As filed with the Securities and Exchange Commission on
April 30, 1999
File No. 70-9473
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
PRE-EFFECTIVE AMENDMENT NO. 1 TO THE
APPLICATION-DECLARATION
UNDER
THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
The National Grid Group plc
National Grid House
Kirby Corner Road
Coventry CV4 8JY
United Kingdom
New England Electric System
25 Research Drive
Westborough, Massachusetts 01582
(Name of companies filing this statement
and addresses of principal executive offices)
The National Grid Group plc
National Grid House
Kirby Corner Road
Coventry CV4 8JY
United Kingdom
(Name of top registered holding company parent)
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Jonathan M. G. Carlton Douglas W. Hawes
The National Grid Group plc Joanne C. Rutkowski
National Grid House Sheri E. Bloomberg
Kirby Corner Road LeBoeuf, Lamb, Greene & MacRae, L.L.P.
Coventry CV4 8JY New York, NY 10019
United Kingdom Telephone: 212-424-8000
Telephone: 011-44-1203-423-006 Facsimile: 212-424-8500
Facsimile: 011-44-1203-423-026
National Grid (USA) Inc.
10th Floor
Oliver Building
2 Oliver Street
Boston, MA 02109
Michael E. Jesanis Clifford M. Naeve
Kirk L. Ramsauer Judith A. Center
New England Electric System Skadden, Arps, Slate, Meagher
25 Research Drive & Flom L.L.P.
Westborough, Massachusetts 01582 1440 New York Avenue, N.W.
Washington, D.C. 20005
(Names and addresses of agents for service)
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This Pre-Effective Amendment No. 1 amends the Form U-1
Application/Declaration in this proceeding which originally filed with the
Securities and Exchange Commission on March 26, 1999 as follows:
A. To the extent that the Commission approves the acquisition of EUA NEES in
accordance with NEES' separate application relating thereto, National Grid and
the Intermediate Companies hereby request authorization to acquire an indirect
interest in EUA's utility subsidiaries and certain EUA's non-utility operations.
B. Item 1.B is amended and restated as follows:
1. National Grid
National Grid is a holding company formed in 1989. Its principal
subsidiary, The National Grid Company plc, a public limited company formed under
the laws of England and Wales ("National Grid Company") was created as a result
of the privatization and restructuring of the British electric system. National
Grid's ordinary shares are listed on the London Stock Exchange (the "LSE") and
National Grid has an unsponsored American Depositary Receipt ("ADR") program
pursuant to which a relatively small amount of its shares trade in the United
States as ADRs. National Grid is preparing the necessary documentation which
will enable it to become listed on a public exchange in North America through a
full ADR program sometime prior to the closing of this transaction.
National Grid currently has one direct subsidiary, National Grid Holdings
plc. ("National Grid Holdings") National Grid Holdings was formed under the laws
of England and Wales in 1999 to serve as a subholding company over National Grid
Company and the other subsidiaries of National Grid not in the NEES chain of
ownership. Prior to consummation of the Merger, National Grid Holdings will file
its notification of a foreign utility company ("FUCO") status to qualify as a
FUCO within the meaning of Section 33 of the Act. The parities expect that
National Grid Holdings will retain this status following the Merger. A revised
chart showing National Grid and all of its subsidiaries following the formation
of National Grid Holdings is attached hereto as Exhibit E-3.
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The following entities are the direct subsidiaries of National Grid
Holdings and the description of their operations provides a description of the
principal lines of business, as well as some administrative operations, within
the National Grid holding company system.
a. National Grid Company -- As part of the U.K. government's privatization
efforts, the Central Electricity Generating Board, which owned and operated the
vast majority of electric generation and transmission facilities in England and
Wales, was split into three competing generation companies, and an independent
transmission company, National Grid Company. As a result, National Grid Company
is the only transmission company in England and Wales and now owns 4,300 miles
of overhead transmission lines and 400 miles of underground cables, all in
England and Wales, as well as interconnections with Scotland and France. The
principal functions of National Grid Company in the competitive British power
supply market are to provide transmission services on a for-profit,
non-discriminatory basis, and to maintain and make all needed improvements to
optimize access to that system; to procure ancillary services on the
transmission system; to match demand and supply; to manage the daily system of
half-hourly bids for competing generators; and to calculate market prices and
make the payments due from each day's energy trading. National Grid Company is
subject to regulatory controls overseen by the Director General of Electricity
Supply with regard to the prices it may charge for transmission services in
England and Wales. The current transmission price control arrangements for
National Grid Company are expected to remain in force until March 31, 2001.
b. National Grid Insurance Limited, is an insurance subsidiary formed in
connection with the self-insured retention of National Grid Company's
transmission assets. National Grid owns all of the outstanding ordinary shares
of National Grid Insurance Limited, with preference shares held by Barclays
Bank.
c. National Grid International Limited, is an intermediate holding company
for certain of the overseas operations of National Grid.
d. The National Grid Group Quest Trustees Limited is the trustee company
for National Grid's qualifying employee share ownership trust.
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e. NGG Telecoms Holdings Limited indirectly holds National Grid's interest
(currently at 48.3%) in Energis plc ("Energis"), a telecommunications company
focusing on the business marketplace in the United Kingdom.
f. Natgrid Finance Holdings Limited is an intermediate holding company for
entities that provide financial management services to National Grid.
2. NEES
NEES is organized and exists as a voluntary association created under the
laws of the Commonwealth of Massachusetts on January 2, 1926. NEES's principal
executive office is located at 25 Research Drive, Westborough, Massachusetts
01582.
NEES is a holding company registered under Section 5 of the 1935 Act, and
it and its subsidiaries are subject to the broad regulatory provisions of the
Act. Various NEES subsidiaries are also subject to regulation by (i) the FERC
under the Federal Power Act ("FPA") with respect to wholesale sales and
transmission of electric power, construction and operation of hydroelectric
project, and accounting and other matters, and (ii) various state regulatory
commissions, as discussed below. In addition, the activities of nuclear
facilities in which NEES and its subsidiaries have ownership interests are
regulated by the NRC.
The common stock, par value of $1.00 per share, of NEES is listed on the
New York Stock Exchange and the Boston Stock Exchange. As of December 31, 1998,
there were 59,171,015 shares of NEES common stock outstanding. On a consolidated
basis at the end of 1998, NEES had total assets of $5.07 billion, net utility
assets of $2.5 billion, total operating revenues of $2.42 billion, utility
operating revenues of $2.24 billion, and net income of $190 million.
NEES owns all of the voting securities of the following four distribution
subsidiaries, Mass. Electric, Narragansett, Granite State and Nantucket, and
99.97 percent of the outstanding voting securities of its principal transmission
subsidiary, NEP. The NEES system covers more than 4,500 square miles with a
population of approximately 3,000,000. At December 31, 1998, NEES and its
subsidiaries had approximately 3,540 employees.
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a. Mass. Electric is a public utility company engaged in the delivery of
electric energy to approximately 980,000 customers in an area comprising
approximately 43 percent of Massachusetts. Mass. Electric's service area
consists of 146 cities and towns, including the highly diversified commercial
and industrial cities of Worcester, Lowell and Quincy. The population of the
service area is approximately 2,160,000, or 36 percent of the total population
of the state. During 1998, 39 percent of Mass. Electric's revenues from the sale
of electricity was derived from residential customers, 39 percent from
commercial customers, 21 percent from industrial customers and 1 percent from
others. In 1998, the utility's 20 largest customers accounted for approximately
7 percent of its electric revenues. At the end of 1998, Mass. Electric had total
assets of $1.45 billion, operating revenues of $1.49 billion and net income of
$50.4 million. Mass. Electric is subject to regulation by the FERC and the MDTE.
b. Narragansett is a public utility company engaged in the delivery of
electric energy to approximately 335,000 customers in Rhode Island. Its service
area covers about 839 square miles, or 80 percent of the area of the state, and
encompasses 27 cities and towns, including Providence, East Providence, Cranston
and Warwick. The population of the service area is approximately 725,000 or 72
percent of the total population of the state. During 1998, 44 percent of
Narragansett's revenues from the sale of electricity was derived from
residential customers, 40 percent from commercial customers, 14 percent from
industrial customers, and 2 percent from others. In 1998, the 20 largest
customers of Narragansett accounted for approximately 10 percent of its electric
revenues. At the end of 1998, Narragansett had total assets of $644.1 million,
operating revenues of $475 million and net income of $32.3 million. Narragansett
is subject to regulation by the FERC, the RIPUC and the Rhode Island Division of
Public Utilities and Carriers ("RIDIV").
c. Granite State is a public utility company engaged in the delivery of
electric energy to approximately 37,000 customers in 21 New Hampshire
communities. The Granite State service territory has a population of
approximately 73,000 and includes the Salem area of southern New Hampshire and
several communities along the Connecticut River. During 1998, 49 percent of
Granite State's revenues from the sale of electricity was derived
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from commercial customers, 36 percent from residential customers, 14 percent
from industrial customers, and 1 percent from others. In 1998, the 10 largest
customers of Granite State accounted for approximately 18 percent of its
electric revenue. At the end of 1998, Granite State had total assets of $61.8
million, operating revenues of $65.7 million, and net income of $3.2 million.
Granite State is subject to regulation by the FERC and the NHPUC.
d. Nantucket provides electric utility service to approximately 10,000
customers on Nantucket Island in Massachusetts. Nantucket's year-round
population is approximately 6,000, with a summer peak of approximately 40,000.
Nantucket's service area covers the entire island. During 1998, 62 percent of
Nantucket's revenues from the sale of electricity was derived from residential
customers, 37 percent from commercial customers and 1 percent from others. At
the end of 1998, Nantucket had total assets of $44 million, operating revenues
of $15.1 million, and net income of $567,000. Nantucket is subject to regulation
by the FERC and the MDTE.
e. NEP is principally engaged in purchasing, transmitting and selling
electric energy at wholesale. In 1998, 98 percent of NEP's all-requirement
revenue from the sale of electricity was derived from sales for resale to
affiliated companies and 2 percent from sales for resale to municipal and other
utilities. NEP has recently completed the sale of substantially all of its
non-nuclear generating business and currently is attempting to sell its minority
interests in three operating nuclear power plants and one fossil-fueled
generating station in Maine.1 At the end of 1998, NEP had total assets of $2.41
billion, operating revenues of $1.2 billion and net income of $122.9 million.
NEP is subject, for certain purposes, to regulation by the SEC, the FERC, the
NRC, the RIDIV, the MDTE, the NHPUC, the VPSB, the CDPUC, and the Maine Public
Utilities Commission.
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1 NEP is also a holding company because it owns more than 10 percent of the
outstanding voting securities of Vermont Yankee Nuclear Power Corporation, the
licensed operator of the Vermont Yankee nuclear facility. NEP also has minority
interests in Yankee Atomic Electric Company, Maine Yankee Atomic Power Company
and Connecticut Yankee Atomic Power Company, all of which have permanently
ceased operations. NEP is an exempt holding company under the Act. Yankee Atomic
Electric Company, Holding Co. Act Release No. 13048 (Nov. 25, 1955); Connecticut
Yankee Atomic Power Company, Holding Co. Act Release No. 14768 (Nov. 15, 1963).
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f. New England Electric Transmission ("NEET"), a wholly owned subsidiary of
NEES, owns and operates a direct current/alternating current converter terminal
facility for the first phase of the Hydro-Quebec and New England interconnection
(the "Interconnection") and six miles of high voltage direct current
transmission line in New Hampshire.
g. New England Hydro-Transmission Corporation ("N.H. Hydro"), in which NEES
holds 53.97% of the common stock, operates 121 miles of high-voltage direct
current transmission line in New Hampshire for the second phase of the
Interconnection, extending to the Massachusetts border. At the end of 1998, N.H.
Hydro had total assets of $131 million, operating revenues of $31.7 million, and
net income of $4.8 million.
h. New England Hydro-Transmission Electric Company ("Mass. Hydro"), 53.97%
of the voting stock of which is held by NEES, operates a direct
current/alternating current terminal and related facilities for the second phase
of the Interconnection and 12 miles of high-voltage direct current transmission
line in Massachusetts. At the end of 1998, Mass. Hydro had total assets of $160
million, operating revenues of $37 million, and net income of $7.8 million.
o New England Hydro Finance Company, Inc. ("NE Hydro Finance") is
owned in equal shares by Mass. Hydro and N.H. Hydro and provides
the debt financing required by the owners to fund the capital
costs of their participation in the Interconnection.
i. NEES Communication, Inc. ("NEESCom") is an exempt telecommunications
company that provides telecommunications and information-related goods and
services. NEESCom holds a license issued by and is subject to regulation by the
Federal Communications Commission. NEESCom plans to focus on the fiber optics,
cable and infrastructure sectors of the telecommunications industry. At the end
of 1998, NEESCom had total assets of $12.6 million and a net loss of $1.2
million.
j. NEES Global, Inc. ("NEES Global") is a wholly-owned nonutility
subsidiary of NEES that provides consulting services and product licenses to
unaffiliated
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utilities in the areas of electric utility restructuring and customer choice.
NEES Global also leases water heaters through its subsidiary, New England Water
Heater Co. At the end of 1998, NEES Global had total assets of $23.2 million and
a net loss of $1.1 million for the year.
k. NEES Energy, Inc. ("NEES Energy") is a wholly-owned marketing subsidiary
of NEES.
o AllEnergy Marketing Company, L.L.C. ("AllEnergy") is an indirect,
wholly-owned subsidiary of NEES. NEES Energy owns 99 percent of
the voting securities of AllEnergy; NEES Global owns the
remaining 1 percent. AllEnergy markets energy products and
provides a wide range of energy-related services including, but
not limited to, marketing, brokering and sales of energy, audits,
fuel supply, repair, maintenance, construction, operation,
design, engineering and consulting to customers in the
competitive power markets of New England and New York.
l. Granite State Energy, Inc. ("Granite State") is a wholly-owned
nonutility marketing subsidiary of NEES. Granite State provides a range of
energy and energy-related services, including: sales of electric energy, audits,
power quality, fuel supply, repair, maintenance, construction, design,
engineering and consulting. At the end of 1998, Granite State had total assets
of $304,000, operating revenues of $718,000 and a net loss of $22,000.
m. New England Water Heating Company is engaged in the rental, service,
sale and installation of water heaters.
n. New England Power Service Company ("Service Company"), provides a
variety of administrative and consulting services for the NEES system pursuant
to a service agreement approved by the Commission in accordance with the
requirements of Rule 90. At the end of 1998, Service Company had total assets of
$123.1 million and net income of $1.8 million.
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Narragansett and NEP (and AllEnergy) are members of the New England Power
Pool ("NEPOOL"). Mass. Electric, Nantucket and Granite State participate in
NEPOOL through NEP. The FERC recently has approved a restructuring of NEPOOL
involving (i) the formation of an Independent System Operator that will control
the transmission facilities owned by the NEPOOL public utility members and
administer the NEPOOL open-access transmission tariff and (ii) the operation of
a power exchange that will embody a competitive wholesale power market. New
England Power Pool, 85 FERC P. 61,379 (Dec. 17, 1998).
A chart of the organization of NEES is attached hereto as Exhibit E-4.
C. Item 2 is amended and restated as follows:
Millions
Accountants' fees $ 6.9
Legal fees and expenses 5.0
Shareholder communication and proxy solicitation expenses 1.4
Investment bankers' fees and expenses 19.6
Consulting fees .8
Miscellaneous 2.0
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Total $ 35.7
The total fees, commissions and expenses expected to be incurred in
connection with the Merger are estimated to be approximately $35.7 million.
D. Item 3.A.1.c is amended and restated as follows
a. Section 10(b)(2) -Reasonableness of Fees
National Grid believes that the overall fees, commissions and expenses
incurred and to be incurred in connection with the Merger are reasonable and
fair in light of the size and complexity of the Merger relative to other
transactions and the anticipated benefits of the
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Merger to the public, investors and consumers; that they are consistent with
recent precedent; and that they meet the standards of Section 10(b)(2).
As set forth in Item 2 of this Application/Declaration, National Grid and
NEES together expect to incur a combined total of approximately $35.7 million in
fees, commissions and expenses in connection with the Merger. By contrast,
American Electric Power Company and Central and South West Corporation have
represented that they expect to incur total transaction fees and regulatory
processing fees of approximately $53 million, including financial advisory fees
of approximately $31 million, in connection with their proposed Merger.
The Applicants believe that the estimated fees and expenses in this matter
bear a fair relation to the value of NEES and the strategic benefits to be
achieved by the Merger, and further that the fees and expenses are fair and
reasonable in light of the complexity of the Merger. See Northeast Utilities,
Holding Co. Act Release No. 25548 (June 3, 1992), modified on other grounds,
Holding Co. Act Release No. 25550 (June 4, 1992) (noting that fees and expenses
must bear a fair relation to the value of the company to be acquired and the
benefits to be achieved in connection with the acquisition). Based on the price
of NEES stock on December 11, 1998, the Merger would be valued at approximately
$3.2 billion. The total estimated fees and expenses of $35.7 million represent
approximately 1.25% of the value of the consideration to be paid by National
Grid Company, and are consistent with (and are in fact generally lower than)
percentages previously approved by the Commission. See, e.g., Entergy Corp.,
Holding Co. Act Release No. 25952 (Dec. 17, 1993) (fees and expenses represented
approximately 1.7% of the value of the consideration paid to the shareholders of
Gulf States Utilities); Northeast Utilities, Holding Co. Act Release No. 25548
(June 3, 1992) (approximately 2% of the value of the assets to be acquired).
E. Item 3.A.2.a.i is amended and restated as follows:
Section 11(b)(1) directs the Commission:
To require . . . that each registered holding company, and each
subsidiary company thereof, shall take such take such action as the
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Commission shall find necessary to limit the operations of the
holding- company system of which such company is a part to a single
integrated public-utility system, and to such other businesses as are
reasonably incidental, or economically necessary or appropriate to the
operations of such integrated public-utility system. . . . The
Commission may permit as reasonably incidental, or economically
necessary or appropriate to the operations of one or more integrated
public-utility systems the retention of an interest in any business
(other than the business of a public-utility company as such) which
the Commission shall find necessary or appropriate in the public
interest or for the protection of investors or consumers and not
detrimental to the proper functioning of such system or systems.
For purposes of the single system requirement, the Merger would simply impose a
new holding company structure over a fully-integrated electric utility system.
The question then becomes whether the "other businesses" of National Grid
are retainable under the standards of Section 11 and the statutory amendments
thereto. As previously noted, National Grid Holdings, National Grid's only
direct subsidiary, will claim an exemption as a FUCO under the Act. Thus,
National Grid Holdings and all of its subsidiaries will be exempt form
regulation, and are retainable, under the Act in accordance with the provisions
of Section 33(a)(1) of the Act.
Although not jurisdictional, the parties note that National Grid's indirect
subsidiaries would be retainable in their own right as well. Attached as Exhibit
2 is a description of each of these subsidiaries and an explanation of the
independent bases for retention for these entities.
F. Item 3.B.1 is amended to add the following paragraph to the end thereto:
The Applicant also seeks confirmation that National Grid's borrowing under
Credit Facility for purposes of financing the Merger are permissible under the
Act and may be repaid in accordance with the terms of the Credit Facility, which
is attached hereto as Exhibit
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B-3. Although National Grid will technically incur this indebtedness just prior
to its acquisition of NEES and consequent registration as a holding company, as
previously discussed, the parties recognize that the Commission will take this
financing into account in approving the transaction. These borrowings will be
made from sophisticated commercial lenders on terms negotiated at arms-length.
G. Item 4 is amended and restated as follows:
Set forth below is a summary of the regulatory approvals that National Grid
and NEES expect to obtain in connection with the Merger.
a. Antitrust
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 consummated 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. NEES and National Grid Group filed their premerger
notifications on March 31, 1999 and on April 9, 1999 the waiting period
thereunder was terminated. If the Merger is not consummated within 12 months
after the expiration or earlier termination of the initial HSR Act waiting
period, NEES and National Grid Group 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 consummated.
b. 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 FERC 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 FERC.
Because this transaction involves a change in ownership and control of NEES's
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public utility subsidiaries, the prior approval of the FERC under FPA Section
203 is required in order to consummate the Merger.
Under Section 203 of the FPA, the FERC is directed to approve a Merger if
it finds such Merger "consistent with the public interest." In reviewing a
Merger, the FERC 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. NEES and
National Grid Group believe the proposed Merger satisfies these standards.
NEES's public utility subsidiaries filed an application with the FERC on
March 10, 1999 requesting that the FERC approve the Merger under Section 203 of
the EPA. The FERC issued a notice on March 10, 1999, indicating the comment
period relating to this application expires on May 10, 1999.
c. Atomic Energy Act
Since NEP holds licenses issued by the Nuclear Regulatory Commission
("NRC") in connection with that subsidiary's interests in various nuclear power
plants and also holds minority common stock interest in corporations that hold
such licenses, the Merger (which would constitute an indirect transfer of NEP's
licenses to National Grid Group) requires NRC approval under the Atomic Energy
Act of 1954. The Atomic Energy Act effectively prohibits foreign ownership or
control of a nuclear license (as distinct from the physical plant). National
Grid Group is a foreign entity within the meaning of the Atomic Energy Act. NEES
and National Grid Group believe they can satisfy NRC concerns about foreign
ownership and control. NEP's minority interests in the common stock of
corporations that hold nuclear licenses does not give NEES control over such
facilities or the licensee for the facilities, and therefore the indirect
acquisition by National Grid Group of NEP's interest will not be inconsistent
with the Atomic Energy Act. In addition, although NEP owns a minority interest
in two nuclear facilities and therefore has minority, non-operating ownership
licenses with respect to those facilities, NEP has no control over the
facilities themselves, and a recently issued NRC review procedure regarding
foreign ownership or control provides that
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foreign ownership of such minority non-operating licenses is permissible,
provided that the licensee agrees to conditions that prevent foreign domination
or control of the facility. NEES and National Grid Group have filed an
application with the NRC agreeing to such conditions on March 15, 1999. The NRC
recently adopted a similar framework to that proposed by NEES and National Grid
Group in its Order Approving Transfer of License for the Three Mile Island
Nuclear Station, Unit 1, from GPU Nuclear, Inc., et al., to Amergen Energy
Company LLC and Approving Conforming Amendment, issued April 12, 1999. NEES and
National Grid Group have been informed that the NRC intends to review the
transfer of all licenses in which NEP has an interest, including through
minority positions in common stock, within the context of the application filed
by the parties.
d. Exon-Florio
The Committee on Foreign Investment in the United States ("CFIUS") may
review and investigate the Merger under Exon-Florio, and the President of the
United States or his designee is empowered to take certain actions in relation
to Mergers, acquisitions and takeovers by foreign persons which could result in
foreign control of persons engaged in interstate commerce in the United States
pursuant to Exon-Florio. In particular, Exon-Florio enables the President to
block or reverse any acquisitions by foreign persons which threaten to impair
the national security of the United States. Before the Merger may be
consummated, any CFIUS review and investigation of the Merger under Exon-Florio
must have terminated, and the President must not have taken any of his
authorized actions under Exon-Florio. The Exon-Florio application in connection
with the Merger was filed on March 30, 1999 and on April 29, 1999 the parties
were informed by the Deparment of the Treasury that action under Exon-Florio had
concluded with respect to the Merger.
e. State Regulatory Approval
The Merger does not require the approval of the MDTE or the RIPUC. The
merger does require the approval of the VPSB and the CDPUC and is subject to
review by the NHPUC.
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While the MDTE does not have jurisdiction over the merger, NEES and
National Grid made an informational filing on March 8, 1999 with the MDTE,
describing the merger and the benefits of the merger to ratepayers. As part of
the filing, the companies advised the MDTE that the SEC would be seeking a
certification from the MDTE, the RIPUC and the NHPUC that each of the state
commissions has the authority and resources to protect ratepayers in matter such
as rates, financings, affiliate transactions and the financial integrity of the
operating utility within its state and additionally that the commission intends
to continue to exercise its authority.
On March 18, 1999, the companies made a similar informational filing with
the NHPUC and requested certification from the NHPUC to the SEC that it has the
authority and resources to protect ratepayers. The companies also filed
affidavits attesting to the fact that the transaction would not adversely affect
ratepayers and that there would be no change in the NHPUC's jurisdiction over
Granite State and NEP as a result of the merger. On April 21, 1999, the NHPUC
issued an order finding that the merger did not satisfy the requirements for
exemption from the NHPUC's formal review process. A procedural schedule for the
NHPUC's review is expected to be established on May 4, 1999.
While the RIPUC has indicated that no filing with it is required, a copy of
the informational filing made with the MDTE was given to the RIPUC.
Additionally, the companies will be meeting with the RIPUC and staff to answer
any questions they may have and to request that a certification to the SEC from
the RIPUC that it has the authority and resources to protect ratepayers.
NEP has a small amount of transmission assets in Vermont and therefore is
deemed to be a Vermont public utility. While the VPSB has no regulatory
jurisdiction over NEP's operations, under Vermont law it does have authority to
approve the merger. The application for approval of the Merger by the VPSB was
filed on March 29, 1999.
The CDPUC has jurisdiction over the transaction because of NEP's minority
ownership interest in the Millstone III Nuclear Power Plant. On March 31, 1999,
the parties
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filed a letter with the CDPUC seeking confirmation that CDPUC approval is not
required for the Merger.
* * * * *
Finally, pursuant to Rule 24 under the Act, the Applicants represent that the
transactions proposed in this filing shall be carried out in accordance with the
terms and conditions of, and for the purposes stated in, the
declaration-application no later than December 31, 2004.
I. Item 6 is amended and restated as follows:
A. Exhibits
A-1 Memorandum and Articles of Association of The National Grid Group
plc (previously filed).
A-2 Agreement and Declaration of Trust of New England Electric System
(filed as Exhibit 3 to the 1994 NEES Form 10-K (File No. 1-3446),
and incorporated herein by reference).
A-2.2 Proposed amendment to the NEES Agreement and Declaration of
Trust (included in Exhibit C-1 hereto).
B-1 Agreement and Plan of Merger, dated as of December 11, 1998, by
and among NEES, National Grid Group and NGG Holdings LLC
(included in Exhibit C-1 hereto).
B-2 NEES Standard Form of Service Contract, as amended (previously
filed).
B-3 National Grid Group Credit Agreement.
C-1 Proxy Statement of NEES for the shareholders meeting to be held
in connection with the Merger (filed with the Commission on March
26, 1999 and incorporated by reference herein).
C-2 Circular of National Grid Group for the extraordinary general
meeting of shareholders to be held in connection with the Merger
D-1.1 Joint Application of New England Power Company, Massachusetts
Electric Company, The Narragansett Electric Company, New England
Electric Transmission Corporation, New England Hydro-Transmission
Corporation, New England Hydro-Transmission Electric Company
Inc., AllEnergy Marketing Company, L.L.C. and NGG Holdings LLC
before the FERC (previously filed).
-15-
<PAGE>
D-1.2 Order of the FERC (to be filed by amendment).
D-2.1 Application of New England Power Company before the NRC
(previously filed).
D-2.2 Order of the NRC (to be filed by amendment).
D-3.1 Submission to the MDTE (previously filed).
D-3.2 Response from the MDTE (to be filed by amendment).
D-4.1 Omitted
D-4.2 Omitted
D-5.1 Submission to the NHPUC (previously filed).
D-5.2 Order of the NHPUC
D-5.3 Additional submission to the NHPUC (to be filed by amendment)
D-5.4 Final response of the NHPUC (to be filed by amendment)
D-6.1 Submission to the VPSB.
D-6.2 Response from the VPSB (to be filed by amendment).
D-7.1 Submission to the CDPUC.
D-7.2 Order of the CDPUC (to be filed by amendment).
E-1 Map of service territory of NEES (previously filed).
E-2 NGG Corporate Chart, as revised. (filed in paper format on Form
SE)
E-3 NEES Corporate Chart (previously filed).
F-1.1 Opinion of Counsel - National Grid Group. (to be filed by
amendment)
F-1.2 Opinion of Counsel - NEES. (to be filed by amendment)
F-2 Past tense opinion of counsel (to be filed by amendment).
G-1 Opinion of Merrill Lynch, Pierce, Fenner & Smith Incorporated
(included in Exhibit C-1).
H-1 Annual Report of National Grid Group dated March 31, 1998
(previously filed).
H-2 Annual Report on Form 10-K of NEES for the year ended December
31, 1998 (filed with the Commission on March 31, 1999 and
incorporated by reference herein).
-16-
<PAGE>
H-3 Form U5S of NEES for the year ended December 31, 1998 (to be
filed by amendment).
I-1 Proposed Form of Notice (previously filed).
J-1 Description of Nonutility Subsidiaries of National Grid, as
revised.
J-2 Merger Structure and Description of Intermediate Companies
(previously filed).
J-3 "The Financial Strength of the National Grid Group and the
Proposed Acquisitions of NEES and EUA," Julian Franks and the
Brattle Group (March, 1999) (previously filed).
B. Financial Statements
FS-1 National Grid Group Unaudited Pro Forma Condensed Consolidated
Balance Sheet (to be filed by amendment).
FS-2 National Grid Group Unaudited Pro Forma Condensed Consolidated
Statement of Income (to be filed by amendment).
