse Effect" shall be disregarded.
(c) Closing Certificates. The Company shall have received a certificate
signed by the chief financial officer of Parent and Newco, dated the Closing
Date, to the effect that, to the best of such officer's knowledge, the
conditions set forth in Section 8.3(a) and Section 8.3(b) have been satisfied.
(d) Tax Opinion. The Company shall have received an opinion from Bryan Cave
LLP, special tax counsel to the Company, in form and substance reasonably
satisfactory to the Company, dated as of the Closing Date, substantially to the
effect that the Merger, together with the Scheme will be treated for United
States federal income tax purposes as a transaction described in Section 351 of
the Code and no gain or loss will be recognized by the Company pursuant to the
Merger and no gain or loss will be recognized by shareholders of the Company who
receive solely Newco ADSs pursuant to the Merger. In rendering such opinion,
Bryan Cave LLP may require and rely upon representations reasonably satisfactory
to Bryan Cave LLP contained in certificates of officers of the Company, Parent,
Newco and Merger Sub.
(e) Parent Required Consents. All material Parent Required Consents, the
failure of which to obtain would have a Parent Material Adverse Effect, shall
have been obtained.
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(f) Legal Opinion. The Company shall have received an opinion from CMS
Cameron McKenna, counsel to Parent, in form and substance reasonably
satisfactory to the Company, dated as of the Closing Date, substantially to the
effect that the Newco Ordinary Shares represented by the ADSs issued as the ADS
consideration are validly issued and fully paid.
ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER
Section 9.1 TERMINATION. This Agreement may be terminated at any time
prior to the Closing Date, whether before or after approval by the shareholders
of the respective parties hereto contemplated by this Agreement:
(a) by mutual written consent of the Boards of Directors of Newco, the
Company and Parent;
(b) by either Parent or the Company:
(i) if any state or federal law, order, rule or regulation is adopted or
issued, which has the effect, as supported by the written opinion of outside
counsel for such party, of prohibiting the Merger, or by Parent or the
Company, if any court of competent jurisdiction in the United States or any
state shall have issued an order, judgment or decree permanently
restraining, enjoining or otherwise prohibiting the Merger, and such order,
judgment or decree shall have become final and nonappealable;
(ii) by written notice to the other parties, if the Merger Effective
Time shall not have occurred on or before December 31, 2001 (the "Initial
Termination Date"); provided, however, that the right to terminate the
Agreement under this Section 9.1(b)(ii) shall not be available to any party
whose failure to fulfill any obligation under this Agreement has been the
cause of, or resulted in, the failure of the Merger Effective Time to occur
on or before such date; provided, further, that (A) if on the Initial
Termination Date any of the conditions to the Closing set forth in
Section 8.1(e) shall not have been fulfilled but (x) to the extent that the
condition set forth in Sections 8.1(e)(i) and 8.1(e)(ii) (with respect to
the Nuclear Approvals only) shall not have been fulfilled, the Company shall
have entered into a binding definitive agreement for the Nuclear Sale (the
"Nuclear Sale Agreement") or satisfactory alternative arrangements shall
have been reached pursuant to Section 6.4 and (y) all other conditions to
the Closing shall be fulfilled or shall be capable of being fulfilled, then
the Initial Termination Date shall be extended to March 31, 2002 (the
"Extended Termination Date"), and (B) if as of the Extended Termination
Date, the conditions to Closing set forth in Section 8.1(e)(ii) (with
respect to the Nuclear Approvals only) shall not have been fulfilled but all
other conditions to the Closing shall be fulfilled or shall be capable of
being fulfilled and the Nuclear Sale Agreement remains in effect, then the
Initial Termination Date shall be extended to August 31, 2002;
(iii) by written notice to the other parties, if Parent Merger
Shareholders' Approval shall not have been obtained at a duly held Parent
Merger Meeting, as the case may be, including any adjournments thereof, or
the Company Shareholders' Approval shall not have been obtained at a duly
held Company Meeting, including any adjournments thereof;
(c) by Parent, by written notice to the Company, if (i) there shall have
been any breach of any representation or warranty, or any breach of any covenant
or agreement of the Company hereunder, which breaches individually or in the
aggregate would result in a Company Material Adverse Effect, and such breach
shall not have been remedied within 20 business days after receipt by the
Company of notice in writing from Parent, specifying the nature of such breach
and requesting that it be remedied, or Parent shall not have received adequate