FS-3 Notes to Unaudited Pro Forma Condensed Consolidated Financial
Statements (to be filed by amendment).
FS-4 National Grid Group Consolidated Balance Sheet.
FS-5 National Grid Group Consolidated Profit and Loss Account, Cash
Flow Statement and Statement of Total Recognized Gains and
Losses.
FS-5.1 Notes to National Grid Group Consolidated Financial Statements.
FS-6 NEES Consolidated Balance Sheet as of December 31, 1998 (included
in Exhibit H-2).
FS-7 NEES Consolidated Statement of Income for the twelve months ended
December 31, 1998 (included in Exhibit H-2).
-17-
<PAGE>
SIGNATURE
Pursuant to the requirements of the Public Utility Holding Company Act of
1935, the Applicants have duly caused this Pre-Effective Amendment No. 1 to the
Application/Declaration on Form U-1 to be signed on their behalf of by the
undersigned thereunto duly authorized.
Date: April 30, 1999
THE NATIONAL GRID GROUP PLC
/s/ Jonathan M.G. Carlton
Jonathan M.G. Carlton
Business Development Manager - Regulation
NEW ENGLAND ELECTRIC SYSTEM
/s/ Kirk L. Ramsauer
Kirk L. Ramsauer
Deputy General Counsel
-18-
THIS AGREEMENT is made on 5th March, 1999
BETWEEN:
(1) THE NATIONAL GRID GROUP plc (a company incorporated in England and Wales
with registered number 2367004) ("NGG") as initial guarantor and as a
Borrower;
(2) THE NATIONAL GRID COMPANY plc (a company incorporated in England and Wales
with registered number 2366977) ("NG Company") as a Borrower;
(3) ABN AMRO BANK N.V., BARCLAYS CAPITAL, CHASE MANHATTAN PLC, DEUTSCHE BANK AG
LONDON, DRESDNER KLEINWORT BENSON and HSBC INVESTMENT BANK plc as joint
arrangers (the "Arrangers");
(4) HSBC INVESTMENT BANK plc as agent (the "Agent"); and
(5) THE BANKS AND FINANCIAL INSTITUTIONS listed in Schedule 1 (The Banks) as
Banks.
IT IS AGREED as follows:
1. INTERPRETATION
1.1 Definitions
In this Agreement:
"1996 Facility Agreement"
means the (pound)800,000,000 syndicated revolving credit and acceptance
facility agreement dated 6th June, 1996 between (amongst others) NG
Company, NGG and Morgan Guaranty Trust Company of New York as Agent;
"Acceptance Commission Rate"
means the percentage rate per annum in respect of a Utilisation of the Bill
Facility determined in accordance with Clause 10.6 (Applicable Margin and
Acceptance Commission Rate);
"Additional Borrower"
means:
(A) a wholly owned Subsidiary of NGG (other than NG Company) incorporated
in the United Kingdom; or
(B) any other Subsidiary of NGG approved in writing by all of the Banks,
which, in each case, becomes a Borrower in accordance with Clause 29.4
(Additional Borrowers);
<PAGE>
"Additional Guarantor"
means a member of the Group which becomes a guarantor in accordance with
Clause 29.5 (Additional Guarantors);
"Advance"
means a Facility A Advance, a Facility B Advance, a Facility C Advance, a
Facility D Advance or a Term-out Advance as the case may be;
"Affiliate"
means a Subsidiary or a Holding Company (as defined in Section 736 of the
Companies Act 1985) of a person and any other Subsidiary of that Holding
Company;
"Agent's Spot Rate of Exchange"
means the spot rate of exchange as determined by the Agent for the purchase
of the relevant Optional Currency in the London foreign exchange market
with Dollars or Sterling, as applicable, at or about 11.00 a.m. on a
particular day;
"Anniversary"
means an anniversary of the Signing Date;
"Applicable Margin"
means the percentage rate per annum determined from time to time to be the
Applicable Margin in accordance with Clause 10.6 (Applicable Margin and
Acceptance Commission Rate);
"Asset Disposal"
means any single disposal of any assets (including but not limited to a
disposal of any Subsidiary or Affiliate, any disposal to facilitate or as
part of a securitisation and any issue by a member of the Group of any debt
instrument convertible into all or any part of the equity share capital
owned by it in another member of the Group) by any member of the Group
after the Signing Date other than a disposal of assets permitted under
paragraphs (i) to (vii) of Clause 20.9(b) (Disposals);
"Balance Sheet"
means, at any time, the latest published audited consolidated balance sheet
of the Group;
"Banks"
means each of the banks and financial institutions listed in Parts I to IV
of Schedule 1 (The Banks), their respective successors in title and any
other bank or financial institution which becomes a Party pursuant to
Clause 29.3 (Procedure for transfers);
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<PAGE>
"Bill"
means a Sterling bill of exchange substantially in the form set out in
Schedule 5 (Form of Bill);
"Bill Facility"
means the acceptance credit facility forming part of Facility D referred to
in Clause 2 (The Facilities);
"Borrower"
means each of:
(a) in relation to Facility D only, NG Company; and
(b) in relation to Facilities A, B and C only, NGG and any Additional
Borrower;
"Borrower Accession Agreement"
means an agreement substantially in the form set out in Schedule 7
(Borrower Accession Agreement) with such amendments as the Agent may
approve or reasonably require;
"Business Day"
means:
(a) a day (other than a Saturday or a Sunday) on which banks are open for
general interbank business in:
(i) London and, in relation to a transaction involving Dollars, New
York; and
(ii) in relation to a transaction involving an Optional Currency
(other than Euros), the principal financial centre of the country
of that Optional Currency; and
(b) in relation to a rate fixing for Euros, a TARGET Day;
"Cash Disposal"
means an Asset Disposal on arm's length terms, the consideration for which
is substantially all cash or cash equivalent consideration, where all or
part of such cash or cash equivalent consideration is applied in accordance
with Clause 9.7 (Mandatory Prepayment from Significant Cash Disposals);
"Commitment"
means, in relation to a Bank, its Facility A Commitment, its Facility B
Commitment, its Facility C Commitment or its Facility D Commitment or, as
the context requires, the aggregate of all such Commitments;
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<PAGE>
"Companies Act Subsidiary"
means a subsidiary within the meaning of Section 736 of the Companies Act
1985, as amended by Section 144 of the Companies Act 1989;
"Controlled Group"
means all members of a controlled group of corporations and all trades or
businesses (whether or not incorporated) under common control which,
together with any Obligor, are treated as a single employer under Section
414 of the U.S. Code;
"Dangerous Substance"
means any radioactive emissions and any natural or artificial substance
(whether in solid or liquid form or in the form of a gas or vapour) which
(whether alone or in conjunction with any other substance) gives rise to a
risk of causing harm to man or any other living organism or causing damage
to the Environment or public health or welfare and includes but is not
limited to any controlled, special, hazardous, toxic, radioactive or
dangerous waste;
"Default"
means an Event of Default or any event which, with the giving of notice,
expiry of any applicable grace period, determination of materiality or
fulfilment of any other applicable condition (or any combination of the
foregoing) in each case as specified in Clause 21 (Default), would
constitute an Event of Default;
"Disposal Proceeds"
means in relation to any Asset Disposal, the value of all the consideration
received or receivable by members of the Group in relation to that Asset
Disposal whether at the time of the Asset Disposal or on a deferred basis
and for this purpose:
(a) counting as part of the consideration the aggregate principal amount
of any Financial Indebtedness in the entity disposed of and which
remain in that entity immediately after the Asset Disposal;
(b) taking the value of any deferred consideration as an amount determined
by the auditors of NGG to represent its net present value as at the
time the Asset Disposal is substantially completed; and
(c) taking non-cash proceeds at their fair value as at the time the Asset
Disposal is substantially completed;
-4-
<PAGE>
"EBDR"
means the rate determined by the Agent to be the arithmetic mean rounded
upward, if necessary, to the nearest four decimal places of the respective
rates notified to the Agent by the Reference Banks (provided at least two
Reference Banks are quoting) at or about 10.30 a.m. on the Utilisation Date
for a Bill at which Eligible Bills with a face amount of (pound)1,000,000
and of the same Tenor can be discounted in the London discount market at or
about that time;
"EIB Agreement"
means the (pound)200,000,000 term credit agreement dated 5th December, 1996
entered into between NG Company as borrower, NGG as guarantor and the
European Investment Bank;
"Electricity Act"
means the UK Electricity Act 1989 and all subordinate legislation made
under it;
"Eligible Bank"
means a bank whose acceptance of a bill of exchange would, if such bill
were otherwise so eligible, make such bill of exchange eligible for
rediscount at the Bank of England;
"Eligible Bill"
means a Sterling bill of exchange eligible for rediscounting at the Bank of
England;
"EMU"
means Economic and Monetary Union as contemplated by the Treaty
establishing the European Community;
"EMU legislation"
means legislative measures of the European Union in relation to EMU;
"Energy and Network Business"
means the business of generation, transmission, distribution, metering or
supply of electricity or other sources of energy, the undertaking of an
energy and telecoms business generally and any businesses ancillary or
incidental to any of those businesses;
"Energy Laws"
means the Electricity Act and all other laws, regulations or requirements
of any relevant authority (in so far as such regulations or requirements
have the force of law) relating to the transmission, distribution or supply
of electricity or any other sources of energy in each jurisdiction in which
NGG or any of its Subsidiaries carries on business at any time;
-5-
<PAGE>
"Environment"
means the media of air, water and land (wherever occurring) and in relation
to the media of air and water includes, without limitation, the air and
water within buildings and the air and water within other natural or
man-made structures above or below ground and any water contained in any
underground strata;
"Environmental Approvals"
means all authorisations of any kind required under Environmental Laws to
which any member of the Group is subject at any time;
"Environmental Law"
means all legislation, regulations or orders (insofar as such regulations
or orders have the force of law) to the extent that they relate to the
protection or impairment of the Environment or the control of Dangerous
Substances to which any member of the Group is subject at any relevant
time;
"ERISA"
means the U.S. Employee Retirement Income Security Act of 1974 and any rule
or regulation issued thereunder from time to time in effect;
"EUA"
means Eastern Utilities Associates, a Massachusetts business trust;
"EUA Acquisition"
means the purchase by NEES (or one of its wholly-owned Subsidiaries) of all
the issued shares of common stock in EUA as contemplated in the EUA Merger
Agreement;
"EUA Merger Agreement"
means the Agreement and Plan of Merger dated as of 1st February, 1999 by
and among NEES, Research Drive LLC and EUA;
"Euro, Euros, |_|"
means the single currency of the Participating Member States and excludes
all Euro Sub- Denominations;
"Euro Sub-Denomination"
means the national currency (other than the Euro) of any Participating
Member State;
"Euro unit"
means a unit of the Euro as defined in EMU legislation;
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<PAGE>
"Event of Default"
means an event specified as such in Clause 21.1 (Events of Default);
"Facilities"
means Facility A, Facility B, Facility C, Facility D and the Bill Facility;
"Facility A Advance"
means an advance made or to be made by a Bank under Facility A;
"Facility A Availability Period"
means the period from and including the Signing Date to and including the
second Anniversary;
"Facility A Commitment"
means in relation to a Bank:
(a) the amount in Dollars set opposite its name in Part I of Schedule 1
(The Banks); or
(b) the amount of that Commitment acquired by such Bank pursuant to Clause
29.2 (New Banks) and/or Clause 29.3 (Procedure for transfers),
less in each case the amount of that Commitment cancelled, reduced or
transferred by that Bank pursuant to this Agreement;
"Facility A Total Commitments"
means the aggregate for the time being of the Facility A Commitments, being
US$850,000,000 at the date of this Agreement;
"Facility B Advance"
means an advance made or to be made by a Bank under Facility B;
"Facility B Availability Period"
means the period from and including the Signing Date to and including the
date one month before the Final Maturity Date;
"Facility B Commitment"
means in relation to a Bank:
(a) the amount in Dollars set opposite its name in Part II of Schedule 1;
or
-7-
<PAGE>
(b) the amount of that Commitment acquired by such Bank pursuant to Clause
29.2 (New Banks) and/or Clause 29.3 (Procedure for transfers),
less in each case the amount of that Commitment cancelled, reduced or
transferred by that Bank pursuant to this Agreement;
"Facility B Total Commitments"
means the aggregate for the time being of the Facility B Commitments, being
US$550,000,000 at the date of this Agreement;
"Facility C Advance"
means an advance made or to be made by a Bank under Facility C;
"Facility C Availability Period"
means the period from the Signing Date to the date which is 364 days after
the Signing Date, or in relation to any Bank, such later date as that Bank
may have agreed under Clause 5.10 (Extension of Facility C Availability
Period);
"Facility C Commitment"
means in relation to a Bank:
(a) the amount in Dollars set opposite its name in Part III of Schedule 1
(The Banks); or
(b) the amount of that Commitment acquired by such Bank pursuant to Clause
29.2 (New Banks) and/or Clause 29.3 (Procedure for transfers),
less in each case the amount of that Commitment cancelled, reduced or
transferred by that Bank pursuant to this Agreement;
"Facility C Total Commitments"
means the aggregate for the time being of the Facility C Commitments, being
US$1,350,000,000 at the date of this Agreement;
"Facility D Advance"
means an advance made or to be made by a Bank under Facility D;
"Facility D Availability Period"
means the period from and including the Signing Date to and including the
date one month before the Final Maturity Date;
-8-
<PAGE>
"Facility D Commitment"
means in relation to a Bank:
(a) the amount in Sterling set opposite its name in Part IV of Schedule 1
(The Banks); or
(b) the amount of that Commitment acquired by such Bank pursuant to Clause
29.2 (New Banks) and/or Clause 29.3 (Procedure for transfers),
less in each case the amount of that Commitment cancelled, reduced or
transferred by that Bank pursuant to this Agreement;
"Facility D Total Commitments"
means the aggregate for the time being of the Facility D Commitments, being
(pound)250,000,000 at the date of this Agreement;
"Facility D Utilisation"
means a utilisation of Facility D by the drawing of Facility D Advances or
Bills;
"Facility Office"
means, in relation to any Bank, the office(s) through which it will perform
all or any of its obligations under this Agreement being those office(s)
identified with its signature below (or, in the case of any New Bank, the
office(s) specified in the relevant Transfer Certificate) or such other
office(s) as it may from time to time select by not less than five Business
Days' notice to the Agent;
"Fee Letter"
means each of:
(i) the Underwriting and Mandate Letter from the Arrangers to the
Borrowers dated 19th February, 1999 setting out the amount of fees
referred to in Clause 23.1 (Front-end fees); and
(ii) the Agency Fee Letter from the Agent to NGG dated on or around the
Signing Date setting out the amount of fees referred to in Clause 23.4
(Agency fee);
"Final Maturity Date"
means, subject to Clause 9 (Prepayment and Cancellation):
(a) in relation to Facilities A, B and D, the fifth Anniversary; and
(b) in relation to Facility C;
(i) the date falling 364 days after the Signing Date; or
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<PAGE>
(ii) where any Banks agree to extend the Facility C Availability
Period pursuant to Clause 5.10 (Extension of Facility C
Availability Period) then, with respect to Advances made by those
Banks only, the date that is 364 days after the date in paragraph
(b)(i) above; or
(iii) in the case of a Term-out Advance, the date specified as such in
the Utilisation Request for that Term-out Advance;
"Finance Document"
means this Agreement, a Fee Letter, a Bill, a Transfer Certificate, a
Borrower Accession Agreement, a Guarantor Accession Agreement and any other
document designated in writing as such by the Agent and NGG;
"Finance Party"
means each of the Arrangers, the Banks and the Agent (as the context
requires);
"Financial Indebtedness"
means (without double counting) any indebtedness in respect of:
(a) moneys borrowed or debit balances at banks and other financial
institutions;
(b) any debenture, bond, note, commercial paper, loan stock or other debt
instrument;
(c) any acceptance or documentary credit facilities, bill discounting or
factoring facilities;
(d) receivables sold or discounted (otherwise than on a non-recourse
basis);
(e) the acquisition cost of any asset to the extent payable before or
after the time of acquisition or possession by the party liable where
the advance or deferred payment is arranged primarily as a method of
raising finance or financing the acquisition of that asset;
(f) leases (whether in respect of land, machinery, equipment or otherwise)
entered into primarily as a method of raising finance or financing the
acquisition of the asset leased;
(g) currency or interest swap, cap or collar arrangements or any other
derivative instrument;
(h) amounts raised under any other transaction having the commercial
effect of a borrowing or raising of money; and
(i) any guarantee, indemnity or similar assurance in respect of
indebtedness of any person falling within any of paragraphs (a) to (h)
(both inclusive) above;
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<PAGE>
"Financial Indebtedness Limit"
means each of the limits placed on the amount of permitted Financial
Indebtedness of Subsidiaries set out in paragraph (d) of Clause 20.15
(Restrictions on Subsidiary Financial Indebtedness) as adjusted from time
to time in accordance with paragraph (c) of Clause 9.7 (Mandatory
Prepayment from Significant Cash Disposals);
"forward-Sterling Advance"
means an Advance in Sterling made by a Bank where that Bank has elected by
notice to the Agent, given at the time that Bank becomes a party to this
Agreement or at the time a Bank changes its Facility Office, to fix the
interest rate on Advances in Sterling two Business Days prior to the
Utilisation Date (rather than on the Utilisation Date);
"Grid Code"
means the Grid Code drawn up pursuant to the Transmission Licence(s), as
from time to time revised in accordance with the Transmission Licence(s);
"Group"
means NGG and its Subsidiaries from time to time and including, after
completion of the NEES Acquisition, the NEES Group but if at any time a
Project Finance Company is a Subsidiary Undertaking but not a Companies Act
Subsidiary, then, for so long as it shall be a Subsidiary Undertaking but
not a Companies Act Subsidiary, it shall be deemed for the purposes of the
Finance Documents (unless the contrary is specified) not to be a member of
the Group;
"Guarantor"
means each of NGG and any Additional Guarantor;
"Guarantor Accession Agreement"
means an agreement substantially in the form set out in Schedule 8
(Guarantor Accession Agreement) with such amendments as the Agent may
approve or reasonably require;
"Information Memorandum"
means the Information Memorandum to be prepared and delivered to potential
lenders in connection with primary syndication of the Facilities (including
any supplements);
"Interest Date"
means the last day of an Interest Period;
-11-
<PAGE>
"Interest Period"
means, in relation to a Facility A Advance or a Term-out Advance, each
period determined in accordance with Clause 10.1 (Selection of Interest
Periods for Facility A Advances and Term-out Advances) or, in relation to
overdue amounts, Clause 10.4 (Default interest);
"Interest Period Selection Notice"
means a notice substantially in the form set out in Schedule 4 (Form of
Utilisation Request/Interest Period Selection Notice);
"LIBOR"
means in relation to any Advance:
(a) except in relation to a forward-Sterling Advance, the rate of the
offered quotation for deposits in the currency of the relevant Advance
for the required period which appears on Telerate Page 3750 or
Telerate Page 3740, as the case may be, at or about 11 a.m. on the
applicable Rate Fixing Day; or
(b) in relation to a forward-Sterling Advance (or in relation to any other
Advance if no such offered rate appears on the relevant Telerate Page
as provided in (a) above), the arithmetic mean (rounded upward, if
necessary, to four decimal places) of the rates, as supplied to the
Agent at its request, quoted by the Reference Banks to leading banks
in the London interbank market at or about 11.00 a.m. on the
applicable Rate Fixing Day for the offering of deposits in the
currency and amount of the relevant Advance for the required period,
and for the purpose of this definition:
(i) "required period" means the applicable Interest Period for a Facility
A Advance or a Term-out Advance or the Term of a Facility B Advance, a
Facility C Advance (other than a Term-out Advance) or a Facility D
Advance; and
(ii) "Telerate Page 3750" means the display designated as Page 3750, and
"Telerate Page 3740" means the display designated as Page 3740, in
each case on the Telerate Service (or such other pages as may replace
Page 3750 or Page 3740 on that service or such other service as may be
nominated by the British Bankers' Association (including the Reuters
Screen) as the information vendor for the purposes of displaying
British Bankers' Association Interest Settlement Rates for deposits in
the currency concerned);
"Licence"
means each of:
(a) the Transmission Licences granted by the Secretary of State to a
member of the Group under section 6(1)(b) of the Electricity Act; and
-12-
<PAGE>
(b) each other licence or other similar authorisation granted by any
relevant authority in any applicable jurisdiction to a member of the
Group pursuant to an Energy Law or otherwise to permit it to carry out
generation, transmission, distribution or supply of electricity;
"Majority Banks"
means, at any time, Banks the sum of the aggregate Original Dollar Amount
of whose Utilisations and undrawn Commitments at that time aggregate at
least 662/3 per cent. of the sum of the aggregate Original Dollar Amount of
all Utilisations then outstanding and the then undrawn Total Commitments
(or if the Total Commitments have been reduced to zero and there are no
Utilisations then outstanding, whose Commitments aggregate at least 662/3
per cent. of the Total Commitments immediately before the reduction);
"Mandatory Cost"
means the cost imputed to a Bank of compliance with the cash ratio and
special deposit requirements of the Bank of England and the amount of fees
payable to the Financial Services Authority during the Term or Interest
Period of any Advance, as determined in accordance with Schedule 3
(Calculation of the Mandatory Cost);
"Maturity Date"
means the last day of the Term of a Facility B Advance, a Facility C
Advance (other than a Term- out Advance), a Facility D Advance or of the
Tenor of a Bill;
"Moody's"
means Moody's Investors Services, Inc.;
"Multi Employer Plan"
means a "multi employer plan" as defined in Section 4001(a)(3) of ERISA to
which any Obligor or any member of the Controlled Group has an obligation
to contribute;
"NEES"
means New England Electricity System, a Massachusetts business trust;
"NEES Acquisition"
means the purchase of all of the issued and outstanding common shares in
NEES pursuant to the NEES Acquisition Agreement;
"NEES Acquisition Agreement"
means the Agreement and Plan of Merger dated as of 11th December, 1998 by
and among NGG, Iosta LLC and NEES;
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<PAGE>
"NEES Acquisition Completion Date"
means the date specified as such in the certificate in relation to the NEES
Acquisition delivered to the Agent as referred to in paragraph (e) of Part
II of Schedule 2 (Conditions Precedent Documents);
"NEES Group"
means NEES and its Subsidiaries from time to time including, after
completion of the EUA Acquisition, EUA and its Subsidiaries from time to
time;
"Net Available Proceeds"
means, in relation to any Cash Disposal, such part of the Net Cash Proceeds
as any Borrower is able lawfully to apply in prepayment of Advances and, in
the case of any such disposal effected by any member of the Group other
than a Borrower, such part of the Net Cash Proceeds of that disposal as:
(a) such member of the Group would be able lawfully to make available,
directly or indirectly, to any Borrower to enable it to make such
application;
(b) that Borrower is able lawfully to so apply; and
(c) in the case of a disposal outside the United Kingdom, NGG has
determined in good faith can be repatriated to a Borrower in order to
apply the same in prepayment of Utilisations without breaching any
relevant exchange control or similar restrictions in the country where
the Net Cash Proceeds are received or receivable by the relevant
member of the Group,
provided that in each case the relevant member of the Group takes all steps
that are reasonably open to it to obtain any exchange control clearance or
other consents, permits, authorisations or licences which are required to
enable the Net Cash Proceeds to be repatriated to, and applied by, a
Borrower in order to effect such a prepayment or such other steps as the
Majority Banks may reasonably require to make the Net Cash Proceeds
available for this purpose;
"Net Cash Proceeds"
means, in relation to any Cash Disposal, the cash or cash equivalent
proceeds of such disposal actually received by the member of the Group
concerned including, as at the date of actual receipt thereof, any deferred
consideration or consideration which is received, for whatever reason,
otherwise than at the time of such disposal, less:
(a) all legal, title, registration and recording taxes and expenses,
commissions, costs, fees and expenses incidental to, incurred on and
fairly attributable to, that Cash Disposal;
(b) such amount as the auditors to NGG shall consider reasonable as
provision against the marginal increase in the liability of any member
of the Group to pay any tax arising as a result of that Cash Disposal
as certified to the Agent by those auditors;
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<PAGE>
(c) in the case of a disposal effected by a Subsidiary of NGG, such
provision as NGG shall consider reasonable for all costs and taxes
incurred by the Group and fairly attributable to up-streaming the cash
proceeds or making any distribution in connection therewith to enable
them to reach a Borrower (including, without limitation, the repayment
of Financial Indebtedness related to the assets the subject of the
Cash Disposal which are required to be repaid in order to complete the
Cash Disposal), but if the Majority Banks require such provision to be
reviewed by the auditors of NGG from time to time, only if and to the
extent that the auditors confirm the same;
(d) in the case of a disposal of a Subsidiary, net cash which was shown in
the accounts of the Subsidiary concerned and demonstrated to the
satisfaction of the auditors of NGG from time to time to have been
relied upon by the purchaser in making its decision to purchase the
Subsidiary and in fixing the purchase price therefor;
(e) any amount paid by the Group to top up an underfunded pension scheme
in a Subsidiary or business disposed of to the extent necessary to
facilitate the disposal;
(f) any amount required to be paid by the Group to the proprietor of any
intellectual property rights (including intellectual property
licences) related to the assets disposed of where such payment is
required to enable such intellectual property rights to be transferred
with such assets to the extent necessary to facilitate the disposal;
(g) in the case of a disposal of a Subsidiary where liabilities to third
parties are assumed by other members of the Group as part of the
consideration for the sale of that Subsidiary, such amount of the
consideration received by the Group which is fairly attributable to
that assumption; and
(h) in the case of a disposal by a Subsidiary that is not a wholly owned
Subsidiary of NGG, the pro rata share of such cash proceeds
attributable to the minority interests in that Subsidiary;
"NG Company Guarantor"
means each Regulated UK Subsidiary which becomes a guarantor of NG Company
in accordance with Clause 29.5 (Additional Guarantors);
"NG Company Group"
means NG Company and each Regulated UK Subsidiary (if any) from time to
time;
"Offeror"
means NGG or a wholly owned subsidiary of NGG;
"Obligor"
means each of the Borrowers and/or each of the Guarantors as the context
requires;
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"Optional Currency"
means:
(a) in relation to Facility B, Sterling, Euros and any other currency
(excluding any Euro Sub- Denominations) which is for the time being
freely transferable and convertible into Dollars and deposits of which
are readily available in the London interbank market;
(b) in relation to Facility D, Dollars, Euros and any other currency
(excluding any Euro Sub- Denominations) which is for the time being
freely transferable and convertible into Sterling and deposits of
which are readily available in the London interbank market;
"Original Dollar Amount"
means
(a) in relation to Utilisations under Facility A, Facility B or Facility C
or the aggregate of all Utilisations under all Facilities (including
under Facility D):
(i) if a Utilisation is denominated in Dollars, the principal amount
of that Utilisation; or
(ii) if a Utilisation is denominated in any other currency, the
principal amount of that Utilisation notionally converted into
Dollars on the basis of the Agent's Spot Rate of Exchange on the
date of receipt by the Agent of the Utilisation Request for that
Utilisation; or
(b) in relation to determining the Total Commitments or, for the purposes
of the definition of the Majority Banks, Commitments, if a Commitment
is denominated in any currency other than Dollars, the principal
amount of that Commitment notionally converted into Dollars on the
basis of the Agent's Spot Rate of Exchange at the relevant date of
calculation;
"Original Group Accounts"
means the audited consolidated accounts of the Group for the year ended
31st March, 1998 prepared in accordance with the historic cost convention;
"Original NG Company Accounts"
means the audited unconsolidated accounts for NG Company for the year ended
31st March, 1998 prepared in accordance with the historic cost convention;
"Original Sterling Amount"
means (in relation to Facility D Utilisations):
(a) the principal amount of a Utilisation if it is denominated in
Sterling; or
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(b) if a Utilisation is denominated in an Optional Currency, the principal
amount of that Utilisation notionally converted into Sterling on the
basis of the Agent's Spot Rate of Exchange on the date of receipt by
the Agent of the Utilisation Request for that Utilisation;
"Participating Member State"
means a member state of the European Union that adopts the Euro as its
currency in accordance with EMU legislation;
"Party"
means a party to this Agreement;
"PBGC"
means the Pension Benefit Guaranty Corporation;
"Plan"
means an "employee benefit plan" (as defined in Section 3(3) of ERISA);
"PUHCA"
means the United States of America Public Utility Holding Company Act of
1935, as amended;
"Primary Syndication Period"
means the period ending on the earlier of the date the Agent notifies NGG
that primary syndication of the Facilities is completed and 30th June, 1999
(or such other date as NGG and the Arrangers may agree);
"Principal Subsidiary"
means:
(i) an Obligor (other than NGG); or
(ii) any other member of the Group whose tangible net worth or net
pre-taxation profits at any time equal or exceed five per cent. (5%)
of the Tangible Consolidated Net Worth or net pre-taxation profits of
the Group at that time, and for the purposes of the above:
(a) the net pre-taxation profits of the Subsidiary shall be
ascertained by reference to:
(i) the accounts (consolidated in the case of a company which
itself has Subsidiaries and which, in the normal course,
prepares consolidated accounts) of the Subsidiary based upon
which the latest audited consolidated accounts of the Group
have been made up; or
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(ii) if the company becomes a Subsidiary of NGG after the end of
the financial period to which the latest audited
consolidated accounts of the Group relate, the latest
accounts (consolidated in the case of a company which itself
has Subsidiaries and which, in the normal course, prepares
consolidated accounts) of the Subsidiary; and
(b) tangible net worth of the Subsidiary shall be ascertained by
reference to the Tangible Consolidated Net Worth definition
contained in this Clause, changed where necessary and as if
references therein to NGG were references to such Subsidiary, and
references therein to the relevant period were references to the
financial year of such Subsidiary and on the basis that all
intra-Group items and investments shall be excluded; and
(c) the net pre-taxation profits of the Group shall be ascertained by
reference to the latest audited consolidated accounts of the
Group, adjusted (where appropriate) to reflect the net
pre-taxation profits of any company subsequently acquired or
disposed of,
provided always that if the whole or substantially the whole of the assets
of a Principal Subsidiary is transferred by that Principal Subsidiary (the
"disposing Subsidiary") to another Subsidiary of NGG (the "receiving
Subsidiary") or a number of Subsidiaries of NGG, the disposing Subsidiary
shall forthwith upon the transfer cease to be a Principal Subsidiary and
the receiving Subsidiary shall forthwith upon the transfer become a
Principal Subsidiary;
"Project Finance Borrowing"
means any Financial Indebtedness to finance a project:
(a) which is borrowed by a single purpose company, partnership or other
legal person (whether or not a member of the Group) where its or one
or more of its subsidiaries, principal assets and business are
constituted by that project and whose liabilities in respect of the
Financial Indebtedness concerned are not directly or indirectly the
subject of a guarantee, indemnity or other form of assurance,
undertaking or support from any member of the Group (except as
expressly referred to in paragraph (b)(iii) below or as a result of
the making of acceptances or endorsements of bills in the ordinary
course of trading or payment netting arrangements and other usual
course of business banking arrangements); or
(b) in respect of which the person or persons making that Financial
Indebtedness available to the relevant borrower (whether or not a
member of the Group) have no recourse whatsoever to any member of the
Group for the repayment of or payment of any sum relating to that
Financial Indebtedness other than:
(i) recourse to the borrower or one or more of its subsidiaries, for
amounts limited to the aggregate cash flow or net cash flow
(other than historic cash flow or historic net cash flow) from
the project; and/or
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(ii) recourse to the borrower, or one or more of its subsidiaries or
any shareholder of the borrower for the purpose only of enabling
amounts to be claimed in respect of that Financial Indebtedness
in an enforcement of any Security Interest permitted pursuant to
Clause 20.8 (Negative pledge) given by the borrower or one or
more of its subsidiaries over the assets comprised in the project
(or given by any shareholder of the borrower over its shares in
the borrower together with, in the case of a UK incorporated
shareholder whose only material assets are those shares in the
borrower, a supporting floating charge over all or substantially
all of its assets, to secure that Financial Indebtedness or any
recourse referred to in (iii) below or as a result of the making
of acceptances or endorsements of bills in the ordinary course of
trading or payment netting arrangements and other usual course of
business banking arrangements, provided that (A) the extent of
the recourse to the borrower or one or more of its subsidiaries
or shareholder is limited solely to the amount of any recoveries
made on any such enforcement, and (B) the person or persons are
not entitled, by virtue of any right to claim arising out of or
in connection with the Financial Indebtedness, to commence
proceedings for the winding up or dissolution of the borrower or
shareholder or to appoint or procure the appointment of any
receiver, trustee or similar person or official in respect of the
borrower or shareholder or any of its assets (save for the assets
the subject of the relevant Security Interest); and/or
(iii) recourse to such borrower generally, or directly or indirectly to
a member of the Group under any form of assurance or undertaking,
which recourse is limited to a claim for damages (other than
liquidated damages and damages required to be calculated in a
specified way) for breach of an obligation (not being a payment
obligation or an obligation to procure payment by another or an
obligation to comply or to procure compliance by another with any
financial ratios or other tests of financial condition) by the
person against whom such recourse is available; or
(c) which the Majority Banks shall have agreed in writing to treat as
Project Finance Borrowing for the purposes of the Finance Documents.
If at any time any Financial Indebtedness is made to finance a project and
that Financial Indebtedness does not qualify as a Project Finance Borrowing
pursuant to the above paragraphs (b)(i), (ii) or (iii) but would so qualify
if there were not recourse to a member of the Group which is either (i)
limited as to the period during which it is in force (for example, during
the period up to completion of the project) or (ii) limited as to the
obligations of the borrower to which it applies, then, in any such case,
the Financial Indebtedness shall be regarded as a Project Finance Borrowing
for the purposes of this definition to the extent that, and during the
period that, there is no such recourse to a member of the Group;
"Project Finance Company"
means any company, partnership or other legal person falling within the
scope of paragraph (a) of the definition of Project Finance Borrowing or
which the Majority Banks have agreed shall be treated as a Project Finance
Company for the purposes of the Finance Documents;
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<PAGE>
"Qualifying Bank"
means a bank that:
(a) is a bank as defined in Section 840A of the Income and Corporation
Taxes Act 1988 and is within the charge to corporation tax as regards
any interest received by it under this Agreement and which is
beneficially entitled to that interest; or
(b) is resident (as such term is defined in the appropriate double
taxation treaty) in a country with which the United Kingdom has an
appropriate double taxation treaty under which that institution is
entitled to exemption from United Kingdom tax on interest and is
entitled to apply under the Double Taxation Relief (Taxes on Income)
(General) Regulations 1970 to have interest paid to its relevant
Facility Office without withholding or deduction for or on account of
United Kingdom taxation (and does not carry on business in the United
Kingdom through a permanent establishment with which the investments
under this Agreement in respect of which the interest is paid is
effectively connected) and for this purpose "double taxation treaty"
means any convention or agreement between the government of the United
Kingdom and any other government for the avoidance of double taxation
and the prevention of fiscal evasion with respect to taxes on income
and capital gains;
"Rate Fixing Day"
means:
(a) the second Business Day before the first day of an Interest Period or
the Term of an Advance (other than an Advance in Sterling or Euros,
but including forward-Sterling Advances); or
(b) in the case of an Advance in Sterling (except a forward-Sterling
Advance), the first day of the Term of that Advance; or
(c) in the case of an Advance in Euros, the second TARGET Day before the
first day of an Interest Period or the Term of that Advance,
or such other day on which it is market practice in the relevant
interbank market for leading banks to give quotations for deposits in
the relevant currency for delivery on the first day of the relevant
Interest Period or Term, as determined by the Agent;
"Reference Banks"
means, subject to Clause 29.6 (Reference Banks), the principal London
offices of The Chase Manhattan Bank, Deutsche Bank AG London and Midland
Bank plc;
"Regulated Holding Company"
means, in respect of any Bank, any person which is a Holding Company (as
defined in section 736 of the Companies Act 1985) of that Bank and is
regulated as a bank or other financial institution;
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<PAGE>
"Regulated UK Subsidiary"
means, at any time, any member of the Group (other than NG Company) which
operates any part of the Transmission Business carried on, as at the date
of this Agreement, by NG Company pursuant to its Transmission Licence;
"Regulated U.S. Subsidiary"
means any Subsidiary of NGG including, after the NEES Acquisition
Completion Date, NEES, and any Subsidiary of NEES which operates any
electricity generation, transmission, distribution or supply business
pursuant to any Energy Laws of the United States or of any State of the
United States or pursuant to a Licence issued pursuant to such Energy Laws;
"Regulations D, T, U and X"
means, respectively, regulations D, T, U and X of the Board of Governors of
the Federal Reserve System of the United States (or any successor);
"Relevant Time"
means the applicable time set opposite a Clause number in Schedule 9
(Timetables);
"Reportable Event"
means a reportable event as defined in Section 4043 of ERISA and the
regulations issued under such section with respect to a Plan, excluding,
however, such events as to which the PBGC by regulation waived the
requirement of Section 4043(a) of ERISA that it be notified within 30 days
of the occurrence of such event, provided, however, that a failure to meet
the minimum funding standard of Section 412 of the U.S. Code and of Section
302 of ERISA shall be a Reportable Event regardless of the issuance of any
such waiver of the notice requirement in accordance with either Section
4043(a) of ERISA or Section 412(d) of the U.S. Code;
"Requested Amount"
means the requested amount of a Utilisation as set out in a Utilisation
Request;
"Reserve Asset Costs"
means (without double counting):
(a) in relation to any Advance for any period, the Mandatory Costs;
(b) in relation to any Advance denominated in Dollars to a Borrower
incorporated in the United States made available by a Bank
incorporated in the United States and lending through a Facility
Office located in the United States or by a branch in the United
States of a Bank not incorporated in the United States, the cost, if
any, certified by that Bank as the cost to it of complying with
Regulation D attributable to such Advance as a result of a
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change in Regulation D or the interpretation or application thereof on
or after the Signing Date;
(c) in relation to any Advance for any period, the cost, if any, certified
by a Bank as the cost to it of complying with any regulatory or
central bank requirement relating to any Advance including, but not
limited to, any reserve asset or similar requirements of the European
Central Bank attributable to such Advance; and
(d) in relation to an Advance denominated in any currency (other than
Sterling or Dollars and other than any amount included in paragraphs
(a) or (c) above), the cost, if any, certified by any Bank as the cost
to it of complying with any applicable regulatory or central bank
requirement relating to Advances in that currency made through a
branch in the jurisdiction of the relevant currency as a result of a
change in law, regulation or interpretation or application thereof
occurring on or after the later of (i) the Signing Date and (ii) the
date on which such Bank becomes a party to this Agreement;
"Security Interest"
means any mortgage, pledge, lien, charge, assignment, hypothecation or
security interest or any other agreement or arrangement having the effect
of conferring security;
"Significant Cash Disposal"
means any Asset Disposal where the Net Cash Proceeds from that Asset
Disposal or any related series of Asset Disposals is greater than
(pound)10,000,000 or its equivalent in other currencies;
"Signing Date"
means the date of this Agreement;
"S&P"
means Standard & Poor's Corporation;
"Subsidiaries"
means Companies Act Subsidiaries and Subsidiary Undertakings (and
"Subsidiary" shall be construed accordingly);
"Subsidiary Undertaking"
means a subsidiary undertaking within the meaning of Section 258 of the
Companies Act 1985 (as inserted by Section 21 of the Companies Act 1989);
"Tangible Consolidated Net Worth"
means at any time the aggregate of:
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(i) the amount paid up or credited as paid up on the issued share capital
of NGG; and
(ii) the amount standing to the credit of the consolidated capital and
revenue reserves of the Group,
based on the Balance Sheet but adjusted by (without double counting):
(A) adding any amount standing to the credit of the profit and loss
account for the Group for the period ending on the date of the Balance
Sheet, to the extent not included in paragraph (ii) above and to the
extent the amount is not attributable to any dividend or other
distribution declared, recommended or made by NGG or any other member
of the Group to the extent of any minority interests therein;
(B) deducting any amount standing to the debit of the profit and loss
account for the Group for the period ending on the date of the Balance
Sheet;
(C) reflecting any variation in the amount of the issued share capital of
NGG and the consolidated capital and revenue reserves of the Group
after the date of the Balance Sheet;
(D) reflecting any variation in the interest of NGG in any other member of
the Group since the date of the Balance Sheet;
(E) excluding any amount attributable to deferred taxation to the extent
included in paragraphs (i) and (ii) above; and
(F) excluding any amount attributable to minority interests to the extent
included in paragraphs (i) and (ii) above;
"TARGET Day"
means a day on which the Trans-European Automated Real-Time Gross
Settlement Express Transfer (TARGET) System is open;
"Tenor"
means, in relation to any Bill, the period from the Utilisation Date on
which it is accepted until its Maturity Date, as specified in the
Utilisation Request relating thereto;
"Term"
means, in relation to a Facility B Advance, a Facility C Advance (other
than a Term-out Advance) or a Facility D Utilisation (including Bills), the
period selected by a Borrower for which the relevant Advance is to be
outstanding, as specified in the Utilisation Request and includes, in
relation to any Bill, its Tenor;
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"Term-out Advance"
means a Facility C Advance drawn under paragraph (b) of Clause 8.3
(Repayment of Facility C Advances);
"Total Commitments"
means, on any day and from time to time, the aggregate of the Facility A
Total Commitments, the Facility B Total Commitments, the Facility C Total
Commitments and the Facility D Total Commitments;
"Transfer Certificate"
has the meaning given to it in Clause 29.3 (Procedure for transfers);
"Transmission Business"
has the meaning given to it in the relevant Transmission Licence;
"Transmission Licence"
means a licence granted under Section 6(l)(b) of the Electricity Act;
"United Kingdom"
means the United Kingdom of Great Britain and Northern Ireland;
"United States"
means the United States of America;
"U.S. Borrower"
means a Borrower incorporated in the United States;
"U.S. Code"
means the United States Internal Revenue Code of 1986, as amended and any
rule or regulation issued thereunder from time to time in effect;
"Utilisation"
means a utilisation of any of the Facilities pursuant to the terms of this
Agreement and includes:
(a) in the case of a Utilisation comprising Advances, all the Advances
made or to be made therein; or
(b) in the case of a Utilisation comprising Bills, all the Bills accepted
or to be accepted therein;
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"Utilisation Date"
means:
(a) in the case of a Utilisation comprising Advances, the date for the
making of the relevant Advances; and
(b) in the case of a Utilisation comprising Bills, the date for the
acceptance of the relevant Bills;
"Utilisation Request"
means a notice substantially in the form set out in Schedule 4 (Form of
Utilisation Request/Interest Period Selection Notice); and
"Year 2000 Strategy"
means a programme designed to ensure that the occurrence of the year 2000
will not affect the capacity of any computer system, software or other
equipment owned or used by any Obligor or member of the Group (or any
system with which the computer system, software or other equipment is
interfaced) which is critical to the business of the Group (taken as a
whole) or, in the case of NG Company the NG Company Group (taken as a
whole), to perform any function capable of being performed by that computer
system, software or other equipment prior to the year 2000, correctly,
efficiently and without interruption (and all steps and related actions
necessary to implement that programme).
1.2 Construction
(a) In this Agreement, unless the contrary intention appears, any reference to:
(i) an "amendment" includes a supplement, variation, novation,
re-enactment or a waiver;
"assets" includes present and future properties, revenues and rights
of every description;
an "authorisation" includes an authorisation, consent, approval,
resolution, licence, exemption, filing, registration and notarisation;
"Barclays Capital" is a reference to Barclays Capital, the investment
banking division of Barclays Bank PLC;
"indebtedness" shall be construed so as to include any obligation for
the payment or repayment of money, whether present or future, actual
or contingent and whether incurred as principal or surety;
a "month" is a reference to a period starting on one day in a calendar
month and ending on the numerically corresponding day in the next
calendar month, except that:
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(1) if the numerically corresponding day is not a Business Day, that
period shall end on the next Business Day in that calendar month
(if there is one) or the preceding Business Day (if there is
not); or
(2) if there is no numerically corresponding day in the month in
which that period ends, that period shall end on the last
Business Day in that calendar month;
a "principal amount" in relation to a Bill is a reference to the face
amount of that Bill;
a "person" includes any individual, company, unincorporated
association or body or persons (including a partnership, joint venture
or consortium), government, state, agency, international organisation
or other entity;
a "regulation" includes any regulation, rule, official directive,
request or guideline (whether or not having the force of law, but, if
not having the force of law, being one with which the relevant Party
is accustomed to comply) of any governmental body, agency, department
or regulatory, self-regulatory or other authority or organisation;
(ii) a provision of a law is a reference to that provision as amended or
re-enacted;
(iii) the terms "Director" and "Secretary of State" shall be construed as
references to those terms as used in the Electricity Act;
(iv) a Clause or a Schedule is a reference to a clause of or a schedule to
this Agreement;
(v) a person includes its successors, transferees and assigns;
(vi) a Finance Document or another document is a reference to that Finance
Document or that other document as amended;
(vii) a time of day is a reference to London time; and
(viii) "Sterling" and "(pound)" and "Dollars" and "US$" denote the lawful
currencies for the time being of the United Kingdom of Great Britain
and Northern Ireland and the United States of America respectively.
(b) Unless the contrary intention appears, a term used in any other Finance
Document or in any notice given under or in connection with any Finance
Document has the same meaning in that Finance Document or notice as in this
Agreement.
(c) The index and headings in this Agreement are for convenience only and are
to be ignored in construing this Agreement.
2. THE FACILITIES
2.1 The Facilities
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Subject to the terms and conditions hereof, the Banks grant to the
Borrowers the following facilities:
(a) a committed Dollar term loan facility, to be designated as Facility A
under which the Banks will, when requested by NGG or any Additional
Borrower, make cash advances in Dollars to NGG or that Additional
Borrower during the Facility A Availability Period;
(b) a committed Dollar denominated multi-currency revolving credit
facility, to be designated as Facility B, under which the Banks will,
when requested by NGG or any Additional Borrower, make cash advances
in Dollars or in Optional Currencies to NGG or that Additional
Borrower on a revolving basis during the Facility B Availability
Period;
(c) a committed 364 day revolving Dollar credit facility, with an option
to draw Term-out Advances, to be designated as Facility C, under which
the Banks shall, when requested by NGG or any Additional Borrower,
make cash advances in Dollars to NGG or that Additional Borrower on a
revolving basis during the Facility C Availability Period; and
(d) a committed Sterling denominated multi-currency revolving credit
facility, to be designated as Facility D, under which the Banks will,
when requested by NG Company, make cash advances in Sterling or
Optional Currencies to (or accept Bills in Sterling drawn by) NG
Company on a revolving basis during the Facility D Availability
Period.
2.2 Overall Facilities limit and sub-limit
(a) No Utilisation shall be made if it would cause the aggregate Original
Dollar Amount of all outstanding Advances:
(i) under Facility A, to exceed the Facility A Total Commitments; or
(ii) under Facility B to exceed the Facility B Total Commitments; or
(iii) under Facility C, to exceed the Facility C Total Commitments.
(b) No Utilisation shall be made if it would cause the aggregate Original
Sterling Amount of all outstanding Utilisations under Facility D, to exceed
the Facility D Total Commitments.
2.3 Bank limits
(a) A Bank shall not be obliged to make an Advance or accept a Bill under any
Facility if it would cause the total amount outstanding and owing to that
Bank under that Facility to exceed its Commitment in respect of that
Facility.
(b) For the purposes of this Clause 2.3, the "total amount outstanding" of a
Bank under any Facility on any Utilisation Date is the aggregate Original
Dollar Amount or aggregate Original Sterling Amount (as applicable) of all
Advances and Bills made or accepted by that Bank under that Facility which
would be outstanding on that Utilisation Date if:
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(i) all outstanding Utilisations having Maturity Dates or Final Maturity
Dates which fall on or before that Utilisation Date are repaid or
paid; and
(ii) all Utilisations to be made on or before that Utilisation Date and in
respect of which a Utilisation Request has been received by the Agent
are made.
(c) If the operation of Clause 5.6 (Amount of each Bank's Advance) or Clause
6.3 (Amount of Bills to be accepted by each Bank) would cause the total
amount outstanding of a Bank (the "affected Bank") to exceed its Commitment
in respect of any Facility then:
(i) the affected Bank will participate in the relevant Utilisation to the
extent that its total amount outstanding does not exceed its
Commitment in respect of the relevant Facility; and
(ii) the amount of the Advance to be made, or the aggregate principal
amount of Bills to be accepted, by each other Bank under the relevant
Clause will be re-calculated in accordance with that Clause but, for
the purpose of the recalculation, the affected Bank's Commitment in
respect of the relevant Facility will be deducted from the Total
Commitments in respect of the relevant Facility and the amount of the
affected Bank's Advance or Bills (if any) will be deducted from the
Requested Amount; and
(iii) the calculation in paragraph (c)(ii) above will be applied to each
Bank in turn until the amount of its Advance or the aggregate
principal amount of Bills to be accepted by it under that Clause is
determined.
2.4 Availability, number of Utilisation Requests and Utilisations
(a) No Utilisation may be made at any time after the date one month prior to
the applicable Final Maturity Date.
(b) No Utilisation Request may specify a Utilisation Date which is within three
Business Days of another Utilisation Date (unless the Utilisation the
subject of that Utilisation Request is to refinance an existing
Utilisation).
(c) No more than one Utilisation Request may be delivered on any one day but
that Utilisation Request may subject to Clause 5 (Availability of Advances)
specify any number and type of Utilisations from Facility A, Facility B,
Facility C, Facility D or all of them.
(d) Except during the Primary Syndication Period, no Utilisation or
Utilisations with the same Interest Date(s) and/or Maturity Date(s) other
than the applicable Final Maturity Date (or other earlier date as has been
notified for cancellation of the Facilities) may have an aggregate Original
Dollar Amount exceeding US$2,000,000,000.
(e) Unless the Agent agrees otherwise, no more than 20 Utilisations may be
outstanding at any one time (taking all Facilities together for this
purpose).
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2.5 Primary Syndication Period
(a) Subject to paragraph (b) below, but otherwise notwithstanding any provision
of this Agreement, no Borrower will deliver a Utilisation Request or
Interest Period Selection Notice during the Primary Syndication Period
specifying a Term or an Interest Period other than one, two or three weeks.
(b) Except as the Agent (after consultation with the Arrangers) and NGG may
otherwise agree, each Interest Period Selection Notice or Utilisation
Request delivered during the Primary Syndication Period shall specify an
Interest Period or Term ending on the same date as each other Advance to be
drawn or rolled over on the same date and, if there are Advances then
outstanding, ending on the same date as such other Advances.
(c) No Borrower may request a Utilisation comprising Bills during the Primary
Syndication Period.
2.6 Nature of each Finance Party's rights and obligations
(a) The obligations of each Finance Party under the Finance Documents are
several.
(b) The failure of a Finance Party to carry out those obligations does not
relieve any other Party of its obligations under the Finance Documents and
no Finance Party is responsible for the obligations of any other Finance
Party under the Finance Documents.
(c) The rights of a Finance Party under the Finance Documents are divided
rights and a Finance Party may, except as otherwise stated in the Finance
Documents, separately enforce those rights.
2.7 Borrowers' Agent
(a) Subject to paragraph (b) below, each Obligor irrevocably authorises and
instructs NGG as the Borrowers' agent to give and receive as agent on its
behalf all notices (including Utilisation Requests) and sign all documents
in connection with the Finance Documents on its behalf and take such other
action as may be necessary or desirable under or in connection with the
Finance Documents and confirms that it will be bound by any action taken by
NGG as the Borrowers' agent under or in connection with the Finance
Documents.
(b) On the first day after the date of this Agreement on which there is no
amount outstanding under Facility A, Facility B or Facility C and no
Facility A Commitment, Facility B or Facility C Commitment is in force, and
any amount is outstanding under Facility D or any Facility D Commitment is
in force:
(i) NG Company shall automatically replace NGG as the Borrowers' agent,
and each Obligor irrevocably authorises and instructs NG Company as
the Borrowers' agent in such circumstances, to give and receive as
agent on its behalf all notices (including Utilisation Requests) and
sign all documents in connection with the Finance Documents on its
behalf and take such other action as may be necessary or desirable
under or in connection with the Finance Documents;
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(ii) each Obligor confirms that it will in such circumstances be bound by
any action taken by NG Company as the Borrowers' agent under or in
connection with the Finance Documents; and
(iii) each reference in this Agreement to NGG acting in such capacity will
as from such date be deemed to refer to NG Company in place of NGG as
the context requires.
2.8 Actions of Borrowers' Agent
The respective liabilities of each of the Obligors under the Finance
Documents shall not be in any way affected by:
(a) any irregularity (or purported irregularity) in any act done by or any
failure (or purported failure) by NGG or NG Company;
(i) NGG or NG Company acting (or purporting to act) in any respect outside
any authority conferred upon it by any Obligor; or
(1) the failure (or purported failure) by or inability (or purported
inability) of NGG or NG Company to inform any Obligor of receipt by it
of any notification under this Agreement.
3. PURPOSE
3.1 Use of proceeds
Each Borrower shall apply each Utilisation made by it:
(a) under Facility A, in or towards financing or refinancing the EUA
Acquisition (plus related fees, costs and expenses), refinancing
existing borrowings of EUA and its Subsidiaries and for the general
corporate purposes of the Group;
(b) under Facility B to meet the general corporate purposes of the Group
including the financing of acquisitions, the refinancing of existing
borrowings and general working capital;
(c) under Facility C, in or towards financing the NEES Acquisition (plus
related fees, costs and expenses) and refinancing existing borrowings
of the NEES Group; and
(d) under Facility D, to meet the general corporate purposes of NG Company
and its Subsidiaries and for general working capital purposes of NG
Company and its Subsidiaries.
3.2 No enquiry
Without affecting the obligations of any Obligor in any way no Finance
Party is bound to monitor or verify the application of the proceeds of any
Utilisation.
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4. CONDITIONS PRECEDENT
4.1 Documentary conditions precedent
The obligations of each Finance Party to any Obligor under this Agreement
are subject to the condition precedent that the Agent has notified NGG and
the Banks that it has received all of the documents set out in Part I of
Schedule 2 (Conditions Precedent Documents) in form and substance
satisfactory to the Agent.
4.2 Further condition precedent to Facility A and Facility C
(a) Subject to paragraph (b) below, the obligations of each Finance Party to
participate in any Utilisation under Facility A or Facility C are subject
to the further condition precedent that the Agent has notified NGG and the
Banks that it has received all of the documents set out in Part II to
Schedule 2 (Conditions Precedent Documents) in form and substance
satisfactory to the Agent.
(b) Where the further condition precedent referred to in paragraph (a) above is
not met on or before the date that is 30 days prior to the expiry of the
Facility C Availability Period then applicable to any Banks then NGG or any
Additional Borrower may nonetheless exercise its option under paragraph (b)
of Clause 8.3 (Repayment of Facility C Advances) to draw Term-out Advances
from those Banks. NGG will ensure that the proceeds of any Term-out Advance
drawn in accordance with this paragraph:
(i) will be kept separate from other assets of the relevant Borrower; and
(ii) will be invested only in accordance with the Approved Investment
Guidelines set out in Schedule 11 (Approved Investment Guidelines),
and are not used for any other purpose,
until such time as the condition precedent set out in paragraph (a) above
is satisfied or waived by the Majority Banks. Without limiting Clause 20.3
(Information - Miscellaneous) NGG will supply to the Agent on a monthly
basis a report on, and such other information as the Agent may reasonably
request in relation to, the manner in which any proceeds drawn in
accordance with this paragraph (b) have been or are to be invested.
4.3 Further conditions precedent generally
The obligations of each Bank to participate in a Utilisation are subject to
the further conditions precedent that on both the relevant date of the
Utilisation Request and the Utilisation Date:
(a) the representations and warranties in Clause 19 (Representations and
Warranties) to be repeated on those dates are correct and will be
correct in all material respects immediately after the Utilisation;
and
(b) no Default is outstanding or would result from the Utilisation
(provided that where no notice has been given pursuant to Clause 21.18
(Acceleration) but a Default is outstanding each Bank shall be obliged
to participate in a Utilisation, to the extent required by the terms
hereof, where such Utilisation is in the same currency as and is in an
amount equal to or less than an outstanding Utilisation which is to
mature on the Utilisation Date for the
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proposed Utilisation and is to be applied on such Utilisation Date in
repaying such outstanding Utilisation).
4.4 NG Company Conditionality
Clause 4.3 (Further conditions precedent generally) will apply to
Utilisations by NG Company as if references in Clause 19 (Representations
and Warranties) and Clause 21 (Default) to NGG (or any Obligor),
Subsidiaries, Principal Subsidiaries, Regulated U.S. Subsidiaries or the
Group, were references only to NG Company, Regulated UK Subsidiaries or the
NG Company Group, as the case may be.
5. AVAILABILITY OF ADVANCES
5.1 Receipt of Utilisation Requests
The Borrowers may borrow Advances if the Agent receives, not later than the
Relevant Time, a duly completed Utilisation Request provided that:
(a) only NGG or an Additional Borrower shall be entitled to borrow
Advances under Facilities A, B and C; and
(b) only NG Company shall be entitled to make Utilisations under Facility
D; and
(c) NG Company shall not be entitled to borrow Advances under any Facility
other than Facility D.
5.2 Form of Utilisation Request for Facility A Advances
A Utilisation Request for a Facility A Advance will not be regarded as
having been duly completed unless:
(a) the proposed Utilisation Date is a Business Day during the Facility A
Availability Period;
(b) the Requested Amount for each separate Utilisation comprising Facility
A Advances is in a minimum Original Dollar Amount of US$100,000,000
and an integral multiple of US$10,000,000 or such other amount as the
relevant Borrower and the Agent may agree before the delivery of that
Utilisation Request and the currency of each Utilisation comprising
Facility A Advances is Dollars;
(c) only one Interest Period for each separate Utilisation comprising
Facility A Advances is specified which:
(i) does not overrun the Final Maturity Date; and
(ii) subject to Clause 2.5 (Primary Syndication Period), is a period
of 1, 2, 3 or 6 months (or, in any case, such other period as all
the Banks may previously have agreed for the purposes of such
Advances); and
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(d) the payment instructions comply with Clause 12 (Payments).