assurance of a cure of such breach within such 20 business-day period
or (ii) the Board of Directors of the Company shall withdraw or modify in any
manner adverse to Parent its approval of this Agreement and the transactions
contemplated hereby or its recommendation to its shareholders regarding approval
of this Agreement, the Merger and other transactions contemplated hereby;
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<PAGE>
(d) by the Company, by written notice to Parent, if (i) there shall have
been any breach of any representation or warranty, or any breach of any covenant
or agreement of Parent or Newco hereunder, which breaches individually or in the
aggregate would result in a Parent Material Adverse Effect, and such breach
shall not have been remedied within 20 business days after receipt by Parent and
Newco of notice in writing from the Company, specifying the nature of such
breach and requesting that it be remedied, or the Company shall not have
received adequate assurance of a cure of such breach within such 20 business-day
period, (ii) the Board of Directors of Parent shall withdraw or modify in any
manner adverse to the Company its approval of this Agreement and the
transactions contemplated hereby or its recommendation to its shareholders
regarding approval of this Agreement, the Scheme (if it remains a condition
under Section 8.2(h) hereof) and the Merger and other transactions contemplated
hereby or (iii) Newco shall fail to deliver or cause to be delivered the Merger
Consideration to the ADR Depositary required pursuant to Section 2.3 at a time
when all other conditions to Newco's obligations to close have been satisfied or
waived in writing by Newco; or
(e) by the Company in accordance with Section 7.10(b); provided, that, in
order for the termination of this Agreement pursuant to this paragraph (e) to be
deemed effective, the Company shall have complied with all provisions of
Section 7.10, including the notice provisions therein, and with applicable
requirements, including the payment of the Termination Fee, of Section 9.3(c).
Section 9.2 EFFECT OF TERMINATION. In the event of termination of this
Agreement by either the Company or Parent pursuant to Section 9.1, there shall
be no liability on the part of either the Company or Parent or Newco or their
respective officers or directors hereunder, except that the agreement contained
in the last sentence of Section 7.1, Section 7.14, Section 9.3, Section 10.2 and
Section 10.9 shall survive any such termination.
Section 9.3 TERMINATION FEE; EXPENSES.
(a) In the event that this Agreement is terminated (i) by the Company
pursuant to Section 9.1(d) (ii) as a result of an action by the Board of
Directors of the Parent prior to obtaining the Parent Merger Shareholders'
Approval or (ii) by Parent pursuant to Section 9.1(c)(ii) as a result of an
action by the Board of Directors of the Company prior to obtaining the Company
Shareholders' Approval, then (A) in the event of termination pursuant to
Section 9.1(c)(ii), the Company shall pay to Parent and (B) in the event of
termination pursuant to Section 9.1(d)(ii), Parent shall pay to the Company,
(promptly but in each case no later than five (5) business days after the date
of termination of this Agreement) by wire transfer of same day funds, a
termination fee of $150,000,000, plus, in each case, all of the terminating
party's documented out-of-pocket expenses and fees incurred by the party
(including, without limitation, fees and expenses payable to all legal,
accounting, financial, and other professionals arising out of, in connection
with or related to the transactions contemplated by this Agreement) not in
excess of $10,000,000 (the "Out-of-Pocket Expenses").
(b) In the event that (i) this Agreement is terminated by the Company
pursuant to Section 9.1(e), or (ii) there shall have been an Acquisition
Proposal involving the Company or any of its Affiliates that has not been
withdrawn and thereafter this Agreement is terminated by Parent or the Company
in the circumstances described in Section 9.1(b)(ii) or (b)(iii) or in
accordance with Section 9.1(c)(i) and, in the case of this clause (ii) only, a
definitive agreement with respect to such Acquisition Proposal is executed
within two years of such termination, then the Company shall pay Parent a
termination fee (the "Termination Fee") equal to $150,000,000 in cash plus the
Out-of-Pocket Expenses of Parent; provided however, that, if such termination
has occurred pursuant to Section 9.1(b)(ii) solely as a result of the failure to
meet conditions set forth in Sections 8.1(e)(i) and (ii) with respect to the
Nuclear Sale and Nuclear Approvals only, then the Company shall pay the
Termination Fee plus the Out-of-Pocket Expenses of Parent if a definitive
agreement with respect to such Acquisition Proposal is executed within one year
of such termination; provided further that there is no arrangement or
understanding between the Company and the party making the Acquisition Proposal
at the time of such termination.