5.3 Form of Utilisation Request for Facility B Advances
A Utilisation Request for a Facility B Advance will not be regarded as
having been duly completed unless:
(a) the proposed Utilisation Date is a Business Day during the Facility B
Availability Period;
(b) only one currency is specified for each separate Utilisation
comprising Facility B Advances and the Requested Amount is in a
minimum Original Dollar Amount of US$25,000,000 and an integral
multiple of US$5,000,000 or an integral multiple of the amounts in the
relevant Optional Currency agreed between the relevant Borrower, NGG
and the Agent before the delivery of the relevant Utilisation Request
(or such other amount as the relevant Borrower, NGG and the Agent may
agree before the delivery of that Utilisation Request);
(c) only one Term for each separate Utilisation comprising Facility B
Advances is specified which:
(i) does not extend beyond the Final Maturity Date; and
(ii) subject to Clause 2.5 (Primary Syndication Period) is a period of
1, 2, 3 or 6 months or, such other period as all the Banks may
previously have agreed for the purposes of such Advances; and
(d) the payment instructions comply with Clause 12 (Payments).
5.4 Form of Utilisation Request for Facility C Advances
A Utilisation Request for a Facility C Advance will not be regarded as
having been duly completed unless:
(a) the proposed Utilisation Date is a Business Day during the applicable
Facility C Availability Period;
(b) in the case of a Term-out Advance, the Utilisation Request requests
Advances from all those Banks (but not some only) with a Facility C
Availability Period expiring on the same day;
(c) the Requested Amount for each separate Utilisation comprising Facility
C Advances is in a minimum Original Dollar Amount of US$100,000,000
and an integral multiple of US$10,000,000 (or such other amount as NGG
and the Agent may agree before the delivery of that Utilisation
Request) and the currency of each Utilisation comprising Facility C
Advances is Dollars;
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(d) only one Term or, in the case of Term-out Advances, one Interest
Period and Final Maturity Date, for each separate Utilisation
comprising Facility C Advances is specified which:
(i) does not extend beyond the then applicable Facility C
Availability Period (other than in the case of Term-out
Advances); and
(ii) subject to Clause 2.5 (Primary Syndication Period), is a period
of 1, 2, 3 or 6 months (or, in any case, such other period as all
the Banks may previously have agreed for the purposes of such
Advances);
(e) the payment instructions comply with Clause 12 (Payments); and
(f) in the case of a Term-out Advance, the proposed Final Maturity Date
(which must be the same date for all Term-out Advances drawn on the
same date) is a date after the applicable Facility C Availability
Period but no later than the third Anniversary.
5.5 Form of Utilisation Request for Facility D Advances
A Utilisation Request for a Facility D Advance will not be regarded as
having been duly completed unless:
(a) the Borrower is NG Company and the proposed Utilisation Date is a
Business Day during the Facility D Availability Period;
(b) only one currency is specified for each separate Utilisation
comprising Facility D Advances and the Requested Amount is in a
minimum Original Sterling Amount of (pound)25,000,000 and an integral
multiple of (pound)5,000,000 or an integral multiple of the amounts in
the relevant Optional Currency agreed between NG Company and the Agent
before the delivery of the relevant Utilisation Request (or such other
amount as NG Company and the Agent may agree before the delivery of
that Utilisation Request);
(c) only one Term for each separate Utilisation comprising Facility D
Advances is specified which:
(i) does not extend beyond the Final Maturity Date; and
(ii) subject to Clause 2.5 (Primary Syndication Period), is a period
of 1, 2, 3 or 6 months or such other period as all the Banks may
previously have agreed for the purposes of such Advances; and
(d) the payment instructions comply with Clause 12 (Payments).
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5.6 Amount of each Bank's Advance
The amount of each Bank's Advance will be the proportion of the Requested
Amount which its Commitment in respect of the relevant Facility bears to
the aggregate Commitments of all Banks in respect of that Facility on the
date of receipt of the relevant Utilisation Request, adjusted, if
necessary, to reflect the operation of Clause 2.3 (Bank limits).
5.7 Notification to Banks
The Agent shall, not later than the Relevant Time, notify each Bank of the
details of the requested Advances and the aggregate amount of Advances to
be made by that Bank.
5.8 Selection of an optional duration
(a) If a Borrower requests an Interest Period or a Term in a Utilisation
Request other than 1, 2, 3 or 6 months, it may also select in the relevant
Utilisation Request an alternative Interest Period or Term of 1, 2, 3 or 6
months to apply and paragraph (b) below shall apply.
(b) If:
(i) a Borrower requests an Interest Period or a Term other than 1, 2, 3 or
6 months; and
(ii) the Agent receives notice from a Bank not later than the Relevant Time
stating that it does not agree to such request,
then the Interest Period or Term for the proposed Utilisation shall instead
be the alternative period specified in the relevant Utilisation Request or,
in the absence of any alternative selection, 3 months.
(c) If the Agent receives a notice from a Bank under paragraph (b)(ii) above it
shall notify the Borrower and the Banks of the revised Interest Period or
Term for the proposed Advances not later than the Relevant Time.
5.9 Payment of Proceeds
Subject to the terms of this Agreement, each Bank shall make its Advance
available to the Agent for the relevant Borrower for value on the relevant
Utilisation Date.
5.10 Extension of Facility C Availability Period
NGG may, not earlier than 60 days nor later than 30 days prior to the
original expiry date of the Facility C Availability Period, request by
notice to the Agent (who will promptly notify the Banks) that the Facility
C Availability Period be extended to a date which is not later than 364
days after the original expiry date (the "Extended Date"). If any Bank
notifies the Agent that it agrees to extend the Facility C Availability
Period, then the Facility C Availability Period will be extended in
relation to that Bank accordingly, whether or not any other Bank extends.
No Bank is under any obligation of any kind to agree to NGG's request to
extend and any Bank which fails to respond or reply within the required
period will be deemed to have declined to extend.
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6. AVAILABILITY OF THE BILL FACILITY
6.1 Receipt of Requests
NG Company may utilise the Bill Facility if the Agent receives, not later
than the Relevant Time, a duly completed Utilisation Request.
6.2 Form of Utilisation Request
A Utilisation Request in respect of the Bill Facility will not be regarded
as being duly completed unless:
(a) the proposed Utilisation Date is a Business Day during the Facility D
Availability Period;
(b) the Requested Amount is a minimum of (pound)25,000,000 and an integral
multiple of (pound)5,000,000 (or such other amount as the Agent and
NGG may agree);
(c) only one Tenor is specified which:
(i) does not extend beyond the Final Maturity Date; and
(ii) is a period of between 7 and 187 days; and
(d) the payment instructions comply with Clause 12 (Payments).
6.3 Amount of Bills to be accepted by each Bank
The aggregate principal amount of the Bills to be accepted by a Bank will
be that proportion of the Requested Amount which its Facility D Commitment
bears to the Facility D Total Commitments on the date of receipt of the
relevant Utilisation Request (as adjusted, if necessary, to reflect the
operation of Clause 2.3 (Bank limits) and Clause 7.2 (Completion and
Rounding of principal amount of Bills)).
6.4 Notification to Banks
(a) The Agent shall, not later than the Relevant Time, notify each Bank of the
details of the requested Bills and the aggregate principal amount of the
Bills to be accepted by that Bank.
(b) If a Bank, having received notice as contemplated in paragraph (a) above,
so determines, it may notify the Agent, not later than the Relevant Time,
that it does not wish the Agent to arrange for the discounting of the Bills
in question.
6.5 Advances as an alternative
(a) Notwithstanding the delivery of a Utilisation Request in respect of Bills,
if a Bank does not wish to accept any Bills for any reason or if the Bank
is not an Eligible Bank, then it shall notify the Agent accordingly
(provided that if a Bank is not or ceases to be an Eligible Bank it shall
only be required
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to give such a notice once, following which notice this Clause shall apply
until further notice in writing is given from the Bank).
(b) If a Bank so notifies the Agent that it is unwilling to accept any Bills or
is not an Eligible Bank, then, subject to the terms of this Agreement, the
Bank shall instead make a Facility D Advance in accordance with Clause 5
(Availability of Advances) in Sterling on the relevant Utilisation Date in
a principal amount equal to the aggregate principal amount of the Bills
which it would otherwise have been obliged to accept pursuant to this
Clause and for a Term equal to the Tenor of those Bills.
6.6 Bills
Subject to the provisions of Clause 6.5 (Advances as an alternative):
(a) each Bank shall accept Bills in the aggregate principal amount
notified to it by the Agent pursuant to Clause 6.4 (Notification to
Banks);
(b) the Agent shall, not later than the Relevant Time, notify the Borrower
and each Bank which is discounting Bills itself of the applicable
EBDR;
(c) subject to the terms of this Agreement, each Bank which is discounting
Bills itself shall pay to the Agent for the Borrower an amount equal
to:
(i) the amount which the Bank would have received as the proceeds of
discounting if it had discounted the Bills accepted by it at the
applicable EBDR; less
(ii) acceptance commission calculated at the Acceptance Commission
Rate on the aggregate principal amount of those Bills.
6.7 Acceptance of Bills
If the Agent notifies any Bank in accordance with Clause 6.4 (Notification
to Banks) that it is to accept any Bills (and such Bank does not elect to
make an Advance pursuant to Clause 6.5 (Advances as an alternative)), the
Agent shall, by the Relevant Time, deliver to such Bank Bills in the
requisite amount duly drawn by the Borrower whose Bills are to be accepted
and duly completed on behalf of such Borrower in accordance with Clause 7
(Bills). Such Bank shall endorse and accept such Bills and shall, subject
to Clause 6.10 (Discounting by Banks), lodge the same at the Agent's
account at the Central Moneymarkets Office at the Bank of England at such
Bank's own risk by the Relevant Time or, alternatively, act in accordance
with such other instructions as may be given by the Agent on the relevant
Utilisation Date.
6.8 Purchase or Discounting of Bills by Agent
If, on the proposed Utilisation Date relating to any Bills:
(a) Sterling bills of exchange drawn on and accepted by Eligible Banks can
then be discounted in the London discount market; and
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(b) the Agent has been able to determine the EBDR applicable thereto,
the Agent shall, subject to this Clause 6.8 and Clause 6.9 (Transfer to
Banks), either offer such Bills for discount in the London discount market
at the EBDR for such Utilisation Date or, at the Agent's discretion, elect,
no later than the Relevant Time, to purchase such Bills as principal for an
amount equal to the amount which it would have received had it arranged for
the discounting of such Bills at such EBDR. The Agent will notify such EBDR
by no later than the Relevant Time to the Borrower whose Bills are being
accepted and each Bank which is to discount Bills pursuant to Clauses 6.9
(Transfer to Banks) or 6.10 (Discounting by Banks). If, on any proposed
Utilisation Date, the conditions set forth in this Clause have not been
complied with, then the proposed Utilisation shall not be made and any
Bills accepted by the Banks in respect of such proposed Utilisation shall
be cancelled and the respective obligations of the parties in relation
thereto shall be terminated.
6.9 Transfer to Banks
If, on any occasion, the Agent does not exercise its discretion to purchase
any or all of the Bills accepted by any Bank and it is unable to arrange
for such Bills to be discounted in the London discount market at the EBDR,
it shall promptly notify such Bank to such effect and with an accompanying
notice to such Bank, it will instruct the Central Moneymarkets Office at
the Bank of England to transfer such Bills to the account of such Bank or
such Bank's Agent and return such Bills to such Bank, whereupon:
(a) such Bank shall itself discount or arrange for the discounting of such
Bills and such Bills shall be deemed to have been so discounted at the
EBDR notified by the Agent pursuant to Clause 6.7 (Acceptance of
Bills) (whether or not such Bank is able so to discount such Bills);
and
(b) such Bank shall, in relation to such Bills, pay to the Agent on the
relevant Utilisation Date an amount equal to the amount which the
Agent would have received had the Agent itself arranged for the
discounting of such Bills at such rate (but after deducting and
retaining for its own account all acceptance commission payable by the
relevant Borrower to the Agent for the account of such Bank pursuant
to Clause 6.12 (Acceptance Commission)).
6.10 Discounting by Banks
If, on any occasion, a Bank has specified in a notice given by it to the
Agent pursuant to paragraph (b) of Clause 6.4 (Notification to Banks) that
it does not wish the Agent to arrange for the discounting of the Bills in
question, such Bank shall not return such Bills to the Agent in accordance
with Clause 6.7 (Acceptance of Bills) and if the conditions set forth in
Clause 6.8 (Purchase or Discounting of Bills by Agent) have been complied
with:
(a) such Bills shall be deemed to have been so discounted at the EBDR
notified pursuant to Clause 6.8 (Purchase or Discounting of Bills by
Agent) (whether or not such Bank is able so to discount such Bills);
and
(b) such Bank shall, in relation to such Bills, pay to the Agent on the
relevant Utilisation Date an amount equal to the amount which the
Agent would have received had the Agent itself
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arranged for the discounting of such Bills at such EBDR (but after
deducting and retaining for its own account all acceptance commission
payable by the relevant Borrower to the Agent for the account of such
Bank pursuant to Clause 6.12 (Acceptance Commission)).
6.11 Proceeds of Discounting
The Agent will account to the relevant Borrower for all proceeds of
discounting received by it pursuant to Clauses 6.8 (Purchase or Discounting
of Bills by Agent), 6.9 (Transfer to Banks) and 6.10 (Discounting by Banks)
and, if applicable, the purchase price payable by the Agent as principal
pursuant to Clause 6.8 (Purchase or Discounting of Bills by Agent), but
after deducting and paying to the Banks the acceptance commission payable
to them pursuant to Clause 6.12 (Acceptance Commission) (to the extent not
already deducted and retained by them pursuant to Clause 6.9 (Transfer to
Banks) or Clause 6.10 (Discounting by Banks)).
6.12 Acceptance Commission
The relevant Borrower whose Bills are accepted hereunder shall be obliged,
on the day such Bills are accepted, to pay to the Agent for the account of
each Bank which accepts its Bills under Clause 6.7 (Acceptance of Bills) an
acceptance commission in Sterling at the applicable Acceptance Commission
Rate on the face amount thereof and for the Tenor thereof.
7. BILLS
7.1 Holding and completion of Bills
(a) NG Company shall ensure that the Agent has a sufficient stock of blank
signed Bills for distribution to the Banks before delivering any
Utilisation Request for a Utilisation comprising Bills.
(b) Each Bill shall:
(i) have the drawee left blank and be endorsed by NG Company in blank;
(ii) be undated;
(iii) have the Maturity Date and the face amount left blank; and
(iv) be claused in a manner which complies with the Bank of England's
requirements for Eligible Bills at the time it is drawn.
7.2 Completion and Rounding of principal amount of Bills
(a) NG Company hereby irrevocably authorises the Agent, having regard to the
proposed Utilisation and the provisions of this Agreement:
(i) to issue and complete Bills on its behalf by:
(A) signing and dating such Bills with the issue date and Maturity
Date;
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(B) inserting the name of the relevant Bank as drawee; and
(C) inserting the face amount of each Bill; and
(ii) to deliver the same to the Bank on which it is drawn for acceptance.
(b) The Agent may round the principal amount of the relevant Bills to be
accepted by each Bank to ensure that each Bill has a principal amount of
not more than (pound)5,000,000.
7.3 Information relating to Bills
NG Company shall, promptly on request by a Finance Party, supply to the
Agent for that Finance Party any information relating to any Bill
(including the underlying trade transaction for that Bill) as that Finance
Party may reasonably require or which may be required by the Bank of
England or any other fiscal or monetary authority in the United Kingdom.
7.4 Eligible Bills
NG Company shall ensure that each Bill drawn by it and accepted by a Bank
is eligible for rediscounting at the Bank of England (assuming that the
relevant Bank is an Eligible Bank).
7.5 Custody of Bills
The Agent and each Bank shall, as applicable:
(a) hold all uncompleted bills delivered to it under this Clause 7 in safe
custody;
(b) advise NG Company, on request, of the number of uncompleted Bills held
by it;
(c) cancel any blank Bills held by it on the Final Maturity Date and
return them to NG Company as soon as practicable after that date; and
(d) not deal with any Bills delivered to it under this Agreement other
than in accordance with the terms of this Agreement.
8. REPAYMENT
8.1 Repayment of Facility A Advances
Each Borrower will repay the Facility A Advances made to it in full on the
Final Maturity Date by payment to the Agent for the relevant Bank.
8.2 Repayment of Facility B Advance and Facility D Advance
Each relevant Borrower will repay each Facility B Advance and each Facility
D Advance made to it in full on its Maturity Date by payment to the Agent
for the relevant Bank. As Facility B and Facility D are available on a
revolving basis, amounts repaid may be reborrowed subject to the
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terms of this Agreement. No Facility B Advance or Facility D Advance may be
outstanding after the Final Maturity Date.
8.3 Repayment of Facility C Advances
(a) Each Borrower will repay each Facility C Advance made to it in full on its
Maturity Date or, in the case of a Term-out Advance, its Final Maturity
Date, by payment to the Agent for the relevant Bank. As Facility C is
available on a revolving basis during the Facility C Availability Period,
amounts repaid to a Bank may be reborrowed from that Bank during the
Facility C Availability Period applicable to that Bank subject to the terms
of this Agreement.
(b) At any time prior to the expiry of the Facility C Availability Period
applicable to any Bank, any Borrower under Facility C may, by delivery of a
duly completed Utilisation Request to the Agent (who shall send a copy to
the Banks) elect to draw Term-out Advances under Facility C from all those
Banks (but not some only) with a Facility C Availability Period expiring on
the same date (pro rata to their Facility C Commitments) with a Final
Maturity Date after the applicable Facility C Availability Period but no
later than the third Anniversary. No Term-out Advance, once repaid or
prepaid, may be reborrowed. Only one Term-out Advance can be borrowed from
each Bank and, upon drawdown, the undrawn Facility C Commitment for that
Bank (if any) will automatically be cancelled.
(c) No Facility C Advance, other than a Term-out Advance, may be outstanding to
a Bank after expiry of the Facility C Availability Period then applicable
to that Bank. No Term-out Advance may be outstanding after the third
Anniversary.
8.4 Payment of Bills
NG Company shall pay an amount equal to the principal amount of each Bill
drawn by it on its Maturity Date by payment to the Agent for the relevant
Bank.
9. PREPAYMENT AND CANCELLATION
9.1 Automatic cancellation of Commitments
(a) The undrawn Facility A Commitment of each Bank shall be automatically
cancelled on the last day of the Facility A Availability Period.
(b) The Facility B Commitment and the Facility D Commitment of each Bank shall
be automatically cancelled at close of business on the last day of the
Facility B Availability Period or Facility D Availability Period, as
applicable.
(c) The undrawn Facility C Commitment of each Bank will be automatically
cancelled on the last day of the Facility C Availability Period then
applicable to that Bank.
9.2 Voluntary cancellation
(a) NGG may, by giving not less than five Business Days' prior notice to the
Agent, cancel the unutilised portion of the Facility A Total Commitments in
whole or in part (but, if in part, in a
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minimum amount of US$100,000,000 and an integral multiple of
US$10,000,000). Any cancellation in part shall be applied against the
Facility A Commitment of each Bank pro rata.
(b) NGG may, by giving not less than five Business Days' prior notice to the
Agent, cancel the unutilised portion of the Facility B Total Commitments in
whole or in part (but, if in part, in a minimum amount of US$25,000,000 and
in integral multiples of US$5,000,000). Any cancellation in part shall be
applied against the Facility B Commitment of each Bank pro rata.
(c) NGG may, by giving not less than five Business Days' prior notice to the
Agent, cancel the unutilised portion of the Facility C Total Commitments in
whole or in part (but, if in part, in a minimum amount of US$100,000,000
and an integral multiple of US$10,000,000). Any cancellation in part shall
be applied against the Facility C Commitment of each Bank pro rata.
(d) NG Company may, by giving not less than five Business Days' prior notice to
the Agent, cancel the unutilised portion of the Facility D Total
Commitments in whole or in part (but, if in part, in a minimum amount of
(pound)25,000,000 and an integral multiple of (pound)5,000,000). Any
cancellation in part shall be applied against the Facility D Commitment of
each Bank pro rata.
9.3 Prepayment of Advances and early payment of Bills
(a) Subject to Clause 26.2 (Other Indemnities), a Borrower may, by giving not
less than five Business Days' notice to the Agent, prepay at any time the
Advances comprised in any Utilisation made to it under any Facility in
whole or in part (but, if in part, in a minimum amount and an integral
multiple as follows:
(i) in respect of a Utilisation under Facility A, a minimum Original
Dollar Amount of US$100,000,000 and an integral multiple of an
Original Dollar Amount of US$10,000,000 (or such other amount as NGG
and the Agent may agree before the delivery of the relevant notice of
prepayment);
(ii) in respect of a Utilisation under Facility B a minimum Original Dollar
Amount of US$25,000,000 and an integral multiple of an Original Dollar
Amount of US$5,000,000 or an integral multiple of the amounts in the
relevant Optional Currency agreed between NGG and the Agent before the
delivery of that notice of prepayment (or such other amount as NGG and
the Agent may agree before the delivery of that notice of prepayment);
(iii) in respect of a Utilisation under Facility C, a minimum Original
Dollar Amount of US$100,000,000 and an integral multiple of an
Original Dollar Amount of US$10,000,000 (or such other amount as NGG
and the Agent may agree before the delivery of the relevant notice of
prepayment); and
(iv) in respect of a Utilisation under Facility D (other than by way of
Bills), a minimum Original Sterling Amount of (pound)25,000,000 and an
integral multiple of an Original Sterling Amount of (pound)5,000,000
or an integral multiple of the amounts in the relevant Optional
Currency agreed between NG Company and the Agent before the delivery
of the relevant notice of prepayment (or such other amount as NG
Company and the Agent may agree before the delivery of that notice of
prepayment).
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(b) Any voluntary prepayment made under paragraph (a) above will be applied
against all the Advances comprised in the relevant Utilisation(s).
(c) NG Company may, by giving not less than five Business Days' prior notice to
the Agent, prematurely comply with its obligations under Clause 8.4
(Payment of Bills).
9.4 Additional right of prepayment and cancellation
Subject to Clause 26.2 (Other Indemnities), if any Obligor (the "affected
Obligor") is required to pay any amount to a Bank under Clause 13 (Taxes)
or Clause 15 (Increased Costs), NGG may, whilst the circumstances giving
rise to the requirement continue, serve a notice of prepayment and
cancellation on that Bank through the Agent. On the date falling five
Business Days after the date of service of the notice:
(a) the affected Obligor shall prepay any Advances made to it by that Bank
(together with all other amounts payable by it to that Bank under this
Agreement);
(b) the affected Obligor shall immediately perform its obligations (if
any) under Clause 8.4 (Payment of Bills) in respect of all outstanding
Bills accepted by that Bank; and
(c) if NGG has so elected in the notice delivered pursuant to this Clause
9.4, that Bank's Commitment shall be cancelled in full on the date of
service of the notice.
9.5 Prepayment of Bills
If, under the terms of this Agreement, NG Company prematurely complies with
its obligations under Clause 8.4 (Payment of Bills) in respect of any Bill,
then the amount payable by it shall be the principal amount of the Bill
discounted on the basis of such normal commercial rates prevailing at the
time of payment for Sterling deposits of an amount equal to the amount so
paid for the period from the Business Day after the time of payment to the
Maturity Date of the Bill as the Agent shall reasonably determine.
9.6 Mandatory Prepayment and Cancellation on Change of Control
If any single person, or group of persons acting in concert (as defined in
the City Code on Take- Overs and Mergers) acquires control (as defined in
Section 416 of the Income and Corporation Taxes Act 1988) of NGG, then the
Agent may, and shall if so directed by the Majority Banks, within 90 days
after the occurrence of such event by notice in writing to NGG:
(a) reduce the Total Facility A Commitments, Total Facility B Commitments
and Total Facility C Commitments to the aggregate Original Dollar
Amount of all outstanding Utilisations under those Facilities at the
date of such notice and reduce the Total Facility D Commitments to the
Aggregate Original Sterling Amount of all outstanding Utilisations
under that Facility at the date of such notice; and/or
(b) declare that:
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(i) the Final Maturity Date for all Facilities shall be brought
forward to the date falling 30 days after the date of such notice
whereupon each reference in this Agreement to the Final Maturity
Date (and each such period) shall be amended and construed
accordingly;
(ii) each Borrower's obligations under Clause 8 (Repayment) in respect
of Advances and Bills outstanding on the date of such notice with
Maturity Dates falling after the Final Maturity Date (as amended)
shall be due and payable on the Final Maturity Date (as amended);
and
(iii) on the Final Maturity Date (as amended) the Total Commitments
shall be cancelled and all other amounts accrued or otherwise
outstanding under this Agreement shall be due and payable.
9.7 Mandatory Prepayment from Significant Cash Disposals
(a) NGG will notify the Agent not later than 60 Business Days after the date of
receipt (a "Receipt Date") by any member of the Group of any Net Available
Proceeds from any Significant Cash Disposals specifying the amount (the
"Sterling Equivalent Proceeds" and, in respect of Significant Cash
Disposals to which paragraph (a)(ii) below applies, the "Dollar Equivalent
Proceeds") of such Net Available Proceeds (notionally converted into
Sterling and/or Dollars, as applicable, at the Agent's Spot Rate of
Exchange two Business Days prior to the date of that notice) whereupon:
(i) in the case of any Significant Cash Disposal (other than a Significant
Cash Disposal to which paragraph (a)(ii) or paragraph (a)(iii) below
applies):
(A) an amount up to an aggregate amount during the life of the
Facilities of (pound)400,000,000 of the Sterling Equivalent
Proceeds of such Significant Cash Disposals may be retained by
the Group for use for general corporate purposes (so that,
accordingly, any Net Cash Proceeds of Significant Cash Disposals
applied in accordance with paragraph (b) below of this Clause 9.7
will not count towards the (pound)400,000,000 amount); and
(B) thereafter, an amount equal to 50 per cent. of all further
Sterling Equivalent Proceeds from any such Significant Cash
Disposal will be applied in mandatory prepayment or reduction of
the Facilities in accordance with the provisions of paragraph (b)
below;
(ii) in the case of any Significant Cash Disposal of all or any part of
shares in or assets of the NEES Group (other than a Significant Cash
Disposal to which paragraph (a)(iii) below applies):
(A) an amount up to an aggregate amount during the life of the
Facilities of US$50,000,000 of the Dollar Equivalent Proceeds of
such Significant Cash Disposals may be retained by the Group for
use for general corporate purposes; and
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(B) thereafter 100 per cent. of all further Dollar Equivalent
Proceeds from any such Significant Cash Disposal will be applied
in mandatory prepayment or reduction of the Facilities in
accordance with the provisions of paragraph (b) below;
(iii) in the case of any Significant Cash Disposal by way or as part of the
securitisation of any assets of any member of the Group 100 per cent.
of the Net Available Proceeds of such securitisation will be applied
in mandatory prepayment and reduction of the Facilities in accordance
with paragraph (b) below.
(b) Any application by way of mandatory prepayment pursuant to paragraph (a)
above shall be made within 90 days after the Receipt Date by application of
an amount equal to the relevant portion of the Sterling Equivalent Proceeds
or Dollar Equivalent Proceeds, and will be applied as follows:
(i) in the case of Significant Cash Disposals of assets other than of
assets of NG Company, a Regulated UK Subsidiary or any member of the
NEES Group, in such proportions as NGG may elect:
(A) in permanent reduction of Facility A Total Commitments and, to
the extent necessary, in permanent prepayment of Facility A
Advances;
(B) in permanent reduction of Facility C Total Commitments and, to
the extent necessary, in permanent prepayment of Facility C
Advances; or
(C) in permanent prepayment of Term-out Advances; and
(ii) in the case of any Significant Cash Disposals by NG Company or by any
Regulated UK Subsidiary in permanent reduction and prepayment of any
outstanding Financial Indebtedness of NG Company or of such Regulated
UK Subsidiary, as the case may be which was not incurred in
contemplation of the disposal; and
(iii) in the case of Significant Cash Disposals by any member of the NEES
Group:
(A) in permanent reduction and prepayment of any outstanding
Financial Indebtedness of such member of the NEES Group required
to be repaid as a result of the disposal and which was not
incurred in contemplation of the disposal; and
(B) thereafter, in accordance with paragraph (b)(i) above.
(c) Where:
(i) a Borrower is not able to apply any of the Net Cash Proceeds from any
Significant Cash Disposal in mandatory prepayment or reduction of the
Facilities in accordance with paragraph (b) above within 90 days after
the Receipt Date; or
(ii) a Borrower elects, where so permitted by this Clause, to apply any of
the Net Cash Proceeds from a Significant Cash Disposal in prepayment
of any Financial Indebtedness of the Borrower other than Financial
Indebtedness under this Agreement,
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then, and for the purposes of paragraph (c)(i) above until such time
as those Net Cash Proceeds are so applied,
(iii) that will not, in itself, be an Event of Default under this Clause
9.7; and
(iv) the Financial Indebtedness Limits set out in paragraph (d) of Clause
20.15 (Restrictions on Subsidiary Financial Indebtedness) will be
rateably reduced by an amount equivalent to the amount of those Net
Cash Proceeds to which paragraph (i) or (ii) above apply.
(d) This Clause 9.7 will cease to apply on and after the date on which the
Original Dollar Amount of the Total Commitments (whether or not drawn) is
equal to or less than US$1,250,000,000 (calculated by reference to the
Agent's Spot Rate of Exchange on the relevant date of calculation).
9.8 Mandatory Cancellation and Prepayment on Termination of NEES Acquisition
Agreement
If the NEES Acquisition Agreement is terminated for any reason the Total
Facility A Commitments and Total Facility C Commitments will be deemed to
be cancelled in full and permanently on the date of termination of the NEES
Acquisition Agreement and the relevant Borrower will promptly repay all
Term-out Advances drawn as at that date on or before the next Interest
Payment Date.
9.9 Mandatory Prepayment and Cancellation for Subsidiary Financial Indebtedness
If, at any time after the date falling six months after the NEES
Acquisition Completion Date the level of Financial Indebtedness to which
paragraph (d) of Clause 20.15 (Restrictions on Subsidiary Financial
Indebtedness) applies incurred by any Subsidiaries to which sub-paragraph
(ii) of that Clause applies, exceeds the Financial Indebtedness Limit
applicable from time to time to those Subsidiaries then the Agent may, and
will if so directed by the Majority Banks, by notice in writing to NGG:
(a) permanently cancel and reduce the Total Facility A Commitments and/or
the Total Facility C Commitments by an amount equal to the amount by
which the Financial Indebtedness of those Subsidiaries exceeds the
then applicable Financial Indebtedness Limit; and
(b) to the extent necessary to ensure that outstandings do not exceed the
relevant Commitments as so reduced, require the relevant Borrower to
prepay Facility A Advances and/or Facility C Advances within 90 days
of the date of that notice.
9.10 Miscellaneous provisions
(a) Any notice of cancellation and/or prepayment under this Agreement shall
be irrevocable and the Agent shall notify the Banks promptly of receipt
of any such notice.
(b) All prepayments under this Agreement shall be made together with
accrued interest up to and including the date of prepayment on the
amount prepaid and any other amounts due under this Agreement in
respect of that prepayment (including, but not limited to, any amounts
payable under Clause 26.2 (Other Indemnities) if not made on an
Interest Date or Maturity Date (as appropriate) in respect of the
relevant Advance(s) or Bill(s).
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(c) No cancellation or prepayment is permitted except in accordance with the
express terms of this Agreement.
(d) Amounts prepaid under this Agreement in respect of Facility A Advances or
Term-out Advances may not subsequently be re-borrowed. Subject thereto and
to the terms of this Agreement, any amount prepaid under Clause 9.3
(Prepayment of Advances and early payment of Bills) but not under any other
provision of this Agreement may be reborrowed under any other provision of
this Agreement. Any Commitment cancelled may not subsequently be
reinstated.
10. INTEREST
10.1 Selection of Interest Periods for Facility A Advances and Term-out Advances
The life of each Facility A Advance and of each Term-out Advance is divided
into successive periods (each an "Interest Period") for the calculation of
interest. The first Interest Period of each such Advance will be the period
selected in the Utilisation Request for that Advance. Each subsequent
Interest Period will be the period selected by the relevant Borrower in an
Interest Period Selection Notice received by the Agent not later than 4.30
p.m. on the third Business Day before the end of the then current Interest
Period being, subject to Clause 2.5 (Primary Syndication Period), 1, 2, 3,
or 6 months or, in any case, such other period as the relevant Borrower and
all the Banks may agree from time to time or, if no notice from the
relevant Borrower (or NGG) is received by the Agent, one month.
10.2 Interest rate for all Advances
The rate of interest applicable to each Facility A Advance and Term-out
Advance for each of their Interest Periods and to each Facility B Advance,
Facility C Advance (other than a Term-out Advance) and Facility D Advance
for each of their Terms is the rate per annum determined by the Agent to be
the aggregate of:
(i) the Applicable Margin;
(ii) LIBOR; and
(iii) the Reserve Asset Costs.
10.3 Due dates
Except as otherwise provided in this Agreement, accrued interest on each
Advance is payable by the relevant Borrower:
(a) in the case of a Facility A Advance or a Term-out Advance, on each
Interest Date applicable to that Advance; and
(b) in the case of a Facility B Advance, a Facility C Advance (other than
a Term-out Advance) or a Facility D Advance, on its Maturity Date,
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and also, in the case of an Advance with an Interest Period or a Term
longer than 6 months, at 6 monthly intervals after its Utilisation
Date for so long as the Interest Period or Term is outstanding.
10.4 Default interest
(a) If an Obligor fails to pay any amount payable by it under this Agreement
(an "overdue amount"), it shall forthwith on demand by the Agent pay
default interest on the overdue amount from the due date until the date of
actual payment, as well after as before judgment, at a rate (the "default
rate") determined by the Agent to be 1 per cent. per annum above the rate
which would have been payable if the overdue amount had, during the period
of non-payment, constituted a Facility A Advance in the currency of the
overdue amount for such successive Interest Periods or Terms of such
duration as the Agent may determine (each a "Default Term").
(b) The default rate will be determined on the first day of, or two Business
Days before the first day of, the relevant Default Term, as appropriate.
(c) If the Agent determines that deposits in the currency of the overdue amount
are not at the relevant time being made available by the Reference Banks to
leading banks in the London interbank market, the default rate will be
determined by reference to the cost of funds to the Agent from such sources
as it reasonably may select.
(d) Default interest will be compounded at the end of each Default Term.
10.5 Notification of rates of interest
The Agent shall promptly notify each relevant Party of the determination of
a rate of interest under this Agreement.
10.6 Applicable Margin and Acceptance Commission Rate
(a) The Applicable Margin for a Facility A Advance, a Facility B Advance and a
Facility C Advance will be 0.575 per cent. per annum, unless adjusted in
accordance with this Clause 10.6.
(b) The Applicable Margin and Acceptance Commission Rate for a Facility D
Advance will be 0.525 per cent. per annum, unless adjusted in accordance
with this Clause 10.6.
(c) If on the first day of an Interest Period or Term falling on or after the
NEES Acquisition Completion Date:
(i) the long term senior unsecured credit rating assigned to, or to any
issue of or guaranteed by, NGG by:
(A) Moody's, is A2 or higher; or
(B) S&P, is A or higher; and
(ii) the Original Dollar Amount of the Total Commitments at any time is
within the ranges set out in Column 1 below,
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the Applicable Margin and Acceptance Commission Rate for each such
Interest Period or Term will be reduced to the percentage figure set
out opposite the relevant range in Column 2 or Column 3 below, as
applicable:
Column 1 Column 2 Column 3
Total Commitments Facility A, Facility B, and Facility D
Facility C Applicable Margin
Applicable Margin and Acceptance
Commission Rate
Less than or equal to 0.50 per cent. 0.45 per cent.
US$2,205,000,000 but greater
than US$1,575,000,000
Less than or equal to 0.425 per cent. 0.375 per cent.
US$1,575,000,000
(d) If at any time:
(i) after the NEES Acquisition Completion Date a long term senior
unsecured credit rating is not assigned to, or to any issue of or
guaranteed by, NGG by either Moody's or S&P; or
(ii) an Event of Default has occurred which is continuing,
the Applicable Margin and Acceptance Commission Rate for all Facility A,
Facility B and Facility C Advances will be 0.575 per cent per annum and for
all Facility D Utilisations will be 0.525 per cent. per annum.
(e) Promptly after becoming aware of the same, NGG shall inform the Agent in
writing if any of the circumstances contemplated by paragraph (d) above
arises.
(f) In this Clause 10.6:
(i) a reference to an "issue of or guaranteed by" NGG is a reference to an
issue where the rating is based primarily on the senior unsecured
credit risk of NGG; and
(ii) if at any time Moody's or S&P assigns more than one long term senior
unsecured credit rating to NGG, or to issues of or guaranteed by NGG,
only the lowest such rating shall be taken into account.
10.7 Forward-Sterling Advances
Any Bank may elect by notice to the Agent at the time that Bank becomes a
party to this Agreement or at the time that Bank changes its Facility
Office that Sterling Advances made by it out of a Facility Office outside
the UK be treated as forward-Sterling Advances (with a Rate Fixing Day two
Business Days prior to the first day of the Term of the Advance concerned).
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11. OPTIONAL CURRENCIES
11.1 Selection
Advances may only be denominated in an Optional Currency if they are borrowed
under Facility B or Facility D. No Borrower may request an Advance denominated
in an Optional Currency (other than Dollars, Sterling or Euros) unless the Agent
has confirmed to the Borrower that the Optional Currency is readily available
and freely transferable in the London foreign exchange market.
11.2 Non-availability of Currency
If:
(a) before 9.00 a.m. on any Rate Fixing Day for any Advance to be
denominated in an Optional Currency, the Agent receives notice from a
Bank that it is impracticable for that Bank to fund its required
Advance in that Optional Currency for its requested Term in the
ordinary course of business in the relevant interbank market; or
(b) the use of the proposed Optional Currency would or might contravene
any law or regulation,
then:
(i) the Agent shall promptly (and in any event before 10.00 a.m. on that
Rate Fixing Day) notify the relevant Borrower and the Banks;
(ii) unless NGG or, in the case of Facility D, NG Company, and the Agent
otherwise agree, the requested Advances will be denominated instead in
Dollars (in the case of Facility B Advances) or in Sterling (in the
case of Facility D Advances), in an amount equal to the Original
Dollar Amount or the Original Sterling Amount, as applicable, of the
requested Advances in the Optional Currency.
11.3 Notification of rates and amounts
(a) If an Advance is to be drawn down in an Optional Currency, the amount
thereof shall be determined by converting the Original Dollar Amount
thereof (if it is a Facility B Advance) or the Original Sterling Amount
thereof (if it is a Facility D Advance) into that Optional Currency on the
basis of the Agent's Spot Rate of Exchange on the date of receipt by the
Agent of the Utilisation Request for that Advance.
(b) If an Advance is to be repaid or prepaid by reference to an Original Dollar
Amount or an Original Sterling Amount, the amount of Optional Currency to
be repaid or prepaid shall be determined by reference to the Agent's Spot
Rate of Exchange last used for determining the Optional Currency amount of
that Advance under paragraph (a) above.
(c) The Agent shall notify each relevant Party of any applicable Agent's Spot
Rate of Exchange or Original Dollar Amount or Original Sterling Amount, as
applicable, promptly after it has ascertained the same.
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12. PAYMENTS
12.1 Place
Except where expressly provided to the contrary, all payments by an Obligor
or a Bank under this Agreement shall be made to the Agent to its account at
such office or bank in the principal financial centre of the country of the
relevant currency (or, in the case of Euros, the principal financial centre
of a Participating Member State or London) as it may notify to that Obligor
or Bank for this purpose.
12.2 Funds
Payments under this Agreement to the Agent shall be made for value on the
due date at such times and in such funds as the Agent may specify to the
Party concerned as being customary at the time for the settlement of
transactions in the relevant currency in the place for payment.
12.3 Distribution
(a) Each payment received by the Agent under this Agreement for another Party
shall, subject to paragraphs (b) and (c) below, be made available by the
Agent to that Party by payment (on the date and in the currency and funds
of receipt) to its account with such bank in the principal financial centre
of the country of the relevant currency (or, in the case of Euros, the
principal financial centre of Participating Member State or London) as it
may notify to the Agent for this purpose by not less than 5 Business Days'
prior notice or, in the case of a Borrower, in the relevant Utilisation
Request.
(b) The Agent may apply any amount received by it for an Obligor in or towards
payment (on the date and in the currency and funds of receipt) of any
amount due from an Obligor under this Agreement or in or towards the
purchase of any amount of any currency to be so applied.
(c) Where a sum is to be paid under this Agreement to the Agent for the account
of another Party, the Agent is not obliged to pay that sum to that Party
until it has established that it has actually received that sum. Unless the
Agent receives not less than one Business Day's written notice that a sum
to be paid under this Agreement will not be paid, it may assume that the
sum has been paid to it in accordance with this Agreement and, in reliance
on that assumption, make available to that Party a corresponding amount. If
the sum has not been made available, but the Agent has paid a corresponding
amount to another Party, that Party shall forthwith on demand refund the
corresponding amount to the Agent together with interest on that amount
from the date of payment to the date of receipt, calculated at a rate
determined by the Agent to reflect its cost of funds.
(d) If on any Utilisation Date:
(i) a Bank is required to participate in an Advance pursuant to Clause 5
(Availability of Advances) or accept Bills pursuant to Clause 6
(Availability of the Bill Facility); and
(ii) a payment is due to that Bank pursuant to Clause 8 (Repayment),
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then the Agent shall (without prejudice to the obligations of the relevant
Borrower under Clause 8 (Repayment)) apply the amount payable by such Bank
to the Agent for the account of the relevant Borrower on that Utilisation
Date in or towards satisfaction of the amount payable by the relevant
Borrower to such Bank on such Utilisation Date pursuant to Clause 8
(Repayment). The Agent shall advise NGG, the relevant Borrower and each
such Bank of the net amount, if any, due from one party to the other after
the application of funds as aforesaid and such net amount due shall be paid
by the relevant Borrower or the relevant Bank(s), as the case may be, on
such date.
12.4 Currency
(a) (i) A repayment or prepayment of an Advance is payable in the currency in
which the Advance is denominated.
(ii) Interest is payable in the currency in which the relevant amount in
respect of which it is payable is denominated.
(iii) Amounts payable in respect of costs, expenses, taxes and the like are
payable in the currency in which they are incurred.
(iv) Any other amount payable under this Agreement is, except as otherwise
provided in this Agreement, payable in Sterling.
(v) Any amount payable under this Agreement in the currency of a
Participating Member State will be paid in Euros.
(b) If a change in any currency of a country occurs in a manner different to
that expressly contemplated in this Agreement, this Agreement will be
amended to the extent the Agent and NGG agree (such agreement not to be
unreasonably withheld) to be necessary to reflect the change in currency
and to put the Banks and the Obligors in the same position, as far as
possible, that they would have been in if no change in currency had
occurred.
12.5 Set-off and counterclaim
All payments made by an Obligor under this Agreement shall be made without
set-off or counterclaim.
12.6 Non-Business Days
(a) If a payment under this Agreement is due on a day which is not a Business
Day, the due date for that payment shall instead be the next Business Day
in the same calendar month (if there is one) or the preceding Business Day
(if there is not). If, however, the extension of the due date would mean
that a Bill would have a Tenor of more than 187 days, then the due date for
that payment shall instead be the preceding Business Day.
(b) During any extension of the due date for payment of any principal under
this Agreement interest is payable on the principal at the rate payable on
the original due date.
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12.7 Partial payments
(a) If the Agent receives a payment insufficient to discharge all the amounts
then due and payable by the Obligors under the Finance Documents the Agent
shall apply that payment towards the obligations of the Obligors under the
Finance Documents in the following order:
(i) first, in or towards payment pro rata of any unpaid costs, fees and
expenses of the Agent under this Agreement;
(ii) secondly, in or towards payment pro rata of any accrued fees due but
unpaid under Clauses 23.1 (Front-end fee), 23.2 (Commitment fee), and
23.3 (Term-out Fee and Facility C Availability Extension Fee);
(iii) thirdly, in or towards payment pro rata of any accrued interest due
but unpaid under this Agreement;
(iv) fourthly, in or towards payment pro rata of any principal due but
unpaid under this Agreement; and
(v) fifthly, in or towards payment pro rata of any other sum due but
unpaid under this Agreement.
(b) The Agent shall, if so directed by all the Banks, vary the order set out in
paragraphs (a)(ii) to (v) inclusive above.
(c) Paragraphs (a) and (b) above shall override any appropriation made by an
Obligor.
13. TAXES
13.1 Gross-up
(a) For the purposes of this Clause 13, "tax" and "taxes" in relation to any
payment to be made by an Obligor under the Finance Documents means any
present or future taxes of any nature now or subsequently imposed by the
laws of:
(i) the United Kingdom;
(ii) any other jurisdiction from which, or through which, such payment is
made or to the taxation laws of which the relevant Obligor is at the
time of such payment subject;
(iii) any political sub-division of the United Kingdom or any such other
jurisdiction; or
(iv) any federation or association of states of which the United Kingdom or
any such other jurisdiction is, at the time of such payment, a member.
(b) All payments by an Obligor under the Finance Documents to a Finance Party
shall be made without any deduction, and free and clear of and without
deduction or withholding for or on account of any taxes, except to the
extent that the Obligor is required by law to deduct or withhold
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taxes from any amounts payable or paid or to make payment subject to any
taxes. If any tax or amounts in respect of tax must be deducted, or any
other deductions must be made, from any amounts payable or paid by an
Obligor, or paid or payable by the Agent to a Bank, under the Finance
Documents, the Obligor shall pay such additional amounts as may be
necessary to ensure that the relevant Bank receives a net amount equal to
the full amount which it would have received had payment not been made
subject to tax or other deduction.
13.2 Tax receipts
All taxes required by law to be deducted or withheld by an Obligor from any
amounts paid or payable under the Finance Documents shall be paid by the
relevant Obligor when due (unless the obligation to pay any such tax is
being disputed in good faith) and the Obligor shall, within 15 days of the
payment being made, deliver to the Agent for the relevant Bank evidence
satisfactory to that Bank (including all relevant tax receipts) that the
payment has been duly remitted to the appropriate authority.
13.3 Qualifying Bank
(a) In respect of amounts payable by an Obligor, if otherwise than as a result
of the introduction of, change in, or change in the interpretation,
administration or application of, any law or regulation or any practice or
concession of the United Kingdom Inland Revenue occurring after the date of
this Agreement, a Bank is not or ceases to be a Qualifying Bank, no Obligor
is liable to pay to that Bank under Clause 13.1 (Gross-up) any amount in
respect of taxes levied or imposed by the United Kingdom or any taxing
authority of or in the United Kingdom in excess of the amount it would have
been obliged to pay if that Bank was not or had not ceased to be a
Qualifying Bank.
(b) On the date of this Agreement, each Bank which is a party on that date
warrants, and each Bank which becomes a Party after the date hereof shall
warrant on the date upon which it becomes a Party, that it is a Qualifying
Bank. If for whatever reason a Bank ceases to be a Qualifying Bank it shall
immediately notify the Agent and NGG in writing.
(c) Each Bank undertakes, as soon as reasonably practicable after the Signing
Date or, as applicable, the date upon which it becomes a Party to this
Agreement, where requested in writing by an Obligor to do so, to complete
and file, or to provide such information as NGG reasonably requests in
order to complete and file, any declaration, claim, exemption or other
form, which it is able to complete and file or, in the case of information,
to provide, as may be required to ensure that an Obligor is not required to
pay any additional amount pursuant to paragraph (b) of Clause 13.1
(Gross-up).
13.4 Collecting Agents Rules
Each Bank represents to the Agent that, in the case of a Bank which is an
original signatory to this Agreement, on the Signing Date and, in the case of a
Bank which becomes a Bank after the date of this Agreement, on the date it
becomes a Bank, in relation to the Facilities, it is:
(a) either:
(i) not resident in the United Kingdom for United Kingdom tax
purposes; or
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(ii) a bank as defined in section 840A of the Income and Corporation
Taxes Act 1988 and resident in the United Kingdom; and
(b) beneficially entitled to the principal and interest payable by the
Agent to it under this Agreement,
(or, if it is not able to make those representations, will ensure that it
assigns, transfers or novates its rights in respect of each Advance then
made (or, if made later, when made) to an entity in respect of which both
representations are correct) and, if it is able to make those
representations on the Signing Date or the date it becomes a Bank, shall
forthwith notify the Agent if either representation ceases to be correct.
13.5 Tax Credits
(a) If an Obligor pays any additional amount (a "Tax Payment") under Clause
13.1 (Gross-up) and a Bank effectively obtains a refund of tax, or relief
or credit against tax, by reason of that Tax Payment (a "Tax Credit") and
is able to identify the Tax Credit as being attributable to the Tax
Payment, then it shall reimburse to the relevant Obligor such amount as the
Bank reasonably determines (in its absolute discretion) to be the
proportion of the Tax Credit as will leave it, after that reimbursement, in
no better or worse position than it would have been in if the Tax Payment
had not been required. Each Bank shall have an absolute discretion as to
whether to claim any Tax Credit and, if it does so claim, the extent, order
and manner in which it does so. No Bank shall be obliged to disclose any
information regarding its tax affairs or computations to any Obligor in
respect of any provision of this Agreement or otherwise.
(b) If any Bank makes any payment to an Obligor pursuant to paragraph (a) above
and that Bank subsequently determines that the credit, relief, remission or
repayment in respect of which such payment was made was not available to it
or has been withdrawn from it or that it was unable to use such credit,
relief, remission or repayment in full, the Obligor shall reimburse that
Bank to the extent (but not exceeding the relevant payment by that Bank
under paragraph (a) above) that it determines to have been required to
place it in the same after-tax position as it would have been in if such
credit, relief, remission or repayment had been obtained and fully used and
retained by that Bank.
13.6 U.S. Taxes
(a) No U.S. Borrower shall be required to pay any additional amount pursuant to
Clause 13.1 (Gross-up) in respect of United States taxes (including,
without limitation, federal, state, local or other income taxes), branch
profits or franchise taxes with respect to a sum payable by it pursuant to
this Agreement to a Finance Party if:
(i) on the date such Bank becomes a Party to this Agreement or has
designated a new Facility Office:
(1) in the case of a Bank which is not a United States person (as
such term is defined in Section 7701(a)(30) of the U.S. Code),
such Bank is not entitled to submit a United States Internal
Revenue Service Form 1001 (relating to such Bank and entitling it
to a complete exemption from withholding on all interest payable
to it
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pursuant to this Agreement) or a Form 4224 (relating to interest
payable to such Bank pursuant to this Agreement) (or any
successor forms) with respect to interest payable pursuant to
this Agreement; or
(2) in the case of a Bank which is a United States person (as such
term is defined in Section 7701(a)(30) of the U.S. Code), Clause
13.1 (Gross-up) would apply (other than as a result of the
introduction of, suspension, withdrawal or cancellation of, or
change in the official interpretation, administration or official
application of, any law, regulation having the force of law, tax
treaty or any published practice or published concession of the
United States Internal Revenue Service or any other relevant
taxing or fiscal authority in any jurisdiction with which the
relevant Bank has a connection, occurring after the date the Bank
becomes a Party to this Agreement or has designated a new
Facility Office); or
(ii) such Bank has failed to provide the Borrower with the appropriate
form, certificate or other information with respect to such sum
payable that it was required to provide pursuant to paragraph (b) or
(c) below and is entitled to file under applicable law; or
(iii) such Bank is subject to such tax by reason of any connection between
the jurisdiction imposing such tax and the Bank or its Facility Office
other than a connection arising solely from this Agreement or any
transaction contemplated hereby.
(b) If a Bank is not a United States person (as such term is defined in Section
7701(a)(30) of the U.S. Code) it shall (if and to the extent that it is
entitled to do so under applicable law) submit, as soon as reasonably
practicable after a U.S. Borrower becomes a Party to this Agreement or
designated a new Facility Office, in duplicate to each U.S. Borrower duly
completed and signed copies of either United States Internal Revenue
Service Form 1001 (or, such successor forms as shall be adopted from time
to time by the relevant United States taxing authorities) (relating to such
Bank and entitling it to a complete exemption from withholding on all
amounts (to which such withholding would otherwise apply) to be received by
such Bank, including fees, pursuant to this Agreement in connection with
any borrowing by such U.S. Borrower) as a result of a tax treaty concluded
with the United States or United States Internal Revenue Service Form 4224
(relating to all amounts (to which such withholding would otherwise apply)
to be received by such Bank, including fees, pursuant to this Agreement in
connection with any borrowing by such U.S. Borrower). Thereafter and from
time to time upon the reasonable request of a U.S. Borrower, such Bank
shall (if and to the extent that it is entitled to do so under applicable
law) submit to such U.S. Borrower such additional duly completed and signed
copies of such forms (or such successor forms as shall be adopted from time
to time by the relevant United States taxation authorities) or any
additional information, in each case as may be required under then current
United States law or regulations to claim the inapplicability of or
exemption from United States withholding taxes on payments in respect of
all amounts (to which such withholding would otherwise apply) to be
received by such Bank, including fees, pursuant to this Agreement in
connection with any borrowing by such U.S. Borrower.
(c) If a Bank is a United States person (as such term is defined in Section
7701(a)(30) of the U.S. Code) it shall, as soon as reasonably practicable
after a U.S. Borrower becomes a Party to this Agreement or designates a new
Facility Office, and thereafter upon the reasonable request of a U.S.
Borrower, submit in duplicate to such U.S. Borrower a certificate to the
effect that it is such a
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United States person and shall (if and to the extent that it is entitled to
do so under applicable law) upon the reasonable request of a U.S. Borrower
submit any additional information that may be necessary to avoid United
States withholding taxes on all payments, including fees, (to which such
withholding would otherwise apply) to be received pursuant to this
Agreement in connection with any borrowing by such U.S. Borrower.
14. MARKET DISRUPTION
14.1 Advances
(a) If LIBOR is to be determined by reference to Reference Banks but a
Reference Bank does not supply an offered rate by 11.15 a.m. on a Rate
Fixing Day, the applicable LIBOR shall, subject to paragraph (b) below, be
determined on the basis of the quotations of the remaining Reference Banks.
(b) If, in relation to any proposed Utilisation comprising Advances:
(i) LIBOR is to be determined by reference to Reference Banks but no, or
only one, Reference Bank supplies a rate for the purposes of
determining the applicable LIBOR or the Agent otherwise determines
that adequate and fair means do not exist for ascertaining the
applicable LIBOR; or
(ii) the Agent receives notification from Banks participating in more than
50 per cent. in value of the proposed Advances that, in their opinion:
(A) matching deposits may not be available to them in the London
interbank market in the ordinary course of business to fund their
Advances for the relevant Interest Period or Term; or
(B) the cost to them of matching deposits in the London interbank
market would be in excess of LIBOR for the relevant Interest
Period or Term,
then the Agent shall promptly notify NGG, any other relevant Borrower and
the relevant Banks of the fact and that this Clause 14.1 is in operation.
(c) After any notification under paragraph (b) above:
(i) the relevant Borrower and the Banks may (through the Agent) agree that
the Advances comprised in the Utilisation shall not be made; or
(ii) in the absence of such agreement:
(A) the Advances shall still be made;
(B) the Interest Period or Term of each relevant Advance shall be one
week during the Primary Syndication Period and thereafter one
month;
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(C) during the Interest Period or Term of each Advance the rate of
interest applicable to that Advance shall be the Applicable
Margin plus the applicable Reserve Asset Costs plus the rate per
annum notified by the relevant Bank to the Agent before the last
day of that Interest Period or Term to be that which expresses as
a percentage rate per annum the cost to the Bank of funding its
Advance from whatever sources it may reasonably select;
(D) during the relevant Interest Period or Term of each Advance, NGG,
any other relevant Borrower and the Agent shall enter into
negotiations for a period of not more than 30 days with a view to
agreeing a substitute basis for determining the rate of interest
and/or funding applicable to any future Advances to be
denominated in the currency of the affected Advances for the
duration agreed at the time of determining the substitute basis;
and
(E) any substitute basis agreed under paragraph (D) above shall be,
with the prior consent of all the Banks, binding on all the
Parties.
14.2 Bills
(a) If the Agent is not able to determine the EBDR on any relevant Utilisation
Date by reference to all the Reference Banks, the Agent shall be entitled
to determine the EBDR on the basis of the quotations of the remaining
Reference Banks.
(b) If, in relation to any Bills:
(i) no Reference Bank supplies a rate for determining the applicable EBDR
or the Agent otherwise determines that adequate and fair means do not
exist for ascertaining the applicable EBDR; or
(ii) the Agent determines that the Bills do not comply with the then
current Bank of England regulations for Sterling bankers' acceptances,
the Agent shall by 11.30 a.m. on the relevant Utilisation Date promptly
notify NG Company and the relevant Banks of the fact and that this Clause
is in operation.
(c) After any notification under paragraph (b) above:
(i) the relevant Bills shall not be accepted;
(ii) if the Agent receives a notice from NG Company by 12.30 p.m. on the
relevant Utilisation Date, then Advances in Sterling shall be made to
NG Company in an amount equal to the principal amount of Bills to be
accepted and there shall be substituted in the definition of "LIBOR"
(insofar as it applies to those Advances) in Clause 1.1 the time "1.00
p.m." instead of the time "11.00 a.m."; and
(iii) in the case of paragraph (b)(i) above, no further Utilisation
Requests for Bills may be delivered until the Agent notifies NG
Company that it is once again able to determine the applicable EBDR.
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15. INCREASED COSTS
15.1 Increased costs
(a) Subject to Clause 15.2 (Exceptions), NGG shall forthwith on demand by
a Finance Party pay that Finance Party the amount of any increased
cost incurred by it as a result of:
(i) the introduction of, or any change in, or any change in the
interpretation or application of, any law or regulation after the
date of this Agreement;
(ii) compliance with any regulation made after the date of this
Agreement,
(including any law or regulation relating to taxation or reserve asset,
special deposit, cash ratio, liquidity or capital adequacy requirements or
any other form of banking or monetary control).