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<PAGE>
(c) The parties agree that the agreements contained in this Section 9.3 are
an integral part of the transactions contemplated hereby and constitute
liquidated damages and not a penalty. The parties further agree that if any
party is or becomes obligated to pay a termination fee pursuant to Sections
9.3(a) and (b), the right to receive such termination fee shall be the sole
remedy of the other party with respect to the facts and circumstances giving
rise to such payment obligation. If this Agreement is terminated by a party as a
result of a willful breach of a representation, warranty, covenant or agreement
by the other party, the non-breaching party may pursue any remedies available to
it at law or in equity and shall be entitled to recover any amounts thereunder.
Notwithstanding anything to the contrary contained in this Section 9.3, if one
party fails to promptly pay to the other any fee or expense due under this
Section 9.3, in addition to any amounts paid or payable pursuant to such
Section, the defaulting party shall pay the costs and expenses (including legal
fees and expenses) in connection with any action, including the filing of any
lawsuit or other legal action, taken to collect payment, together with interest
on the amount of any unpaid fee at the publicly announced prime rate of
Citibank, N.A. from the date such fee was required to be paid.
Section 9.4 AMENDMENT. This Agreement may be amended by the Boards of
Directors of the parties hereto, at any time before or after obtaining the
Company Shareholders' Approval, the Parent Shareholders' Approvals and prior to
the Merger Effective Time, but after such approvals, only to the extent
permitted by applicable law. This Agreement may not be amended except by an
instrument in writing signed on behalf of each of the parties hereto.
Section 9.5 WAIVER. At any time prior to the Merger Effective Time, the
parties hereto may (a) extend the time for the performance of any of the
obligations or other acts of the other parties hereto, (b) waive any
inaccuracies in the representations and warranties contained herein or in any
document delivered pursuant hereto and (c) waive compliance with any of the
agreements or conditions contained herein, to the extent permitted by applicable
law. Any agreement on the part of a party hereto to any such extension or waiver
shall be valid if set forth in an instrument in writing signed by a duly
authorized officer of such party.
ARTICLE X
GENERAL PROVISIONS
Section 10.1 NON-SURVIVAL; EFFECT OF REPRESENTATIONS AND WARRANTIES. No
representations or warranties in this Agreement shall survive the Merger
Effective Time, except as otherwise provided in this Agreement.
Section 10.2 NOTICES. All notices and other communications hereunder shall
be in writing and shall be deemed given (a) when delivered personally, (b) when
sent by reputable overnight courier service or (c) when telecopied (which is
confirmed by copy sent within one business day by a reputable overnight courier
service) to the parties at the following addresses (or at such other address for
a party as shall be specified by like notice):
(i) If to the Company, to
Niagara Mohawk Holdings, Inc.
300 Erie Boulevard West
Syracuse, New York 13202
Attn: William Edwards
Senior Vice-President and Chief
Financial Officer
Telephone: 315-474-1511
Facsimile: 315-428-3406
A-46
<PAGE>
with a copy to
Sullivan & Cromwell
1701 Pennsylvania Avenue, N.W.
Washington, D.C. 20006
Attn: Janet Geldzahler, Esq.
Telephone: 202-956-7695
Facsimile: 202-293-6330
and
(ii) if to Parent, to
National Grid Group plc
National Grid House
15 Marylebone Road
London NW1 5JD
United Kingdom
Attn: Stephen Box
Group Finance Director
Telephone: 011-44-20-7-312-5600
Facsimile: 011-44-20-7-312-5655
and
National Grid USA
25 Research Drive
Westborough, MA 01582
Attn: Richard P. Sergel
President and Chief Executive Officer
Telephone: 508-389-2000
Facsimile: 508-366-5498
with a copy to
LeBoeuf, Lamb, Greene & MacRae, L.L.P.
125 West 55th Street
New York, NY 10019
Attn: Steven H. Davis, Esq.
and Thomas J. Moore, Esq.