(b) In this Agreement, "increased cost" means:
(i) an additional cost incurred by a Finance Party or its Regulated
Holding Company as a result of that Finance Party having entered
into, or performing, maintaining or funding its obligations
under, any Finance Document; or
(ii) that portion of an additional cost incurred by a Finance Party or
its Regulated Holding Company in making, funding or maintaining
all or any advances comprised in a class of advances formed by or
including the Advances made or to be made by it under this
Agreement as is attributable to it making, funding or maintaining
its Advances; or
(iii) a reduction in any amount payable to a Finance Party or its
Regulated Holding Company or the effective return to a Finance
Party under this Agreement or on its capital; or
(iv) the amount of any payment made by a Finance Party or its
Regulated Holding Company, or the amount of interest or other
return foregone by a Finance Party or its Regulated Holding
Company, calculated by reference to any amount received or
receivable by a Finance Party or any of its Regulated Holding
Company from any other Party under this Agreement.
15.2 Exceptions
Clause 15.1 (Increased costs) does not apply to any increased cost:
(a) compensated for by the payment of the Reserve Asset Cost; or
(b) compensated for by the operation of Clause 13 (Taxes) or which would
have been compensated for by operation of that Clause but for Clause
13.3 (Qualifying Bank); or
(c) attributable to any change in the rate of tax on the overall net
income of a Finance Party or its Regulated Holding Company (or the
overall net income of a division or branch of the Finance Party on its
Regulated Holding Company) imposed in the jurisdiction in which its
principal office or Facility Office is situated; or
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(d) incurred as a consequence of the implementation in whole or in part of
the International Convergence of Capital Measurement and Capital
Standards dated July 1988 and published by The Basle Committee on
Banking Regulations and Supervisory Practices in the United Kingdom by
notices issued by the Bank of England on or before the date of this
Agreement; or
(e) attributable to any implementation by any authority having
jurisdiction over any of the Banks of the proposals contained in the
matters set out in the EC Directive 93/6/EEC of 15th March, 1993, on
the capital adequacy of investment firms and credit institutions.
16. MITIGATION
If any circumstances arise in relation to any Bank which would, or would
upon the giving of notice, result in:
(a) a demand for payment pursuant to Clause 15.1 (Increased costs) or the
provisions of Clause 14 (Market Disruption) applying;
(b) a cancellation of its Commitment pursuant to paragraph (b)(iii) of
Clause 17 (Illegality); or
(c) an increase in the amount of any payment to be made to it or for its
account pursuant to Clause 13.1 (Gross-up),
then, without in any way limiting, reducing or otherwise qualifying any
relevant Obligor's obligations under any of the provisions referred to in
paragraphs (a) to (c) above, the Bank will promptly upon becoming aware of
the same notify the Agent thereof and, in consultation with the Agent, NGG
and any other relevant Obligor, use reasonable endeavours to transfer its
participation in the Facilities and its rights and obligations under this
Agreement to another financial institution or Facility Office acceptable to
the Agent, NGG and any other relevant Obligor and willing to participate as
a Bank under this Agreement and otherwise take such steps as it considers
reasonably open to it for a period not exceeding 30 days to mitigate the
effects of those circumstances, unless, in the reasonable opinion of that
Bank, such steps might have a material adverse effect upon the tax
position, business, operations or financial condition, or be contrary to
the banking policy, of that Bank. Nothing in this provision shall require a
Bank to disclose any information as to its banking policy or any other
matters which it regards as confidential or commercially sensitive.
17. ILLEGALITY
If it is or becomes unlawful in any jurisdiction for a Bank to give effect
to any of its obligations as contemplated by this Agreement or to fund or
maintain any Advance, then:
(a) the Bank may notify NGG (through the Agent) accordingly; and
(b) (i) each Borrower shall forthwith prepay or repay any Advances made
to it by that Bank together with all other amounts payable by it
to that Bank under this Agreement on or before the last day
permitted by the relevant law being, if
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possible, the Maturity Date for any Facility B Advance, Facility
C Advance (other than a Term-out Advance) or Facility D Advance
or the next Interest Date for a Facility A Advance or a Term-out
Advance;
(ii) each Borrower shall forthwith perform its obligations under
Clause 8.4 (Payment of Bills) in respect of all outstanding Bills
accepted by that Bank on or before the latest day permitted by
the relevant applicable law being, if possible, the Maturity
Dates for those Bills; and
(iii) that Bank's Commitment shall be cancelled in full with effect
from the date of the notification made under paragraph (a) above.
18. GUARANTEE
18.1 Guarantee
(a) Each Guarantor (other than an NG Company Guarantor) irrevocably,
unconditionally and jointly and severally with each other Guarantor (other
than an NG Company Guarantor):
(i) as principal obligor, guarantees to each Finance Party prompt
performance by each Borrower (other than itself) (each such Borrower,
a "guaranteed party") of all its respective obligations under the
Finance Documents;
(ii) undertakes with each Finance Party that whenever a guaranteed party
does not pay an amount when due under or in connection with any
Finance Document, that Guarantor shall forthwith on demand by the
Agent pay that amount as if that Guarantor instead of the relevant
guaranteed party were expressed to be the principal obligor; and
(iii) indemnifies each Finance Party on demand against any loss or
liability suffered by it if any obligation guaranteed by that
Guarantor is or becomes unenforceable, invalid or illegal.
(b) Each NG Company Guarantor irrevocably, unconditionally and jointly and
severally with each other Guarantor:
(i) as principal obligor, guarantees to each Finance Party prompt
performance by NG Company of all its respective obligations under the
Finance Documents;
(ii) undertakes with each Finance Party that whenever NG Company does not
pay an amount when due under or in connection with any Finance
Document, that Guarantor shall forthwith on demand by the Agent pay
that amount as if that Guarantor instead of NG Company were expressed
to be the principal obligor; and
(iii) indemnifies each Finance Party on demand against any loss or
liability suffered by it if any obligation guaranteed by that
Guarantor is or becomes unenforceable, invalid or illegal.
18.2 Continuing guarantee
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This guarantee is a continuing guarantee and will extend to the ultimate
balance of all sums payable by each guaranteed party under the Finance
Documents, regardless of any intermediate payment or discharge in whole or
in part.
18.3 Reinstatement
(a) Where any discharge (whether in respect of the obligations of any
guaranteed party or any security for those obligations or otherwise)
is made in whole or in part or any arrangement is made on the faith of
any payment, security or other disposition which is avoided or must be
restored on insolvency, liquidation or otherwise without limitation,
the liability of that Guarantor under this Clause 18 shall continue as
if the discharge or arrangement had not occurred.
(b) The Agent may, on behalf of each other Finance Party, concede or
compromise any claim that any payment, security or other disposition
is liable to avoidance or restoration.
18.4 Waiver of defences
The obligations of each Guarantor under this Clause 18 will not be affected
by any act, omission, matter or thing which, but for this provision, would
reduce, release or prejudice any of its obligations under this Clause 18 or
prejudice or diminish those obligations in whole or in part, including
(whether or not known to it or any Finance Party):
(a) any time or waiver granted to, or composition with, any Obligor or
other person;
(b) the taking, variation, compromise, exchange, renewal or release of, or
refusal or neglect to perfect, take up or enforce, any rights against,
or security over assets of, any Obligor or other person or any
non-presentation or non-observance of any formality or other
requirement in respect of any instrument or any failure to realise the
full value of any security;
(c) any incapacity or lack of powers, authority or legal personality of or
dissolution or change in the members or status of an Obligor or any
other person;
(d) any variation (however fundamental) or replacement of a Finance
Document or any other document or security so that references to that
Finance Document in this Clause 18 shall include each variation or
replacement;
(e) any unenforceability, illegality or invalidity of any obligation of
any person under any Finance Document or any other document or
security, to the intent that each Guarantor's obligations under this
Clause 18 shall remain in full force and its guarantee be construed
accordingly, as if there were no unenforceability, illegality or
invalidity; or
(f) any postponement, discharge, reduction, non-provability or other
similar circumstance affecting any obligation of any Obligor under a
Finance Document resulting from any insolvency, liquidation or
dissolution proceedings or from any law, regulation or order so that
each such obligation shall for the purposes of each Guarantor's
obligations under this Clause 18 shall be construed as if there were
no such circumstance.
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18.5 Immediate recourse
Each Guarantor waives any right it may have of first requiring any
Finance Party (or any trustee or agent on its behalf) to proceed
against or enforce any other rights or security or claim payment from
any person before claiming from that Guarantor under this Clause 18.
18.6 Appropriations
Until all amounts which may be or become payable by the Obligors under or
in connection with the Finance Documents have been irrevocably paid in
full, each Finance Party (or any trustee or agent on its behalf) may:
(a) refrain from applying or enforcing any other moneys, security or
rights held or received by that Finance Party (or any trustee or agent
on its behalf) in respect of those amounts, or apply and enforce the
same in such manner and order as it sees fit (whether against those
amounts or otherwise) and no Guarantor shall be entitled to the
benefit of the same; and
(b) hold in a suspense account (bearing interest at a normal commercial
rate as determined by the Agent) any moneys received from any
Guarantor or on account of any Guarantor's liability under this Clause
18.
18.7 Non-competition
Until all amounts which may be or become payable by the Obligors under or
in connection with the Finance Documents have been irrevocably paid in
full, no Guarantor shall, after a claim has been made under this Clause 18
or by virtue of any payment or performance by it under this Clause 18:
(a) be subrogated to any rights, security or moneys held, received or
receivable by any Finance Party (or any trustee or agent on its
behalf) or be entitled to any right of contribution or indemnity in
respect of any payment made or moneys received on account of that
Guarantor's liability under this Clause 18;
(b) claim, rank, prove or vote as a creditor of any guaranteed party or
its estate in competition with any Finance Party (or any trustee or
agent on its behalf); or
(c) receive, claim or have the benefit of any payment, distribution or
security from or on account of any guaranteed party, or exercise any
right of set-off as against any guaranteed party.
Unless the Agent otherwise directs, each Guarantor shall hold in trust for
and forthwith pay or transfer to the Agent for the Finance Parties any
payment or distribution or benefit of security received by it contrary to
this Clause 18.7.
18.8 Additional security
This guarantee is in addition to and is not in any way prejudiced by any
other security now or hereafter held by any Finance Party.
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18.9 Limitation on guarantee of U.S. Guarantors
Notwithstanding any other provision of this Clause 18, the obligations of
each Guarantor incorporated in the United States (a "U.S. Guarantor") under
this Clause 18 shall be limited to a maximum aggregate amount equal to the
largest amount that would not render its obligations hereunder subject to
avoidance as a fraudulent transfer or conveyance under Section 548 of Title
11 of the United States Bankruptcy Code or any applicable provisions of
comparable state law (collectively, the "Fraudulent Transfer Laws"), in
each case after giving effect:
(a) to all other liabilities of such U.S. Guarantor, contingent or
otherwise, that are relevant under the Fraudulent Transfer Laws
(specifically excluding, however, any liabilities of such U.S.
Guarantor in respect of intercompany indebtedness to the Borrowers or
Affiliates of the Borrowers to the extent that such indebtedness would
be discharged in an amount equal to the amount paid by such U.S.
Guarantor hereunder); and
(b) as assets to the value (as determined under the applicable provisions
of the Fraudulent Transfer Laws) of any rights to subrogation,
contribution, reimbursement, indemnity or similar rights of such U.S.
Guarantor pursuant to (i) applicable law or (ii) any agreement
providing for an equitable allocation among such U.S. Guarantor and
other Affiliates of the Borrowers of obligations arising under
guarantees by such parties.
19. REPRESENTATIONS AND WARRANTIES
19.1 Representations and warranties
Subject to Clause 19.18 (Times for making representations and warranties),
each Obligor makes the representations and warranties set out in this
Clause 19 to each Finance Party (but, in the case of NG Company, only in
respect of itself, the NG Company Subsidiaries and the NG Company Group, as
applicable).
19.2 Status
(a) It is a limited liability company, duly incorporated and validly existing
under the laws of the jurisdiction of its incorporation; and
(b) each member of the Group has the power to own its assets and carry on its
business as it is being conducted.
19.3 Power and authority
It has the power to enter into and perform, and has taken all necessary
action to authorise the entry into, performance and delivery of, the
Finance Documents to which it is or will be a party and the transactions
contemplated by those Finance Documents.
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19.4 Legal validity
Each Finance Document to which it is or will be a party constitutes, or
when executed in accordance with its terms will constitute, its legal,
valid and binding obligation in accordance with its terms.
19.5 Non-conflict
The entry into and performance by it of, and the transactions contemplated
by, the Finance Documents do not and will not:
(a) conflict with any applicable law or regulation or judicial or official
orders;
(b) conflict with its constitutional documents;
(c) conflict with any document which is binding upon it or any of its
assets; or
(d) result in the creation or imposition of any Security Interest on the
assets of any member of the Group.
19.6 No default
(a) No Event of Default is outstanding or would result from any
Utilisation; and
(b) no other event is outstanding which constitutes (or, with the giving
of notice, expiry of any applicable grace period, lapse of time,
determination of materiality or the fulfilment of any other applicable
condition or any combination of the foregoing, is reasonably likely to
constitute) a default under any document which is binding on any
member of the Group or any asset of any member of the Group to an
extent or in a manner which is reasonably likely to have a material
adverse effect on the financial condition of the Obligors (taken as a
whole) or on the ability of the Obligors (taken as a whole) to perform
their obligations under the Finance Documents (including, without
limitation, the obligations of the Initial Borrowers under Clause
20.19 (Group Financial covenants) and Clause 20.20 (NG Company
Financial Covenants) and the obligations of the Guarantors under
Clause 18 (Guarantee)).
19.7 Licences
Each Obligor and each Principal Subsidiary is duly licensed by:
(a) the Secretary of State under Section 6(1)(b) of the Electricity Act;
or
(b) the relevant authorities under any other applicable Energy Laws,
to the extent that such licences are required for that Group member's
business at the time.
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19.8 Compliance with Licences and regulations
Each Obligor and each Principal Subsidiary has complied with and is not in
breach of any of its obligations (if any) under its Licences, the
Electricity Act (save with the consent of the Director), the Grid Code, any
regulation or other requirement of the Director or any other Energy Law in
any such case applicable to it to an extent or in a manner which is
reasonably likely materially and adversely to affect the ability of the
Obligors (taken as a whole) to perform their obligations under the Finance
Documents (including, without limitation, the obligations of the Initial
Borrowers under Clause 20.19 (Group Financial covenants) and Clause 20.20
(NG Company Financial Covenants) and the obligations of the Guarantors
under Clause 18 (Guarantee)).
19.9 Environmental matters
Each Obligor and each Principal Subsidiary has or will at the relevant
times have obtained all Environmental Approvals required in connection with
its business and has at all times complied in all material respects with
the terms of those Environmental Approvals and all other applicable
Environmental Laws in each case where failure to do so is reasonably likely
materially and adversely to affect the ability of the Obligors (taken as a
whole) to perform their obligations under the Finance Documents (including,
without limitation, the obligations of the Initial Borrowers) under Clause
20.19 (Group Financial covenants) and Clause 20.20 (NG Company Financial
Covenants) and the obligations of the Guarantors under Clause 18
(Guarantee).
19.10 Authorisations
All authorisations required in connection with the entry into, performance
and validity of, and the transactions contemplated by the Finance Documents
have been obtained or effected (as appropriate) and are in full force and
effect.
19.11 Accounts
(a) In the case of NGG, the audited consolidated accounts of the Group most
recently delivered to the Agent (which, at the date of this Agreement, are
the Original Group Accounts):
(i) save as specified therein, have been prepared in accordance with
accounting principles and practices generally accepted in the United
Kingdom consistently applied; and
(ii) give a true and fair view of the consolidated financial condition of
the Group as at the date to which they were drawn up,
and there has been no material adverse change in the consolidated financial
condition of the Group since the date to which those accounts were drawn
up.
(b) In the case of each Obligor (other than NGG), its audited accounts most
recently delivered to the Agent:
(i) save as specified therein, have been prepared in accordance with
accounting principles and practices generally accepted in the
jurisdiction in which it is incorporated consistently applied; and
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(ii) give a true and fair view of its financial condition as at the date to
which they were drawn up,
and there has been no material adverse change in the financial condition of
that Obligor since the date to which those accounts were drawn up.
19.12 Litigation
No litigation, arbitration or administrative proceedings are current or, to
its knowledge, pending or threatened, which are reasonably likely, if
adversely determined, to have a material adverse effect on the financial
condition of the Group or the ability of the Obligors (taken as a whole) to
perform their obligations under the Finance Documents (including, without
limitation, the obligations of the Initial Borrowers under Clause 20.19
(Group Financial covenants) and Clause 20.20 (NG Company Financial
Covenants) and the obligations of the Guarantors under Clause 18
(Guarantee)).
19.13 Information Package
(a) The factual information contained in the Information Package is to the best
of NGG's and NG Company's knowledge and belief true and accurate in all
material respects as at its date, opinions expressed about the Group in the
Information Package were honestly held and all projections in the
Information Package were based on assumptions considered to be reasonable
in each case as at the date of which the Information Package speaks and all
such information, opinions and assumptions were provided in good faith.
(b) The Information Package did not omit at its date any information which made
misleading in any material respect any factual information in the
Information Package.
(c) Nothing has occurred since the date of the Information Memorandum which
renders the information contained in it untrue, or misleading in any
material respect and which, if disclosed, could reasonably be expected to
adversely affect the decision of a person considering whether to enter into
this Agreement.
(d) In this Clause 19.13 "Information Package" means:
(i) the Information Memorandum; and
(ii) the financial model in relation to the Group and the NEES Group
prepared by NGG (and including the assumptions on which such model was
based).
19.14 Year 2000 Compliance
Each Obligor and each Principal Subsidiary:
(a) has taken and is taking all steps necessary to implement the
requirements of the Director applicable to it (if any) relating to
avoiding any adverse effects of the occurrence of the year 2000 on the
capacity of any computer system, software or other equipment owned or,
used by that Party which is critical to the business of the Group
(taken as a whole) or, in
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the case of NG Company or any Regulated UK Subsidiary, to the NG
Company Group (taken as a whole); and
(b) is using all reasonable endeavours to implement the Year 2000
Strategy.
19.15 Borrowing Limits
The borrowing of Advances or the drawing of Bills under this Agreement up
to and including the maximum amount available to it under this Agreement
will not, when borrowed or drawn, cause any limit on borrowings or, as the
case may be, on the giving of guarantees (whether imposed by statute,
regulation or agreement) or on the powers of its board of directors,
applicable to it, to be exceeded.
19.16 ERISA
(a) Each member of the Controlled Group has fulfilled its obligations under the
minimum funding standards of ERISA and the U.S. Code with respect to each
Plan maintained by such member or any member of the Controlled Group to
which such minimum funding standards apply.
(b) Each member of the Controlled Group is in compliance with the material
applicable provisions of ERISA, the U.S. Code and any other applicable
United States Federal or State law with respect to each Plan.
(c) No Reportable Event has occurred with respect to any Plan maintained by the
Obligors or any member of the Controlled Group, and no steps have been
taken to reorganise or terminate any such Plan or by the Obligors or any
member of the Controlled Group to effect a complete or partial withdrawal
from any Multi-Employer Plan.
(d) No member of the Controlled Group has:
(i) sought a waiver of the minimum funding standard under Section 412 of
the U.S. Code in respect of any Plan;
(ii) failed to make any contribution or payment to any Plan, or made any
amendment to any Plan, and no other event, transaction or condition
has occurred which has resulted or could result in the imposition of a
lien or the posting of a bond or other security under ERISA or the
U.S. Code; or
(iii) incurred any material, actual liability under Title I or Title IV of
ERISA other than a liability to the PBGC for premiums under Section
4007 of ERISA.
19.17 U.S. Borrowers
(a) Each U.S. Borrower either (i) is not an investment company required to be
registered under the United States Investment Company Act of 1940, as
amended, or (ii) is exempt from the registration provisions of that Act
pursuant to an exemption under that Act.
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(b) None of the proceeds of any Advance or Bill will be used, directly or
indirectly by any Obligor, and whether immediately, ultimately or
incidentally, for any purpose which results in a violation by any Obligor
of the provisions of Regulations U, T or X.
(c) None of the Obligors nor any of their respective Subsidiaries are engaged
principally, or as one of its important activities, in the business of
extending credit for the purpose of buying or carrying "margin stock"
within the meaning of such Regulation U.
(d) None of NGG nor any of its Subsidiaries is at the date of this Agreement
subject to regulation as a "holding company", or an "affiliate" of a
"holding company" or a "subsidiary company" of a "holding company", within
the meaning of PUHCA. Following the NEES Acquisition Completion Date, NGG
will be a "holding company" and each of its Subsidiaries will be
"subsidiary companies" within the meaning of PUHCA. Without limiting Clause
19.10 (Authorisations), NGG and each of its Subsidiaries will be at all
relevant times in compliance in all material respects with all applicable
provisions of that Act and the rules, regulations and orders issued
thereunder and no Utilisation will result in any breach or failure to
comply with the applicable provisions of PUHCA and any applicable rules,
regulations and orders issued thereunder.
19.18 Times for making representations and warranties
The representations and warranties set out in this Clause 19
(Representations and Warranties):
(a) in the case of an Obligor:
(i) which is a Party on the date of this Agreement, are made by that
Obligor on that date and, in the case of Clause 19.13
(Information Package), on the last day of the Primary Syndication
Period; and
(ii) which becomes a Party after the date of this Agreement, will,
except in the case of Clause 19.13 (Information Package) be
deemed to be made by that Obligor on the date it executes a
Borrower Accession Agreement or Guarantor Accession Agreement as
the case may be; and
(b) (except in the case of Clause 19.13 (Information Package) and, after
31st March 2000, Clause 19.14 (Year 2000 Compliance)) are deemed to be
repeated by the relevant Borrower and each Guarantor of that Borrower
on the date of each Utilisation Request, on each Utilisation Date and
on the first day of each Interest Period or Term, as the case may be,
with reference to the facts and circumstances then existing,
provided that NG Company only makes and will only be deemed to repeat each
such representation and warranty with respect to itself, the Regulated UK
Subsidiaries and the NG Company Group, as applicable.
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20. COVENANTS
20.1 Duration and Scope
(a) The undertakings in this Clause 20 remain in force from the date of this
Agreement for so long as any amount is or may be outstanding under this
Agreement or any Commitment is in force; and
(b) NG Company gives each of the undertakings set out in Clause 20.2 (Financial
Information) to 20.20 (NG Company Financial Covenants) inclusive with
respect to itself and, where applicable, the NG Company Group only.
20.2 Financial Information
NGG shall supply to the Agent in sufficient copies for all the Banks:
(a) as soon as the same are available (and in any event within 180 days of
the end of each of its financial years):
(i) the audited consolidated accounts of the Group for that financial
year; and
(ii) the audited accounts of each Obligor (other than NGG) for that
financial year;
(b) as soon as the same are available (and in any event within 120 days of
the end of the first half-year of each of its financial years), the
unaudited consolidated profit and loss account or the interim
statement of the Group and of NG Company for that half-year;
(c) together with the accounts specified in paragraphs (a) (i) and, with
respect to NG Company, paragraphs (a)(ii) and (b) above, a certificate
signed by one of its directors and one of its senior officers (and if
reasonably requested by the Agent in the case of those accounts
specified in paragraph (a) above only, confirmed by NGG's or NG
Company auditors, as applicable) setting out in reasonable detail:
(i) computations establishing compliance or non-compliance (as the
case may be) with Clauses 20.15 (Restriction on Subsidiary
Financial Indebtedness) and 20.19 (Group Financial covenants) and
Clause 20.20 (NG Company Financial Covenants); and
(ii) (in the case of those accounts specified in paragraph (a) above
only) the aggregate amount of the Net Cash Proceeds and Net
Available Proceeds of all Asset Disposals falling within Clause
9.7 (Mandatory Prepayment from Significant Cash Disposals) for
the relevant financial year; and
(iii) at any time on request by the Agent, a list of the then current
Principal Subsidiaries; and
(iv) on request by the Agent, the annual published audited accounts of
any other member of the Group.
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20.3 Information - Miscellaneous
Each Obligor shall supply to the Agent:
(a) promptly upon becoming aware of them, details of any litigation,
arbitration or administrative proceedings which are current,
threatened or pending (and which in the reasonable opinion of the
Obligor, after taking any appropriate legal advice, there is a
reasonable prospect of a determination adverse to the interests of the
relevant member of the Group) which are reasonably likely to have a
material adverse effect on the financial condition of the Group or on
the ability of the Obligors (taken as a whole) to perform their
obligations under the Finance Documents (including, without
limitation, the obligations of the Initial Borrowers under Clause
20.19 (Group Financial covenants) and Clause 20.20 (NG Company
Financial Covenants) and the obligations of the Guarantors under
Clause 18 (Guarantee));
(b) promptly, details of all amendments to each Licence (if any) held by
an Obligor or a Principal Subsidiary and all material notices received
by an Obligor or a Principal Subsidiary from the Director or any other
relevant authority in any applicable jurisdiction in relation to its
Licence;
(c) in the case of NGG only, at the same time as they are despatched, all
documents despatched by NGG to its shareholders generally (or any
class of them) or its creditors generally in their respective
capacities as such;
(d) as soon as reasonably practicable, such further information in the
possession or control of any member of the Group regarding its
financial condition as any Finance Party through the Agent may
reasonably request and which such member of the Group may reasonably
provide having regard to its existing legal obligations from time to
time;
(e) within 10 days of the date on which they are filed with the Securities
and Exchange Commission, the Group's quarterly return (if any) with
the Securities and Exchange Commission; and
(f) promptly, details of all applications made by it and relevant notices
and orders issued to it or received by it under PUHCA in relation to
this Agreement or any Utilisation hereunder.
each in sufficient copies for all of the Banks, if the Agent so requests.
20.4 Notification of Default or Mandatory Prepayment or Cancellation Event
(a) Each Obligor shall notify the Agent of any Default (and the steps, if any,
being taken to remedy it) or any event specified in Clause 9.6 (Mandatory
Prepayment and Cancellation on Change of Control) promptly upon its
becoming aware of the same; and
(b) each Obligor shall notify the Agent immediately it receives an enforcement
order made in relation to it under Section 25 of the Electricity Act or
under any similar provisions of any applicable Energy Laws.
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20.5 Compliance Certificates
NGG or NG Company, as applicable, shall supply to the Agent promptly upon
request by the Agent at any time, if the Agent reasonably believes a
Default may have occurred, a certificate signed by two of its senior
officers on its behalf certifying that no Default is outstanding or, if a
Default is outstanding, specifying the Default and the steps, if any, being
taken to remedy it.
20.6 Authorisations
Each Obligor shall at all relevant times promptly:
(a) obtain, maintain and comply with the terms of; and
(b) on reasonable request by the Agent, supply certified copies to the
Agent of,
any authorisation required under any law or regulation including, without
limitation, under PUHCA to enable it to perform its obligations under, or
for the validity of, any Finance Document.
20.7 Pari passu ranking
Each Obligor shall procure that its obligations under the Finance Documents
do and will rank at least pari passu with all its other present and future
unsecured obligations (subject to the preference of certain obligations in
the liquidation, bankruptcy or other analogous proceedings in respect of it
by operation of applicable law).
20.8 Negative pledge
(a) No Obligor shall, and NGG shall procure that no other member of the Group
will, create or permit to subsist any Security Interest on any of its
assets.
(b) Paragraph (a) above does not apply to:
(i) any Security Interest created with the prior written consent of the
Majority Banks;
(ii) any Security Interest granted prior to the date of this Agreement and
disclosed to the Agent in writing but only if the maximum principal
amount secured thereby is not subsequently increased;
(iii) any Security Interest by way of title retention entered into in the
ordinary course of business;
(iv) any lien arising by operation of law in the ordinary course of
business;
(v) any banker's lien or right of set-off arising by operation of law in
the ordinary course of commercial banking transactions or any
contractual set-off arrangements in the ordinary course of commercial
banking transactions;
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(vi) any Security Interest existing over assets acquired after the date of
this Agreement and existing on the date of acquisition, provided that:
(A) the Security Interest is not created in contemplation of the
acquisition of the same; and
(B) the maximum principal amount secured thereby or the maturity of
those obligations is not thereafter increased;
(vii) any Security Interest over the assets of any company which becomes a
Subsidiary of NGG after the date of this Agreement and which exist at
the date on which it becomes a Subsidiary of NGG, but only:
(A) to the extent of the principal amount secured by the Security
Interest at the date it becomes a Subsidiary of NGG; and
(B) if the Security Interest is not created in contemplation of it
becoming a Subsidiary of NGG;
(viii) any Security Interest over goods and/or documents of title, or
insurance policies and sale contracts in relation to such goods,
arising in the ordinary course of trading in connection with letters
of credit and similar transactions where such Security Interest
secures only so much of the acquisition cost of such goods which is
required to be paid within 180 days after the date upon which the same
was first incurred;
(ix) any Security Interest created in substitution for any Security
Interest permitted pursuant to this Clause 20.8 provided that the
substituted Security Interest is over the same asset and the principal
amount secured does not exceed the principal amount secured on such
asset prior to the substitution;
(x) any Security Interest created or granted from time to time in respect
of any Project Finance Borrowing including, for the avoidance of
doubt, any Security Interest created or granted by a member of the
Group in its capacity as a shareholder of a company making a Project
Finance Borrowing over its shareholding in that company (including, in
the case of a member of the Group whose only material assets are
shares in the company incurring the Project Finance Borrowing) a
supporting floating charge over all or substantially all of that
member's assets as security for such Project Finance Borrowing,
provided that the right of recourse against such shareholder is
limited to the realisation of the shareholding in that company;
(xi) any Security Interest created by a Project Finance Company;
(xii) any Security Interest created or granted from time to time by a
member of the Group in its capacity as a shareholder of a Project
Finance Company over its shareholding in that Project Finance Company
as security for the obligations of such Project Finance Company;
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(xiii) any Security Interest, whether granted prior to or after the date of
this Agreement, which is granted by a Subsidiary of NGG incorporated
in, or which has its principal place of business in, the United States
to secure Financial Indebtedness of that Subsidiary permitted under
sub-clause (d)(ii) of Clause 20.15 (Restriction on Subsidiary
Financial Indebtedness);
(xiv) any Security Interest created by a special purpose securitisation
vehicle over its assets where substantially all of those assets were
acquired by that vehicle from a member of the Group as part of or to
facilitate a securitisation and where the disposal of those assets to
the securitisation vehicle constitutes a Cash Disposal; and
(xv) in addition to each of the Security Interests permitted under
paragraphs (i) through (xiv) above any other Security Interest whether
granted prior to or after the date of this Agreement so long as the
aggregate outstanding principal amount of Financial Indebtedness
secured by all the Security Interests permitted under this paragraph
(xv) by all members of the Group (including NG Company) does not
exceed (pound)80,000,000 or its equivalent in other currencies.