Telephone: 212-424-8000
Facsimile: 212-424-8500
and
CMS Cameron McKenna
Mitre House
160 Aldersgate Street
London EC1A 4DD
United Kingdom
Attn: Sean M. Watson, Esq.
Telephone: 011-44-20-7-367-3000
Facsimile: 011-44-20-7-367-2000
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<PAGE>
(iii) If to Newco, to
New National Grid Limited
15 Marylebone Road
London NW1 5JD
United Kingdom
Attn: Stephen Box
Director
Telephone: 011-44-20-7-312-5600
Facsimile: 011-44-20-7-312-5655
and
National Grid USA.
25 Research Drive
Westborough, MA 01582
Attn: Richard P. Sergel
President and Chief Executive Officer
Telephone: 508-389-2000
Facsimile: 508-366-5498
with a copy to
LeBoeuf, Lamb, Greene & MacRae, L.L.P.
125 West 55th Street
New York, NY 10019
Attn: Steven H. Davis, Esq.
and Thomas J. Moore, Esq.
Telephone: 212-424-8000
Facsimile: 212-424-8500
and
CMS Cameron McKenna
Mitre House
160 Aldersgate Street
London EC1A 4DD
United Kingdom
Attn: Sean M. Watson, Esq.
Telephone: 011-44-20-7-367-3000
Facsimile: 011-44-20-7-367-2000
(iv) If to Merger Sub, to
Grid Delaware, Inc.
25 Research Drive
Westborough, MA 01582
Attn: Richard P. Sergel
President
Telephone: 508-389-2000
Facsimile: 508-366-5498
Section 10.3 MISCELLANEOUS. This Agreement (including the documents and
instruments referred to herein) (a) constitutes the entire agreement and
supersedes all other prior agreements and understandings, both written and oral,
among the parties, or any of them, with respect to the subject matter hereof
other than the Confidentiality Agreement and (b) shall not be assigned by
operation of law or otherwise.
A-48
<PAGE>
Section 10.4 INTERPRETATION. When a reference is made in this Agreement to
Sections or Exhibits, such reference shall be to a Section or Exhibit of this
Agreement, respectively, unless otherwise indicated. The table of contents and
headings contained in this Agreement are for reference purposes only and shall
not affect in any way the meaning or interpretation of this Agreement. Whenever
the words "include," "includes" or "including" are used in this Agreement, they
shall be deemed to be followed by the words "without limitation." Reference to
any "person" shall include reference to any predecessor or successor of such
person. Reference to any United States legal term for any action, remedy, method
of judicial proceeding, legal document, legal status, court, official or legal
concept or thing shall in respect of any jurisdiction other than the United
States be deemed to include what most nearly approximates in that jurisdiction
to the United States legal term.
Section 10.5 COUNTERPARTS; EFFECT. This Agreement may be executed in one
or more counterparts, each of which shall be deemed to be an original, but all
of which shall constitute one and the same agreement.
Section 10.6 PARTIES' INTEREST. This Agreement shall be binding upon and
inure solely to the benefit of each party hereto, and, except for the rights of
Indemnified Parties as set forth in Section 7.5, nothing in this Agreement,
express or implied, is intended to confer upon any other person any rights or
remedies of any nature whatsoever under or by reason of this Agreement.
Section 10.7 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 FULLY PERFORMED IN SUCH STATE, WITHOUT GIVING
EFFECT TO ITS CONFLICTS OF LAW RULES OR PRINCIPLES.
Section 10.8 SUBMISSION TO JURISDICTION; WAIVERS. Each of Parent and the
Company irrevocably agree that any legal action or proceeding with respect to
this Agreement or for recognition and enforcement of any judgment in respect
hereof brought by another party hereto or its successors or assigns may be
brought and determined in the Supreme Court of the State of New York in New York
County or in the United States District Court for the Southern District of New
York, and each of Newco, Parent and the Company hereby irrevocably submits with
regard to any such action or proceeding for itself and in respect to its
property, generally and unconditionally, to the nonexclusive jurisdiction of the
aforesaid courts. Any service of process to be made in such action or proceeding
may be made by delivery of process in accordance with the notice provisions
contained in Section 10.2. Each of Newco, Parent and the Company hereby
irrevocably waives, and agrees not to assert, by way of motion, as a defense,
counterclaim or otherwise, in any action or proceeding with respect to this
Agreement, (a) the defense of sovereign immunity, (b) any claim that it is not
personally subject to the jurisdiction of the above- named courts for any reason
other than the failure to serve process in accordance with this Section 10.8,
(c) that it or its property is exempt or immune from jurisdiction of any such
court or from any legal process commenced in such courts (whether through
service of notice, attachment prior to judgment, attachment in aid of execution
of judgment, execution of judgment or otherwise), and (d) to the fullest extent
permitted by applicable law that (i) the suit, action or proceeding in any such
court is brought in an inconvenient forum, (ii) the venue of such suit, action
or proceeding is improper and (iii) this Agreement, or the subject matter
hereof, may not be enforced in or by such courts.
Section 10.9 ENFORCEMENT OF AGREEMENT. The parties hereto agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement was not performed in accordance with its specified terms or was
otherwise breached. It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions to prevent breaches of this Agreement and to
enforce specifically the terms and provisions hereof in any court of competent
jurisdiction, this being in addition to any other remedy to which they are
entitled at law or in equity.
Section 10.10 WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO
THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A
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<PAGE>
TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR THE TRANSACTION CONTEMPLATED HEREBY (WHETHER BASED
ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO
REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY
OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK
TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER
PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER
THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.
A-50
<PAGE>
IN WITNESS WHEREOF, each party hereto has caused this Agreement to be signed
by its respective officer thereunto duly authorized as of the date first written
above.
<TABLE>
<S> <C> <C> <C>
NATIONAL GRID GROUP PLC
By: /s/ RICHARD P. SERGEL
---------------------------------------
Its: GROUP DIRECTOR, NORTH AMERICA
NIAGARA MOHAWK HOLDINGS, INC.
By: /s/ WILLIAM E. DAVIS
---------------------------------------
Its: CHAIRMAN AND CHIEF EXECUTIVE OFFICER
NEW NATIONAL GRID LIMITED
By: /s/ RICHARD P. SERGEL
---------------------------------------
Its: DIRECTOR
GRID DELAWARE, INC.
By: /s/ RICHARD P. SERGEL
---------------------------------------
Its: PRESIDENT
</TABLE>
<PAGE>
ANNEX B
[LOGO]
September 4, 2000
Board of Directors
Niagara Mohawk Holdings, Inc.
300 Erie Boulevard, West
Syracuse, NY 13202
Dear Sirs:
You have requested our opinion as to the fairness from a financial point of
view to the stockholders of Niagara Mohawk Holdings, Inc. (the "Company") of the
consideration to be received by the Company's stockholders pursuant to the terms
of the Agreement and Plan of Merger and Scheme of Arrangement (the "Agreement"),
by and among The National Grid Group plc. ("National Grid"), the Company, New
National Grid Limited, a newly formed holding company ("Newco"), and Grid
Delaware Inc. a newly formed corporation and wholly-owned subsidiary of Newco
("Merger Sub"). Pursuant to the Agreement, subject to the terms and conditions
of the Agreement, Newco will become a new holding company for National Grid in a
scheme of arrangement (the "Scheme") and Merger Sub will merge (the "Merger")
with and into the Company pursuant to which the Company become a wholly-owned
subsidiary of Newco.
Pursuant to the Agreement, each share of common stock of the Company, par
value $0.01 per share (the "Company Common Stock"), other than shares cancelled
pursuant to the Agreement, will be converted into the right to receive, subject
to the pro ration provisions of the Agreement, the Per Share Amount (as defined
below) in the form of: (x) cash (the "Cash Consideration"); (y) a number of
Newco American Depositary Shares ("Newco ADSs") equal to the Exchange Ratio (as
described below) (the "ADS Consideration"); or (z) a combination of Cash
Consideration and ADS Consideration determined in accordance with the Agreement
(collectively, the "Consideration").
The Per Share Amount shall be determined as follows: (i) if the Average
Price (1) is greater than or equal to $32.50 and less than or equal to $51.00,
the Per Share Amount shall be $19.00 (ii) if the Average Price is less than
$32.50, the Per Share Amount shall be: (a) $19.00 less (b) the product of: (x)
66 2/3% of $19.00 and (y) the percentage decrease in the Average Price below
$32.50; (iii) if the Average Price is greater than $51.00, the Per Share Amount
shall be: (a) $19.00 plus (b) the product of: (x) 66 2/3% of $19.00 and (y) the
percentage increase in the Average Price above $51.00. The Exchange Ratio shall
be equal to the Per Share Amount as determined above divided by the Average
Price.