20.9 Disposals
(a) No Obligor shall and NGG shall procure that no other member of the Group
will, either in a single transaction or in a series of transactions,
whether related or not and whether voluntarily or involuntarily sell,
transfer, grant or lease or otherwise dispose (each a "disposal") of all of
any part of its assets.
(b) Paragraph (a) above does not apply to:
(i) disposals to a wholly owned member of the Group not being a Project
Finance Company or from a member of the Group to an Obligor;
(ii) disposals made in the ordinary course of trading of the disposing
entity; or
(iii) disposals of assets in exchange for other assets to the extent that
the assets acquired are comparable or superior as to value, type and
quality or earnings generation; or
(iv) disposals of obsolete assets; or
(v) the payment of cash dividends or distributions of any kind to NGG
shareholders in accordance with the Companies Act 1985 or any other
relevant law; or
(vi) disposals to which the Majority Banks have agreed in writing; or
(vii) disposals by way of factoring or discounting of receivables to the
extent such factoring or discounting is carried out in the ordinary
course of business or for administrative purposes and, in either case,
the primary purpose is not the raising of finance; or
(viii) disposals of assets on arms' length terms, provided that:
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(A) in the case of Significant Cash Disposals, the appropriate amount
of the Net Available Proceeds is applied in accordance with
Clause 9.7 (Mandatory Prepayment from Significant Cash
Disposals); and
(B) a disposal of all or any substantial part of NGG's interest in
the equity share capital of Energis can only be effected if it
constitutes a Cash Disposal for consideration payable upon
completion of the disposal; or
(ix) any other disposals not otherwise permitted under paragraphs (b)(i) to
(viii) above, where the aggregate Disposal Proceeds received or
receivable by the Group (including NG Company) for all such disposals
in aggregate over the life of the Facilities does not exceed
(pound)50,000,000 or its equivalent, but excluding for the purposes of
calculating the (pound)50,000,000 cap any disposal where the Disposal
Proceeds from such disposal or a related series of disposals is less
than (pound)10,000,000 or its equivalent in other currencies.
20.10 Insurance
(a) Each Obligor shall ensure that all its property and assets of an insurable
nature are kept insured against loss or damage by fire and other risks
normally insured in a sum or sums which that Obligor considers prudent
having regard to the nature and extent of the assets to be insured.
(b) Each Obligor shall promptly pay all premiums and do all other things
necessary to maintain in place the insurance required to be taken out by it
pursuant to paragraph (a) above.
20.11 Compliance with law
Each Obligor will and will procure that each of its Subsidiaries will
comply with, or take all reasonable practical and available steps to comply
with, the requirements of all rules, regulations and orders for the time
being of the Secretary of State and the Director and any relevant authority
in any applicable jurisdiction relating to the Energy and Network Business,
applicable to that Obligor or its Subsidiaries.
20.12 Licence
(a) Each Obligor shall comply and NGG shall procure that each Regulated U.S.
Subsidiary shall comply, or shall take all reasonable practicable and
available steps to comply (or, as the case may be, take all reasonable
practicable and available steps to procure compliance) in all material
respects with the terms of its Licence (if any) provided that, in the case
of a Regulated U.S. Subsidiary, such Licence is material in the context of
that entity's business taken as a whole. No Obligor shall and NGG shall
procure that no Regulated U.S. Subsidiary shall act outside the scope of
its authority thereunder (if any) or consent, without the prior written
consent of the Majority Banks, to any revocation of its Licence (if any)
other than where the revocation is effected in connection with a transfer
under Clause 29.5 (Additional Guarantors) and the relevant Additional
Guarantor is before or simultaneously with such revocation issued with a
Licence in identical terms (save as to parties) to the Licence being
revoked provided that, in the case of a Regulated U.S. Subsidiary, such
Licence is material in the context of that entity's business taken as a
whole.
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(b) No Obligor shall, and NGG shall procure that no Regulated U.S. Subsidiary
shall, consent to any material modification of the terms of its Licence (if
any) if such modification would have (whether immediately or in the course
of time) a material adverse effect on the ability of the Obligors (taken as
a whole) to perform their obligations under this Agreement following such
modification.
20.13 Change of business
Except with the prior consent of the Majority Banks, NGG shall procure that no
substantial change is made to the general nature of the businesses of the Group
(taken as a whole) from that carried on at the date of this Agreement outside
the Energy and Network Businesses and other infrastructure network businesses of
the Group from time to time, or the acquisition of, and/or operation of, the
National Air Traffic Control System.
20.14 Maintenance of status
Each Obligor shall, except as otherwise permitted in this Agreement, in all
material respects do all such things as are necessary to maintain its corporate
existence.
20.15 Restriction on Subsidiary Financial Indebtedness
NGG shall procure that no other member of the Group shall create, assume, incur,
guarantee or otherwise be liable in respect of or have outstanding any Financial
Indebtedness other than:
(a) any Financial Indebtedness under this Agreement;
(b) any Financial Indebtedness owing by one member of the Group to another
member of the Group, or any guarantee, indemnity or similar assurance
issued by any Subsidiary in connection with the Financial Indebtedness
of another Subsidiary that is permitted under this Clause 20.15;
(c) any Financial Indebtedness incurred by any Subsidiary which is a
Guarantor;
(d) subject to paragraph (c) of Clause 9.7 (Mandatory Prepayment from
Significant Cash Disposals) any other Financial Indebtedness (whether
or not secured under sub-paragraph (b) of Clause 20.8 (Negative
Pledge)) incurred by any Subsidiary provided that the aggregate
outstanding principal amount of such Financial Indebtedness (but less
Cash or Cash Equivalents (as defined in Clause 20.19 (Group Financial
Covenants)) held by the relevant Subsidiary):
(i) of all Subsidiaries (including NG Company) other than
Subsidiaries incorporated or whose principal place of business is
in the United States does not exceed (pound)2,000,000,000 in
aggregate; and
(ii) of all Subsidiaries incorporated or whose principal place of
business is in the United States, does not exceed
US$2,500,000,000 in aggregate during the period ending six months
from the NEES Acquisition Completion Date and thereafter, (and
subject to Clause 9.9 (Mandatory Prepayment and Cancellation for
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Subsidiary Financial Indebtedness)) does not exceed
US$1,500,000,000 in aggregate,
or, in each case, its equivalent in other currencies converted into
Dollars or Sterling as applicable at the time of calculation at the
Agent's Spot Rate of Exchange.
20.16 Compliance with Year 2000 Strategy
Each Obligor will:
(a) procure that all steps necessary to implement the requirements of the
Director to the extent applicable to it (if any) in relation to
avoiding the possible adverse effects of the occurrence of the Year
2000 on the capacity of any computer system, software or other
equipment owned or used by that Obligor by each Principal Subsidiary
and each Regulated UK Subsidiary which is critical to the business of
the Group (taken as a whole) or in the case of NG Company or any
Regulated UK Subsidiary, to the business of the NG Company Group
(taken as a whole) are taken prior to 31st December, 1999; and
(b) use its reasonable endeavours to procure that the Year 2000 Strategy
is implemented prior to 31st December, 1999.
20.17 Environmental Undertakings
Each Obligor will, and NGG will procure that each other member of the Group
will, comply in all respects with:
(a) all applicable Environmental Laws; and
(b) the terms and conditions of all Environmental Approvals applicable to
it,
where failure to do so could reasonably be expected to have a material
adverse effect on the ability of the Obligors taken together to perform
their obligations under the Finance Documents and for this purpose will
implement procedures to monitor compliance and contain liability under
Environmental Laws.
20.18 Repayment of 1996 Facility Agreement
NGG and NG Company shall ensure that:
(a) the proceeds of any Utilisation are first applied in repayment or
prepayment of any amounts outstanding under the 1996 Facility
Agreement to the extent not otherwise repaid;
(b) from the first Utilisation Date under this Agreement no further
drawings are made under the 1996 Facility Agreement; and
(c) all undrawn commitments thereunder are cancelled with effect from a
date no later than the first Utilisation Date under this Agreement.
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20.19 Group Financial covenants
(a) In this Clause and Clause 20.20:
"Cash and Cash Equivalents"
means:
(i) cash in hand and deposits with any bank or other financial institution
(including cash in hand and deposits denominated in freely convertible
foreign currencies);
(ii) securities issued or guaranteed by the UK government or the United
States Government;
(iii) (A) debt securities rated at least A1 by Moody's or AA+ by S&P; and
(B) commercial paper rated at least A1 by Moody's and P1 by S&P; and
(iv) any other instrument, security or investment approved in writing by
the Majority Banks,
to the extent beneficially owned by a member of the Group free of
restrictions (other than exchange control requirements) on withdrawal or
transfer (in the case of cash) and (in all cases) unencumbered by any
Security Interests other than Security Interests permitted under paragraph
(b) of Clause 20.8 (Negative Pledge);
"Consolidated EBITDA"
means in respect of any period, Consolidated Profits Before Interest and
Tax for that period after adding back depreciation and amortisation of
goodwill;
"Consolidated Profits Before Interest and Tax"
means, in respect of any period, the consolidated net pre-taxation profits
on operating activities (after adding back Net Interest Payable and
excluding any Exceptional Items and after adding back restructuring costs
incurred as a result of the NEES Acquisition) of the Group for that period
based on the latest accounts supplied to the Agent under paragraphs (a) or
(b) of Clause 20.2 (Financial Information), as the case may be;
"Consolidated Total Net Debt"
means the aggregate principal amount (or amounts equivalent to principal,
howsoever described) comprised in the Financial Indebtedness of the Group
(excluding amounts referred to in paragraph (g) of the definition of
Financial Indebtedness) at the time calculated on a consolidated basis less
Cash and Cash Equivalents held by any member of the Group;
"Exceptional Items"
has the meaning given to it in FRS3 issued by the Accounting Standards
Board; and
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"Net Interest Payable"
means, in relation to any period, all interest, acceptance commission and
all other continuing, regular or periodic costs, charges and expenses in
the nature of interest (whether paid, payable or capitalised) incurred by
the Group in effecting, servicing or maintaining all Financial Indebtedness
of the Group less all interest and other similar income receivable by
members of the Group during that period (but only to the extent the same
accrue and are receivable by the Group in a freely convertible and
transferable currency) in each case as determined from the consolidated
financial statements relating to that period delivered under Clause 20.2
(Financial Information);
and for the purposes of this Clause 20.19 only, the definition of "Group"
shall include all Subsidiaries of NGG (whose accounts are ordinarily
consolidated with the accounts of NGG in accordance with accounting
principles generally accepted and applied in the United Kingdom which are
Subsidiaries of NGG on the last day of each period of 12 months ending on
an End Date provided that if any Subsidiary has joined the Group during
such 12 month period Consolidated Profits Before Interest and Tax and Net
Interest Payable shall be adjusted as appropriate to include the Profits
Before Interest and Tax and Net Interest Payable for such Subsidiary for
the full 12 month period and if any other Subsidiary has left the Group
during such 12 month period Consolidated Profits Before Interest and Tax
and Net Interest Payable shall be adjusted to exclude the Profits Before
Interest and Tax and Net Interest Payable for such Subsidiary) and shall
exclude any associated companies.
(b) NGG shall procure that:
(i) the ratio of Consolidated EBITDA to Net Interest Payable is not, for
each period of 12 months ending on the last day of each financial year
and each financial half year of the Group (an "End Date"):
(A) where such End Date falls during the period from and including
the Signing Date up to and including the NEES Acquisition
Completion Date less than 5 to 1; or
(B) where such End Date falls after the NEES Acquisition Completion
Date, less than 3 to 1.
(ii) the ratio of the Consolidated Total Net Debt on each End Date to
Consolidated EBITDA for each period of 12 months ending on that End
Date:
(A) where such End Date falls during the period from and including
the Signing Date up to but excluding the NEES Acquisition
Completion Date, does not exceed 3 to 1;
(B) where such End Date falls on or after the NEES Acquisition
Completion Date but on or prior to the 31st March, 2002, does not
exceed 4.75 to 1; and
(C) where such End Date falls after the NEES Acquisition Completion
Date and after 31st March, 2002, does not exceed 4.5 to 1.
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(c) For the purposes of calculating the ratio of Consolidated EBITDA to Net
Interest Payable for the periods ending on the first End Date and the
second End Date falling after the Signing Date only, the definition of Net
Interest Payable will exclude the exceptional charges to be incurred by NG
Company in terminating certain out of the money swaps up to a limit of an
aggregate of (pound)55,000,000 or its equivalent.
(d) In the event of any material change in law or in generally accepted United
Kingdom accounting principles, standards and practices as applied to the
Original Group Accounts, NGG and the Agent shall, at the request of the
Agent, negotiate in good faith in order to arrive at such amendments to
this Clause as are necessary to give the Banks equivalent but no greater
protection to that contained in this Clause prior to the relevant change.
(e) If NGG and the Agent are unable to agree in writing on those amendments,
then such amendments shall be made as a firm of chartered accountants
acceptable to, and instructed by (after consultation with NGG ) the Agent
shall certify as being necessary to give the Banks equivalent but no
greater protection to that contained in this Clause prior to the relevant
change. Any such firm of chartered accountants shall act in this capacity
as an expert, not an arbitrator, and its decision shall be binding on all
the Parties.
20.20 NG Company Financial Covenants
(a) In this Clause 20.20:
"NG Company EBIT"
means, in respect of any period, the consolidated net pre-taxation profits
of NG Company on operating activities (after adding back NG Company Net
Interest Payable and excluding any Exceptional Items) for that period based
on the latest accounts supplied to the Agent under paragraph (a)(ii) or (b)
of Clause 20.2 (Financial Information); and
"NG Company Net Interest Payable"
means, in respect of any period, all interest, acceptance commission and
all other continuing, regular or periodic costs, charges and expenses in
the nature of interest (whether paid, payable or capitalised) incurred by
NG Company in effecting, servicing or maintaining all Financial
Indebtedness of NG Company less all interest and other similar income
receivable by NG Company during that period (but only to the extent the
same accrue and are receivable by NG Company in a freely convertible and
transferable currency) in each case as determined from the financial
statements relating to that period delivered under Clause 20.2 (Financial
Information).
(b) NG Company shall procure that the ratio of NG Company EBIT to NG Company
Net Interest Payable is not, for each period of 12 months ending on the
last day of each financial year and each financial half year, less than
2.5:1.
(c) In the event of any material change in law or in generally accepted United
Kingdom accounting principles, standards and practices as applied to the
Original NG Company Accounts, NG Company and the Agent shall, at the
request of the Agent, negotiate in good faith in order to arrive
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at such amendments to this Clause as are necessary to give the Banks
equivalent but no greater protection to that contained in this Clause prior
to the relevant change.
(d) If NG Company and the Agent are unable to agree in writing on those
amendments, then such amendments shall be made as a firm of chartered
accountants acceptable to, and instructed by (after consultation with NG
Company) the Agent shall certify as being necessary to give the Banks
equivalent but no greater protection to that contained in this Clause prior
to the relevant change. Any such firm of chartered accountants shall act in
this capacity as an expert, not an arbitrator, and its decision shall be
binding on all the Parties.
21. DEFAULT
21.1 Events of Default
(a) Subject to paragraph (b) below, each of the events set out in Clauses 21.2
(Non-payment) to 21.17 (Material Adverse Change) (both inclusive) is an
Event of Default (whether or not caused by any reason whatsoever outside
the control of any Obligor or any other person).
(b) Where any of the events listed in Clauses 21.2 (Non-payment) to 21.17
(Material Adverse Change) below occurs in relation to any member of the
Group other than NG Company or another member of the NG Company Group then
that event will constitute an Event of Default for the purposes of Facility
A, Facility B and Facility C only and not for the purposes of Facility D.
Where any such event occurs in relation to NG Company or another member of
the NG Company Group it will constitute an Event of Default under all
Facilities.
21.2 Non-payment
An Obligor does not pay within three Business Days of the due date any
amount payable by it under the Finance Documents at the place at and in the
currency in which it is expressed to be payable.
21.3 Breach of other obligations
(a) An Obligor does not comply with Clause 20.19 (Group Financial covenants) or
Clause 20.20 (NG Company Financial covenants).
(b) An Obligor does not comply with any provision of the Finance Documents
applicable to it (other than those referred to in paragraph (a) above or in
Clause 21.2 (Non-payment)) and such failure (if capable of remedy before
the expiry of such period) continues unremedied for a period of thirty (30)
days from the date on which the Agent gives notice to NGG requiring the
same to be remedied.
21.4 Misrepresentation
A representation, warranty or statement made or repeated by any Obligor in
or in connection with any Finance Document or in any document delivered by
or on behalf of any Obligor under or in connection with any Finance
Document is incorrect in any material respect when made or deemed to be
made or repeated.
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21.5 Cross-default
(a) Subject to paragraph (b) below:
(i) any Financial Indebtedness of a member of the Group is not paid when
due or within any originally applicable grace period;
(ii) an event of default howsoever described occurs under any document
relating to Financial Indebtedness of a member of the Group;
(iii) any Financial Indebtedness of a member of the Group becomes
prematurely due and payable or is placed on demand as a result of an
event of default (howsoever described);
(iv) any commitment for, or underwriting of, any Financial Indebtedness of
a member of the Group is cancelled or suspended as a result of an
event of default howsoever described) under the document relating to
that Financial Indebtedness; or
(v) any Security Interest securing Financial Indebtedness over any asset
of a member of the Group becomes enforceable by reason of an event of
default howsoever described,
so long as:
(A) for the purposes of Facility A, Facility B and Facility C, the
aggregate principal amount of any such Financial Indebtedness incurred
by any member of the Group (including NG Company); or
(B) for the purposes of Facility D, the aggregate principal amount of such
Financial Indebtedness incurred by the NG Company Group,
in each case is equal to or exceeds (pound)40,000,000 or its equivalent in
other currencies.
(b) For the purposes of this Clause 21.5 the definition of Financial
Indebtedness shall exclude:
(i) Project Finance Borrowings; and
(ii) Until the date falling six months after the NEES Acquisition
Completion Date, Financial Indebtedness of any member of the NEES
Group outstanding as at the date it became a member of the Group.
21.6 Insolvency
(a) NGG, NG Company, a Principal Subsidiary or a Regulated UK Subsidiary (other
than a Project Finance Company) is, or is deemed for the purposes of any
law to be unable to pay its debts as they fall due or to be insolvent, or
admits inability to pay its debts as they fall due; or
(b) NGG, NG Company, a Principal Subsidiary or a Regulated UK Subsidiary (other
than a Project Finance Company) suspends making payments on all or any
class of its debts or announces an intention to do so or a moratorium is
declared in respect of any of its indebtedness; or
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(c) NGG, NG Company, a Principal Subsidiary or a Regulated UK Subsidiary (other
than a Project Finance Company) by reason of financial difficulties
generally begins negotiations with one or more of its creditors with a view
to the readjustment or rescheduling of any of its indebtedness.
21.7 Insolvency proceedings
(a) Any step (including petition, proposal or convening a meeting) is taken, by
reason of financial difficulties, with a view to a composition, assignment
or scheme of arrangement with any creditors of NGG, NG Company, a Principal
Subsidiary or a Regulated UK Subsidiary; or
(b) a meeting of NGG, NG Company, a Principal Subsidiary or a Regulated UK
Subsidiary is convened for the purpose of considering any resolution for
(or to petition for) its winding-up or its administration or any such
resolution is passed; or
(c) any person presents a petition for the winding-up or for the administration
of NGG, NG Company, a Principal Subsidiary or a Regulated UK Subsidiary
other than a petition which is frivolous and vexatious and which is not
struck out within 14 days of its presentation; or
(d) any order for the winding-up or administration of NGG, NG Company, a
Principal Subsidiary or a Regulated UK Subsidiary is made; or
(e) any other step (including petition, proposal or convening a meeting) is
taken with a view to the rehabilitation, administration, custodianship,
liquidation, winding-up or dissolution of or any other insolvency
proceedings involving NGG, NG Company, a Principal Subsidiary or a
Regulated UK Subsidiary.
21.8 Appointment of receivers and managers
(a) Any liquidator, trustee in bankruptcy, judicial custodian, compulsory
manager, receiver, administrative receiver, administrator or the like is
appointed in respect of NGG, NG Company, a Principal Subsidiary or a
Regulated UK Subsidiary or any part of its assets; or
(b) the directors of NGG, NG Company, a Principal Subsidiary or a Regulated UK
Subsidiary requests the appointment of a liquidator, trustee in bankruptcy,
judicial custodian, compulsory manager, receiver, administrative receiver,
administrator or the like; or
(c) any other steps are taken to enforce any Security Interest over any part of
the assets of NGG, NG Company, a Principal Subsidiary or a Regulated UK
Subsidiary.
21.9 Creditors' process
Any attachment, sequestration, distress or execution affects any asset of
NGG, NG Company, a Principal Subsidiary or a Regulated UK Subsidiary and is
not discharged within 21 days.
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21.10 Analogous proceedings
There occurs, in relation to NGG, NG Company, a Principal Subsidiary or a
Regulated UK Subsidiary, any event anywhere which, in the opinion of the
Majority Banks, is analogous to any of those mentioned in Clauses 21.6
(Insolvency) to 21.9 (Creditors' process) (both inclusive).
21.11 Cessation of business
NG Company (or a Regulated UK Subsidiary) ceases to carry on its
Transmission Business pursuant to its Transmission Licence (if any), unless
its Transmission Licence (or the relevant part thereof) is granted or
transferred to another member of the Group and that other member of the
Group becomes an Additional Guarantor with respect to NG Company.
21.12 Unlawfulness
It is or becomes unlawful for any Obligor to perform any of its obligations
under the Finance Documents.
21.13 Guarantee
The guarantee of any Guarantor under Clause 18 (Guarantee) is not effective
or is alleged by an Obligor to be ineffective for any reason.
21.14 Ownership of the Obligors
Any Obligor (other than NGG) is not or ceases to be a Subsidiary of NGG, or
NG Company or, after the NEES Acquisition Completion Date, NEES, is not or
ceases to be a wholly-owned Subsidiary of NGG.
21.15 Compliance with laws and regulations
An Obligor, or a Regulated U.S. Subsidiary fails to comply in all material
respects with all applicable provisions of any Energy Law applicable to it
or with its Licence (if any) and such failure to comply is reasonably
likely to have a material adverse effect on the ability of the Obligors (as
a whole) to perform their obligations under the Finance Documents
(including, without limitation, the obligations of the Initial Borrowers
under Clause 20.19 (Group Financial covenants) and Clause 20.20 (NG Company
Financial covenants) and the obligations of the Guarantors under Clause 18
(Guarantee)).
21.16 Revocation and modification of Licences
An Obligor's Licence or the Licence of a Regulated U.S. Subsidiary is:
(a) revoked or surrendered other than where the revocation or surrender is
effected in relation to a transfer to another member of the Group (or
any notice of revocation is issued by the Secretary of State or other
relevant authority under the applicable Energy Laws) and, in the case
of a Regulated U.S. Subsidiary such revocation or surrender (or notice
of revocation) is reasonably likely to have a material adverse effect
on the ability of the
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Obligors (taken as a whole) to perform their obligations under the
Finance Documents (including, without limitation, the obligations of
NGG under Clause 20.19 (Group Financial covenants) and NG Company
under Clause 20.20 (NG Company Financial covenants) and the
obligations of the Guarantors under Clause 18 (Guarantee)); or
(b) modified, other than where the modification is effected in relation to
a transfer to another member of the Group, in any manner which is
reasonably likely to have a material adverse effect on the ability of
the Obligors (taken as a whole) to perform their obligations under the
Finance Documents (including, without limitation, the obligations of
NGG under Clause 20.19 (Group Financial covenants) and NG Company
under Clause 20.20 (NG Company Financial covenants) and the
obligations of the Guarantors under Clause 18 (Guarantee)).
21.17 Material Adverse Change
Any event occurs in relation to the Group (taken as a whole) or in the case
of Facility D in relation to the NG Company Group which is likely to have a
material adverse effect on the ability of the Obligors (taken as a whole)
or in the case of Facility D on NG Company and the Regulated UK
Subsidiaries which are Obligors (taken as a whole), to comply with their
obligations under the Finance Documents.
21.18 Acceleration
(a) On and at any time after the occurrence of an Event of Default for the
purposes of Facility A, B or C which is not also an Event of Default for
the purposes of Facility D, the Agent may, and will if so directed by the
Majority Banks, by notice to NGG:
(i) cancel the Total Facility A, Total Facility B and Total Facility C
Commitments; and/or
(ii) demand that all the Facility A, Facility B and Facility C Advances,
together with accrued interest, and all other amounts accrued under
this Agreement (and payable by an Obligor other than NG Company) be
immediately due and payable, whereupon they will become immediately
due and payable; and/or
(iii) demand that all the Facility A, Facility B and Facility C Advances be
payable on demand, whereupon they will immediately become payable on
demand.
(b) On and at any time after the occurrence of an Event of Default for the
purposes of Facility D the Agent may, and will if so directed by the
Majority Banks, by notice to NGG:
(i) cancel the Total Commitments; and/or
(ii) declare that NG Company's obligations under Clause 8.4 (Payment of
Bills) in respect of all outstanding Bills are immediately due and
payable, whereupon they will become immediately due and payable;
and/or
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(iii) demand that all the Advances, together with accrued interest, and all
other amounts accrued under this Agreement and payable by an Obligor
be immediately due and payable, whereupon they will become immediately
due and payable; and/or
(iv) demand that all the Advances be payable on demand, whereupon they will
immediately become payable on demand.
22. THE AGENT AND THE ARRANGERS
22.1 Appointment and duties of the Agent
(a) Subject to paragraph (f) of Clause 22.15 (Resignation of the Agent), each
Finance Party (other than the Agent) irrevocably appoints the Agent to act
as its agent under and in connection with the Finance Documents.
(b) Each Finance Party irrevocably authorises the Agent on its behalf to:
(i) perform the duties and to exercise the rights, powers and discretions
that are specifically delegated to it under or in connection with the
Finance Documents, together with all other incidental rights, powers
and discretions; and
(ii) execute as agent for that Finance Party each Finance Document to which
the Agent is a party.
(c) The Agent shall have only those duties which are expressly specified in
this Agreement. Those duties are solely of a mechanical and administrative
nature.
22.2 Role of the Arranger
Except as otherwise specifically provided in this Agreement, no Arranger
has any obligations of any kind to any other Party under or in connection
with any Finance Document.
22.3 Relationship
The relationship between the Agent and the other Finance Parties is that of
agent and principal only. Nothing in this Agreement constitutes the Agent
as trustee or fiduciary for any other Party or any other person and the
Agent need not hold in trust any moneys paid to it for a Party or be liable
to account for interest on those moneys.
22.4 Majority Banks' directions
The Agent will be fully protected if it acts in accordance with the
instructions of the Majority Banks in connection with the exercise of any
right, power or discretion or any matter not expressly provided for in the
Finance Documents. Any such instructions given by the Majority Banks will
be binding on all the Banks. In the absence of such instructions the Agent
may act as it considers to be in the best interests of all the Banks.
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22.5 Delegation
The Agent may act under the Finance Documents through its personnel and
agents.
22.6 Responsibility for documentation
Neither the Agent nor any Arranger is responsible to any other Party for:
(a) the execution, genuineness, validity, enforceability or sufficiency of
any Finance Document or any other document;
(b) the collectability of amounts payable under any Finance Document; or
(c) the accuracy of any statements (whether written or oral) made in or in
connection with any Finance Document.
22.7 Default
(a) The Agent is not obliged to monitor or enquire as to whether or not a
Default has occurred and the Agent will not be deemed to have
knowledge of the occurrence of a Default. However, if the Agent
receives notice from a Party referring to this Agreement, describing
the alleged Default and stating that it believes the event is a
Default, the Agent shall promptly notify the Banks.