(1) The Average Price of National Grid shares is defined in general in the
Agreement as the product of: (i) the average of the closing prices of
National Grid Shares on the London Stock Exchange for 20 trading days
selected at random in a period of 40 consecutive trading days ending on the
tenth day prior to the election deadline; (ii) the respective exchange rates
for USD:GBP for those days; and (iii) five.
In arriving at our opinion, we have reviewed a draft of the Agreement dated
September 2, 2000 and the exhibits thereto and we have assumed the final form of
the Agreement would not vary in any respect material to our analysis. We also
have reviewed financial and other information that was publicly available or
furnished to us by the Company and National Grid including information provided
during discussions with their respective management teams. Included in the
information provided during discussions with management were certain financial
projections of the Company for the period beginning January 1, 2000 and ending
December 31, 2007 prepared by the management of the Company. We also reviewed
financial
B-1
<PAGE>
projections of National Grid for the period beginning April 1, 2000 and ending
March 31, 2006 prepared by the management of National Grid. In addition, we have
compared certain financial and securities data of the Company with various other
companies whose securities are traded in public markets, reviewed the historical
stock prices and trading volumes of the Company Common Stock, reviewed prices
and premiums paid in certain other business combinations and conducted such
other financial studies, analyses and investigations as we deemed appropriate
for purposes of this opinion.
In rendering our opinion, we have relied upon and assumed the accuracy and
completeness of all of the financial and other information that was available to
us from public sources, that was provided to us by the Company, National Grid or
their respective representatives, or that was otherwise reviewed by us. With
respect to the financial projections supplied to us, we have relied on
representations that they have been reasonably prepared on bases reflecting the
best currently available estimates and judgments of the management of the
Company and National Grid as to the future operating and financial performance
of the Company and National Grid, respectively. We have not assumed any
responsibility for making an independent evaluation of any assets or liabilities
or for making any independent verification of any of the information reviewed by
us. We have relied as to certain legal matters on advice of counsel to the
Company.
Our opinion is necessarily based on economic, market, financial and other
conditions as they exist on, and on the information made available to us as of,
the date of this letter. It should be understood that, although subsequent
developments may affect this opinion, we do not have any obligation to update,
revise or reaffirm this opinion. We are expressing no opinion herein as to the
prices at which the Company Common Stock, National Grid Ordinary Shares or
National Grid American Depositary Shares or Newco Ordinary Shares or Newco ADSs
(each as defined in the Agreement) will actually trade at any time. Our opinion
does not address the relative merits of the Merger and the other business
strategies being considered by the Company's Board of Directors, nor does it
address the Board's decision to proceed with the Merger. Our opinion does not
constitute a recommendation to any stockholder as to how such stockholder should
vote on the proposed transaction.
Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ"), as part of its
investment banking services, is regularly engaged in the valuation of businesses
and securities in connection with mergers, acquisitions, underwritings, sales
and distributions of listed and unlisted securities, private placements and
valuations for corporate and other purposes. DLJ has performed investment
banking and other services for the Company in the past and has been compensated
for such services.
DLJ has represented the Company in many advisory or underwriting
transactions, including: (i) lead-managing $200 million of 8 7/8% Senior Notes
due 2007; (ii) advising on the sale of various of the Company's fossil
generating assets for approximately $900 million; (iii) advising on the
restructuring and termination of various of the Company's power purchase
agreements with certain of its independent power producers for approximately
$3.6 billion in cash and 42.9 million shares of Company Common Stock; (iv)
lead-managing $3.45 billion of Senior Notes of various maturities and $316
million of Company Common Stock.
Based upon the foregoing and such other factors as we deem relevant, we are
of the opinion that the Consideration to be received by the stockholders of the
Company pursuant to the Agreement is fair to such stockholders from a financial
point of view.
<TABLE>
<S> <C> <C>
Very truly yours,
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By:
[/S/ MICHAEL W. RANGER]
Michael W. Ranger
Managing Director
</TABLE>
B-2
<PAGE>
Niagara Mohawk
Holdings, Inc.
IF YOU WISH TO VOTE BY
TELEPHONE OR INTERNET,
PLEASE READ THE INSTRUCTIONS BELOW.
Niagara Mohawk Holdings, Inc. encourages
you to take advantage of voting your
shares electronically on matters to be
covered at the Special Meeting of
Shareholders on January 19, 2001.
Please take the opportunity to use one
of the three voting methods outlined
below to cast your ballot.
VOTE BY PHONE - (800) 250-9081
Use any touch-tone telephone to vote
your proxy 24 hours a day, 7 days a
week. Have your proxy card in hand when
you call. You will be prompted to enter
your Control Number, which is located
below, and then follow the simple
prompts that will be presented to you to
record your vote.
VOTE BY INTERNET -
HTTP://WWW.VOTEFAST.COM
Use the Internet to vote your proxy 24
hours a day, 7 days a week. Have your
proxy card in hand when you access the
web site. You will be prompted to enter
your Control Number, and then you can
follow the simple prompts that will be
presented to you to record your vote.
VOTE BY MAIL
Mark, sign and date your proxy card and
return it in the enclosed postage-paid
envelope or return to: Corporate
Election Services, P.O. Box 1150,
Pittsburgh, PA 15230-9954.
IF YOU VOTE BY PHONE OR BY USING THE INTERNET, PLEASE DO NOT MAIL YOUR PROXY.
THANK YOU FOR VOTING.
CONTROL NUMBER:
PLEASE FOLD AND DETACH HERE Please mark your votes as this /X/
--------------------------------------------------------------------------------
NIAGARA MOHAWK HOLDINGS, INC.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ADOPTION OF THE MERGER AGREEMENT:
Adoption of the Merger Agreement, dated as of September 4, 2000, as
amended on December 1, 2000, pursuant to which Niagara Mohawk Holdings,
Inc. will become a wholly-owned subsidiary of a successor to National Grid
Group plc:
For /_/ Against /_/ Abstain /_/
/_/ Please check this box if you plan to attend the Special Meeting of
Shareholders.
--------------------------------------
SIGNATURE DATE
--------------------------------------
SIGNATURE (JOINT OWNERS) DATE
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY PROMPTLY IN THE ENCLOSED ENVELOPE.
<PAGE>
========================== A D M I S S I O N C A R D ==========================
NIAGARA MOHAWK HOLDINGS, INC. SPECIAL MEETING OF SHAREHOLDERS
- JANUARY 19, 2001 - 10:30 A.M.
PLEASE BRING THIS CARD TO THE SPECIAL MEETING. IT WILL
EXPEDITE YOUR ADMITTANCE WHEN PRESENTED UPON YOUR ARRIVAL.
/_/ Company employee
/_/ Company retiree
/_/ Invited guest representing:
--------------------------------
(Company, organization, etc.)
THE ONONDAGA COUNTY CONVENTION CENTER
800 SO. STATE STREET
SYRACUSE, NEW YORK 13202-3017
================================================================================
PLEASE FOLD AND DETACH HERE
PLEASE FOLD AND DETACH HERE
NIAGARA MOHAWK HOLDINGS, INC.
300 Erie Boulevard West, Syracuse, New York 13202
The undersigned hereby appoints William F. Allyn, William E. Davis, Henry A.
Panasci, Jr., and Patti McGill Peterson and each or any of them, proxies of the
undersigned, with full power of substitution to represent and to vote, as
designated on the reverse side, and on any other business that may come before
the meeting, all the shares of Common Stock of the Corporation held of record by
the undersigned on November 29, 2000 at the Special Meeting of Shareholders to
be held on January 19, 2001 and at any adjournment(s) thereof. Said proxies
are instructed to vote as indicated by the undersigned, and in such proxies'
discretion on any other business that may come before the meeting. If no
instructions are given, said proxies will vote FOR adoption of the merger
agreement.
If voting by mail, please date, sign exactly as your name appears on the form
and mail the proxy promptly. When signing as an attorney, executor,
administrator, trustee or guardian, please give your full title as such. If
shares are held jointly, both owners should sign.
(CONTINUED AND TO BE VOTED AND SIGNED ON REVERSE)