(b) The Agent may require the receipt of security satisfactory to it,
whether by way of payment in advance or otherwise, against any
liability or loss which it will or may incur in taking any proceedings
or action arising out of or in connection with any Finance Document
before it commences those proceedings or takes that action.
22.8 Exoneration
(a) Without limiting paragraph (b) below, the Agent will not be liable to
any other Party for any action taken or not taken by it under or in
connection with any Finance Document, unless directly caused by the
Agent's gross negligence or wilful misconduct.
(b) No Party may take any proceedings against any officer, employee or
agent of the Agent in respect of any claim it might have against the
Agent or in respect of any act or omission of any kind (including
negligence or wilful misconduct) by that officer, employee or agent in
relation to any Finance Document.
22.9 Reliance
The Agent may:
(a) rely on any notice or document believed by it to be genuine and
correct and to have been signed by, or with the authority of, the
proper person;
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(b) rely on any statement made by a director or employee of any person
regarding any matters which may reasonably be assumed to be within his
knowledge or within his power to verify; and
(c) engage, pay for and rely on legal or other professional advisers
selected by it (including those in the Agent's employment and those
representing a Party other than the Agent.
22.10 Credit approval and appraisal
Without affecting the responsibility of any Obligor for information
supplied by it or on its behalf in connection with any Finance Document,
each Bank confirms that it:
(a) has made its own independent investigation and assessment of the
financial condition and affairs of each Obligor and its related
entities in connection with its participation in this Agreement and
has not relied exclusively on any information provided to it by the
Agent or an Arranger in connection with any Finance Document; and
(b) will continue to make its own independent appraisal of the
creditworthiness of each Obligor and its related entities while any
amount is or may be outstanding under the Finance Documents or any
Commitment is in force.
22.11 Information
(a) The Agent shall promptly forward to the person concerned the original or a
copy of any document which is delivered to the Agent by a Party for that
person.
(b) The Agent shall promptly supply a Bank with a copy of each document
received by the Agent under Clauses 4 (Conditions Precedent), 29.4
(Additional Borrowers) or 29.5 (Additional Guarantors) upon the request of
that Bank.
(c) Except where this Agreement specifically provides otherwise, the Agent is
not obliged to review or check the accuracy or completeness of any document
it forwards to another Party.
(d) Except as provided above, the Agent has no duty:
(i) either initially or on a continuing basis to provide any Bank with any
credit or other information concerning the financial condition or
affairs of any Obligor or any related entity of any Obligor, whether
coming into its possession or that of any of its related entities
before, on or after the date of this Agreement; or
(ii) unless specifically requested to do so by a Bank in accordance with
this Agreement, to request any certificates or other documents from
any Obligor.
22.12 The Agent and the Arrangers individually
(a) If it is a Bank, each of the Agent and any Arranger has the same rights and
powers under this Agreement as any other Bank and may exercise those rights
and powers as though it were not the Agent or an Arranger.
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(b) Each of the Agent, and any Arranger may:
(i) carry on any business with an Obligor or its related entities;
(ii) act as agent or trustee for, or in relation to any financing
involving, an Obligor or its related entities; and
(iii) retain any profits or remuneration in connection with its activities
under this Agreement or in relation to any of the foregoing.
(c) Each Obligor irrevocably authorises the Agent to disclose to the other
Finance Parties any information which, in the reasonable opinion of the
Agent, is received by it in its capacity as the Agent.
22.13 Indemnities
(a) Without limiting the liability of any Obligor under the Finance Documents,
each Bank shall forthwith on demand indemnify the Agent for that Bank's
proportion of any liability or loss incurred by the Agent in any way
relating to or arising out of it acting as an agent, except to the extent
that the liability or loss arises directly from the Agent's gross
negligence or wilful misconduct.
(b) A Bank's proportion of the liability or loss set out in paragraph (a) above
is the proportion which the Original Sterling Amount and Original Dollar
Amount, as the case may be, of its Advances and Bills (if any) bears to the
Original Sterling Amount and Original Dollar Amount, as the case may be, of
all Advances and Bills outstanding on the date of the demand. If, however,
no Advances or Bills are outstanding on the date of demand, then the
proportion will be that which each Bank's Commitment bears to the Total
Commitments at the date of demand or, if the Total Commitments have been
cancelled, bore to the Total Commitments immediately before being
cancelled.
(c) NGG shall forthwith on demand reimburse each Bank for any payment made by
it under paragraph (b) above.
22.14 Compliance
(a) The Agent may refrain from doing anything which might, in its opinion,
constitute a breach of any law or regulation or be otherwise actionable at
the suit of any person, and may do anything which, in its opinion, is
necessary or desirable to comply with any law or regulation of any
jurisdiction.
(b) Without limiting paragraph (a) above, the Agent need not disclose any
information relating to any Obligor or any of its related entities if the
disclosure might, in the opinion of the Agent constitute a breach of any
law or regulation or any duty of secrecy or confidentiality or be otherwise
actionable at the suit of any person.
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22.15 Resignation of the Agent
(a) Notwithstanding its irrevocable appointment, the Agent may resign by giving
notice to the Banks and NGG, in which case the Agent may forthwith appoint
one of its Affiliates as successor Agent or, failing that, the Majority
Banks may appoint a successor Agent.
(b) If the appointment of a successor Agent is to be made by the Majority Banks
but they have not, within 30 days after notice of resignation, appointed a
successor Agent which accepts the appointment, the retiring Agent may,
after prior consultation with NGG, appoint a successor Agent.
(c) The resignation of the retiring Agent and the appointment of any successor
Agent will both become effective only upon the successor Agent notifying
all the Parties that it accepts the appointment. On giving the
notification, the successor Agent will succeed to the position of the
retiring Agent and the term "Agent" will mean the successor Agent.
(d) The retiring Agent shall, at its own cost, make available to the successor
Agent such documents and records and provide such assistance as the
successor Agent may reasonably request for the purposes of performing its
functions as the relevant Agent under this Agreement.
(e) Upon its resignation becoming effective, this Clause 22 shall continue to
benefit the retiring Agent in respect of any action taken or not taken by
it under or in connection with the Finance Documents while it was the Agent
and, subject to paragraph (d) above, it shall have no further obligation
under any Finance Document.
(f) The Agent shall, forthwith upon being requested to do so by the Majority
Banks, resign in accordance with paragraph (a) above. However, in this
event, the Agent may not appoint one of its Affiliates as successor Agent
as contemplated by paragraph (a) above and the Majority Banks shall appoint
a successor Agent.
22.16 Banks
(a) The Agent may treat each Bank as a Bank and entitled to payments under this
Agreement and as acting through its Facility Office(s) until it has
received notice from the Bank to the contrary not less than five Business
Days prior to any relevant payment.
(b) The Agent may at any time, and shall if requested to do so by the Majority
Banks, convene a meeting of the Banks.
22.17 Chinese Wall
In acting as Agent or as an Arranger, the agency and syndication's division
of each of the Agent and the Arrangers shall be treated as a separate
entity from its other divisions and departments. Any information acquired
at any time by the Agent, or any Arranger otherwise than in the capacity of
Agent or Arranger through its agency and syndication's division (whether as
financial advisor to any member of the Group or otherwise) may be treated
as confidential by the Agent or Arranger and shall not be deemed to be
information possessed by the Agent or Arranger in their capacity as such.
Each Finance Party acknowledges that the Agent and the Arrangers may, now
or in the
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future, be in possession of, or provided with, information relating to the
Obligors which has not or will not be provided to the other Finance
Parties. Each Finance Party agrees that, except as expressly provided in
this Agreement, neither the Agent nor any Arranger will be under any
obligation to provide, or under any liability for failure to provide, any
such information.
23. FEES
23.1 Front-end fees
NGG shall pay to the Agent on behalf of the Arrangers fees with respect to each
Facility on their final allocation in accordance with the Fee Letter between the
Arrangers and NGG.
23.2 Commitment fee
(a) NGG shall pay to the Agent for each Bank commitment fees in the following
amounts:
(i) with respect to Facility A:
(A) during the period prior to the NEES Acquisition Completion Date,
0.225 per cent. per annum; and
(B) thereafter, the amount per annum that is the lesser of 0.25 per
cent. per annum and half of the lowest Applicable Margin then in
effect for Facility A Advances as calculated in accordance with
Clause 10.6 (Applicable Margin and Acceptance Commission Rate);
(ii) with respect to Facility B:
(A) during the period prior to the NEES Acquisition Completion Date,
0.225 per cent. per annum; and
(B) thereafter, the amount per annum that is the lesser of 0.25 per
cent. per annum and half of the lowest Applicable Margin then in
effect for Facility A Advances as calculated in accordance with
Clause 10.6 (Applicable Margin and Acceptance Commission Rate);
(iii) with respect to Facility C, 0.15 per cent. per annum; and
(iv) with respect to Facility D:
(A) during the period prior to the NEES Acquisition Completion Date,
0.20 per cent. per annum; and
(B) thereafter, the amount per annum that is the lesser of 0.225 per
cent per annum and half of the then lowest Applicable Margin then
in effect for Facility D Advances as calculated in accordance
with Clause 10.6 (Applicable Margin and Acceptance Commission
Rate).
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(b) Accrued commitment fees are payable quarterly in arrears on the daily
undrawn, uncancelled amount of the relevant Facility A Commitments,
Facility B Commitments, Facility C Commitments or Facility D Commitments on
each day from the Signing Date with the first payment due three months
after the Signing Date. Accrued commitment fee is also payable to the Agent
for the relevant Bank(s) on the cancelled amount of its Facility A
Commitment, Facility B Commitment, Facility C Commitment or Facility D
Commitment as the case may be at the time the cancellation takes effect.
Accrued commitment fees are payable, in the case of Facility A, Facility B
and Facility C, in Dollars and, in the case of Facility D, in Sterling.
23.3 Term-out Fee and Facility C Availability Extension Fee
On the day on which a Term-out Advance is made pursuant to paragraph (b) of
Clause 8.3 (Repayment of Facility C Advances) and on the first day of any
extended Facility C Availability Period under Clause 5.10 (Extension of
Facility C Availability Period) (as applicable), NGG shall pay the Agent
for distribution pro rata to the Banks which participate in the relevant
Term-out Advance or which consent to extend the Facility C Availability
Period (as applicable) a fee or fees calculated as follows:
(a) (i) in the case of Term-out Advances with a term equal to or less than one
year, a fee of 0.05 per cent. flat of the aggregate Original Dollar
Amount of all Term-out Advances made on that date; or
(ii) in the case of Term-out Advances with a term greater than one year, a
fee of 0.10 per cent. flat of the aggregate Original Dollar Amount of
all Term-out Advances made on that date; and
(b) in the case of an extension of the Facility C Availability Period, a fee of
0.05 per cent. flat on the aggregate Original Dollar Amount of the Facility
C Commitments of those Banks which have agreed to extend the Facility C
Availability Period.
23.4 Agency fee
NGG shall pay to the Agent for its own account agency fees in the amounts
agreed in the Fee Letter between NGG and the Agent. The agency fee is
payable annually in advance. The first payment of this fee is payable on
the date of this Agreement and each subsequent payment is payable on each
Anniversary for so long as any amount is or may be outstanding under this
Agreement or any Commitment is in force.
23.5 VAT
Any fee referred to in this Clause 23 is exclusive of any value added tax
or any other tax which might be chargeable in connection with that fee. If
any value added tax or other tax is so chargeable, it shall be paid by NGG
at the same time as it pays the relevant fee.
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24. EXPENSES
24.1 Initial and special costs
NGG shall forthwith on demand pay the Agent and the Arrangers the amount of
all reasonable costs and expenses (including legal fees) incurred by any of
them in connection with:
(a) the arranging, underwriting and primary syndication of the Facilities;
(b) the negotiation, preparation, printing and execution of:
(i) this Agreement and any other documents referred to in this Agreement;
(ii) any other Finance Document (other than a Transfer Certificate)
executed after the date of this Agreement; and
(c) any amendment, waiver, consent or suspension of rights (or any proposal for
any of the foregoing) requested by or on behalf of an Obligor and relating
to a Finance Document or a document referred to in any Finance Document.
24.2 Enforcement costs
NGG shall forthwith on demand pay to each Finance Party the amount of all
reasonable costs and expenses (including legal fees) incurred by it in
connection with the enforcement of, or the preservation of any rights
under, any Finance Document.
25. STAMP DUTIES
NGG shall pay and forthwith on demand indemnify each Finance Party against
any liability it incurs in respect of any stamp, registration and similar
tax which is or becomes payable in connection with the entry into,
performance or enforcement of any Finance Document.
26. INDEMNITIES
26.1 Currency indemnity
(a) If a Finance Party receives an amount in respect of an Obligor's liability
under the Finance Documents or if that liability is converted into a claim,
proof, judgement or order in a currency other than the currency (the
"contractual currency") in which the amount is expressed to be payable
under the relevant Finance Document:
(i) that Obligor shall indemnify that Finance Party as an independent
obligation against any loss or liability arising out of or as a result
of the conversion;
(ii) if the amount received by the Finance Party, when converted into the
contractual currency at a market rate in the usual course of its
business, is less than the amount owed in the contractual currency,
the Obligor concerned shall forthwith on demand pay to that Finance
Party an amount in the contractual currency equal to the deficit; and
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(iii) the Obligor shall pay to the Finance Party concerned on demand any
exchange costs and taxes payable in connection with any such
conversion.
(b) Each Obligor waives any right it may have in any jurisdiction to pay any
amount under the Finance Documents in a currency other than that in which
it is expressed to be payable.
26.2 Other Indemnities
The Obligors shall forthwith on demand indemnify each Finance Party against
any loss or liability which that Finance Party incurs as a consequence of:
(a) the occurrence of any Default;
(b) the operation of Clause 21.18 (Acceleration) or Clause 32
(Redistributions);
(c) any payment of principal (or any similar payment in respect of a Bill) or
an overdue amount being received from any source otherwise than on its
Maturity Date or the last day of its Interest Period and, for the purposes
of this paragraph (c), the Maturity Date of an overdue amount is the last
day of each Default Term (as defined in Clause 10.4 (Default interest)); or
(d) (other than by reason of negligence or default by a Finance Party) a
Utilisation not being effected after a Borrower has delivered a Utilisation
Request for that Utilisation.
The Obligors' liability in each case includes any loss of margin or other
loss or expense on account of funds borrowed, contracted for or utilised to
fund any amount payable under any Finance Document, any amount repaid or
prepaid or any Advance or Bill.
26.3 Acquisition indemnity
NGG will indemnify each Finance Party and each of their respective
Affiliates and directors, officers, agents and employees (each, an
"Indemnified Person") against all losses, claims, damages, liabilities,
charges and related expenses which such Indemnified Person may be or may
become subject to resulting from or in any way related to the making
available of credit facilities under this Agreement in connection with the
implementation of the NEES Acquisition or the EUA Acquisition (whether or
not either acquisition is completed) except to the extent that the same
results from the Indemnified Person's negligence or wilful default.
27. CALCULATIONS AND EVIDENCE OF DEBT
27.1 Accounts
Accounts maintained by a Finance Party in connection with this Agreement
are prima facie evidence of the matters to which they relate.
27.2 Certificates and Determination
(a) Any certification or determination by a Finance Party of a rate or amount
under this Agreement shall be supported (other than in relation to any
calculation of interest) by reasonable evidence of
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how the calculation has been made and, if so supported, shall be, in the
absence of manifest error, conclusive evidence of the matters to which it
relates.
(b) Any determination by the Agent of a rate of interest shall be, in the
absence of manifest error, conclusive.
(c) Nothing in this Clause obliges any Finance Party to disclose any
confidential information.
27.3 Calculations
Interest (including any applicable Reserve Asset Cost) and the commitment
fee payable under Clause 23.2 (Commitment fee) accrue from day to day and
are calculated on the basis of the actual number of days elapsed and a year
of 365 days, or, in the case of interest or commitment fees payable on an
amount denominated in Dollars or an Optional Currency only, 360 days (or as
otherwise agreed between the Agent and NGG in accordance with usual market
practice). The Acceptance Commission Rate is calculated on the basis of the
number of days in the relevant Tenor and a year of 365 days.
28. AMENDMENTS AND WAIVERS
28.1 Procedure
(a) Subject to Clause 28.2 (Exceptions), any term of the Finance Documents may
be amended or waived with the agreement of NGG and the Majority Banks and
(in so far as its position as Agent is affected) the Agent. The Agent may
effect, on behalf of the Majority Banks, an amendment to which they have
agreed.
(b) The Agent shall promptly notify the other Parties of any amendment or
waiver effected under paragraph (a) above, and any such amendment or waiver
shall be binding on all the Parties.
28.2 Exceptions
(a) An amendment or waiver which relates to:
(i) the definition of "Majority Banks" in Clause 1.1 (Definitions);
(ii) an extension of the date for, or a decrease in an amount (including
any fees payable or the Applicable Margin) or a change in the currency
of, any payment under the Finance Documents;
(iii) an increase in a Bank's Commitment;
(iv) a term of a Finance Document which expressly requires the consent of
each Bank;
(v) the incorporation of Additional Borrowers otherwise than in accordance
with Clause 29.4 (Additional Borrowers); or
(vi) Clause 18 (Guarantee), Clause 32 (Redistributions) or this Clause 28,
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may not be effected without the consent of each Bank.
28.3 Waiver and Remedies Cumulative
The rights of each Finance Party under the Finance Documents:
(a) may be exercised as often as necessary;
(b) are cumulative and not exclusive of its rights under the general law;
and
(c) may be waived only in writing and specifically.
Delay in exercising or non-exercise of any such right is not a waiver of
that right.
29. CHANGES TO THE PARTIES
29.1 Transfers by Obligors
No Obligor may assign, transfer, novate or dispose of any of, or any
interest in, its rights and/or obligations under the Finance Documents.
29.2 New Banks
(a) a Bank (the "Existing Bank") may, at any time, assign, transfer or novate
any of its rights and/or obligations under this Agreement to another person
(the "New Bank") without the prior consent of or notice to any Obligor
except that:
(i) prior to completion of the Primary Syndication Period, the Existing
Bank may only assign, transfer or novate (or seek to assign, transfer
or novate) its rights and/or obligations in accordance with the
syndication strategy agreed between the Arrangers and NGG;
(ii) the prior written consent of NGG (such consent not to be unreasonably
withheld or delayed) is required for any such assignment, transfer or
novation with respect to Facilities A or C prior to the NEES
Acquisition Completion Date and such consent will be deemed to have
been given if, within fourteen days of receipt by NGG of an
application for consent, it has not been expressly refused; and
(iii) in the case of a partial assignment, transfer or novation of its
rights and/or obligations under any Facility a minimum amount of
US$10,000,000 (or its equivalent) in aggregate and a minimum of
US$1,000,000 (or its equivalent) per Facility (unless to an Affiliate
of a Bank or to another Bank or the Agent agrees otherwise) must be
assigned, transferred or novated.
(b) A transfer of obligations will be effective only if either:
(i) the obligations are transferred by way of novation in accordance with
Clause 29.3 (Procedure for transfers); or
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(ii) the New Bank confirms to the Agent and NGG that it undertakes to be
bound by the terms of this Agreement as a Bank in form and substance
satisfactory to the Agent. On the transfer becoming effective in this
manner the Existing Bank shall be relieved of its obligations under
this Agreement to the extent that they are transferred to the New
Bank.
(c) Nothing in this Agreement restricts the ability of a Bank to sub-contract
an obligation if that Bank remains liable under this Agreement for that
obligation.
(d) On each occasion that an Existing Bank assigns, transfers or novates any of
its rights and/or obligations under this Agreement after completion of the
Primary Syndication Period (other than to an Affiliate), the New Bank
shall, on the date the assignment, transfer and/or novation takes effect,
pay to the Agent for its own account a fee of (pound)1,000.
(e) An Existing Bank is not responsible to a New Bank for:
(i) the execution, genuineness, validity, enforceability or sufficiency of
any Finance Document or any other document;
(ii) the collectability of amounts payable under any Finance Document; or
(iii) the accuracy of any statements (whether written or oral) made in or
in connection with any Finance Document.
(f) Each New Bank confirms to the Existing Bank and the other Finance Parties
that it:
(i) has made its own independent investigation and assessment of the
financial condition and affairs of each Obligor and its related
entities in connection with its participation in this Agreement and
has not relied exclusively on any information provided to it by the
Existing Bank in connection with any Finance Document; and
(ii) will continue to make its own independent appraisal of the
creditworthiness of each Obligor and its related entities while any
amount is or may be outstanding under this Agreement or any Commitment
is in force.
(g) Nothing in any Finance Document obliges an Existing Bank to:
(i) accept a re-transfer from a New Bank of any of the rights and/or
obligations assigned or transferred or novated under this Clause; or
(ii) support any losses incurred by the New Bank by reason of the
non-performance by any Obligor of its obligations under this Agreement
or otherwise.
(h) Any reference in this Agreement to a Bank includes a New Bank. but excludes
a Bank if no amount is or may be owed to or by that Bank under this
Agreement and its Commitment has been cancelled or reduced to nil.
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29.3 Procedure for transfers
(a) A transfer by way of novation is effected if:
(i) the Existing Bank and the New Bank deliver to the Agent a duly
completed certificate substantially in the form set out in Schedule 6
(a "Transfer Certificate") with such changes as the Agentapproves to
achieve a substantially similar effect (which may be delivered by fax
and confirmed by delivery of a hard copy original but the fax will be
effective irrespective of whether confirmation is received; and
(ii) the Agent executes it.
(b) Each Party (other than the Existing Bank and the New Bank) irrevocably
authorises the Agent to execute any duly completed Transfer Certificate on
its behalf and the Agent agrees promptly to provide a copy of the Transfer
Certificate to NGG after it has executed it.
(c) To the extent that they are expressed to be the subject of the transfer in
the Transfer Certificate) on the date of execution of the Transfer
Certificate by the Agent (or the date specified in the Transfer Certificate
if later):
(i) the Existing Bank and the other Parties (the "existing Parties") will
be released from their obligations to each other (the "discharged
obligations");
(ii) the New Bank and the existing Parties will assume obligations towards
each other which differ from the discharged obligations only in so far
as they are owed to or assumed by the New Bank instead of the Existing
Bank;
(iii) the rights of the Existing Bank against the existing Parties and vice
versa (the "discharged rights") will be cancelled; and
(iv) the New Bank and the existing Parties will acquire rights against each
other which differ from the discharged rights only in so far as they
are exercisable by or against the New Bank instead of the Existing
Bank,
all on the date of execution of the Transfer Certificate by the Agent or,
if later, the date specified in the Transfer Certificate.
(d) If the effective date of a novation is after the date a Utilisation Request
is received by the Agent but before the date a requested Advance is
disbursed to or Bill accepted for the relevant Borrower, the Existing Bank
shall be obliged to participate in that Advance or accept that Bill in
respect of its discharged obligations notwithstanding that novation and the
New Bank shall reimburse the Existing Bank for its participation in that
Advance or Bill and all interest, fees and acceptance commission thereon up
to the date of reimbursement (in each case to the extent attributable to
the discharged obligations) within three Business Days of the Utilisation
Date of that Advance or Bill.
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29.4 Additional Borrowers
(a) If NGG wishes one of its wholly-owned Subsidiaries to become an Additional
Borrower, then it may (after prior consultation with the Agent and, if it
is incorporated outside of the United Kingdom, with the prior consent of
all the Banks not to be unreasonably withheld or delayed) deliver to the
Agent, the documents listed in Part III of Schedule 2 (Conditions Precedent
Documents).
(b) On delivery of a Borrower Accession Agreement, executed by the relevant
Subsidiary and NGG, the Subsidiary will, subject to the restrictions set
out in Clause 5.1 (Receipt of Utilisation Requests), become an Additional
Borrower (provided that, where that Subsidiary is not incorporated in the
United Kingdom, the prior written consent of all Banks shall be required
not to be unreasonably withheld or delayed). However, it may not utilise
any of the Facilities until the Agent confirms to the other Finance Parties
and NGG that it has received all the documents referred to in paragraph (a)
above in form and substance satisfactory to it.
(c) Delivery of a Borrower Accession Agreement, executed by the Subsidiary and
NGG, constitutes confirmation by that Subsidiary and NGG that the
representations and warranties set out in Clause 19 (Representations and
warranties) and to be made by them on the date of the Borrower Accession
Agreement are correct, as if made with reference to the facts and
circumstances then existing.
29.5 Additional Guarantors
(a) If NGG wishes one of its Subsidiaries to become an Additional Guarantor
then it may (after prior consultation with the Agent) deliver to the Agent
the documents listed in Part IV of Schedule 2 (Conditions Precedent
Documents). If NG Company transfers all or part of its Transmission Licence
or all or part of the Transmission Business carried on pursuant to its
Transmission Licence to another member of the Group, such person will be a
Regulated UK Subsidiary and will become an Additional Guarantor with
respect to NG Company and will deliver to the Agent the documents listed in
Part IV of Schedule 2 (Conditions Precedent Documents).
(b) On execution and delivery of a Guarantor Accession Agreement together with
the documents referred to in paragraph (c) below, the relevant Subsidiary
will become an Additional Guarantor.
(c) NGG shall procure that, at the same time as a Guarantor Accession Agreement
is delivered to the Agent, there is also delivered to the Agent all those
other documents listed in Part IV of Schedule 2 (Conditions Precedent
Documents), in each case in form and substance satisfactory to the Agent.
(d) Delivery of a Guarantor Accession Agreement, executed by the Subsidiary,
constitutes confirmation by that Subsidiary that the representations and
warranties set out in Clause 19 (Representations and Warranties) to be made
by it on the date of the Guarantor Accession Agreement are correct, as if
made with reference to the facts and circumstances then existing.
29.6 Reference Banks
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If a Reference Bank (or, if a Reference Bank is not a Bank, the Bank of
which it is an Affiliate) ceases to be one of the Banks, the Agent shall
(in consultation with NGG) appoint another Bank to replace the Reference
Bank.
29.7 Additional Payments
If following:
(a) any assignment, transfer or novation of all or any part of the rights or
obligations of a Bank to a New Bank under Clause 29.2 (New Banks); or
(b) any change in a Bank's Facility Office,
any additional amount is required to be paid to the New Bank or that Bank
(as the case may be) by any Obligor under Clause 13 (Taxes) or Clause 15
(Increased Costs) of this Agreement as a result of laws, regulations or
requirements of any central bank or other fiscal monetary or competent
authority (whether or not having the force of law) or other circumstances
in each case in force at the time of that assignment, transfer, novation or
change, then the New Bank or Bank (acting through its new Facility Office)
will be entitled to receive any such amount only to the extent that the
Existing Bank or Bank (acting through its old Facility Office) would have
been so entitled had there been no assignment, transfer, novation or change
in Facility Office (as the case may be).
29.8 Register
The Agent shall keep a register of all the Parties and shall supply any
other Party (at that Party's expense) with a copy of the register on
request.
29.9 Release of Borrowers
Any Borrower (other than the Initial Borrowers) may cease to be a Borrower
if at any time, whilst there are no sums which are or may be outstanding
from that Borrower under the Finance Documents and there is no outstanding
Utilisation Request in relation to that Borrower, it delivers a notice to
that effect to the Agent. Upon delivery of any such notice the relevant
Borrower shall cease to be a Borrower and shall, subject as provided in
this Clause, cease to have any obligations under the Finance Documents in
its capacity (only) as a Borrower but without affecting any obligations it
may have as a Guarantor or in any other capacity.
29.10 Release or Removal of Guarantors
Any Guarantor which is not a Borrower (other than NGG), may, at the request
of NGG and if no Default is continuing or would result, cease to be a
Guarantor by entering into a supplemental agreement to this Agreement at
the cost of NGG in such form as the Agent may reasonably require which
shall discharge that Guarantor's obligations as a Guarantor under this
Agreement.
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30. DISCLOSURE OF INFORMATION
A Bank may disclose to its professional advisers, to any of its Affiliates
or any other person with whom it is proposing to enter, or has entered
into, any kind of transfer, participation or other agreement in relation to
this Agreement:
(a) a copy of any Finance Document;
(b) a copy of the Information Memorandum; and
(c) any information which that Bank has acquired under or in connection
with any Finance Document,
provided that a Bank shall not disclose any such information to a person
other than one of its Affiliates unless that person has provided to that
Bank a confidentiality undertaking addressed to that Bank and NGG,
substantially in the form set out in Schedule 10 (Form of Confidentiality
Undertakings) or such other form as NGG may approve.
31. SET-OFF
A Finance Party may set off any matured obligation owed by an Obligor under
this Agreement (to the extent beneficially owned by that Finance Party)
against any obligation (whether or not matured) owed by that Finance Party
to that Obligor, regardless of the place of payment, booking branch or
currency of either obligation. If the obligations are in different
currencies, the Finance Party may convert either obligation at a market
rate of exchange in its usual course of business for the purpose of the
set-off. If either obligation is unliquidated or unascertained, the Finance
Party may set off in an amount estimated by it in good faith to be the
amount of that obligation.
32. REDISTRIBUTIONS
32.1 Redistribution
If any amount owing by an Obligor under this Agreement to a Finance Party
(the "recovering Finance Party") is discharged by payment, set-off or any
other manner other than through the Agent in accordance with Clause 12
(Payments) (a "recovery"), then:
(a) the recovering Finance Party shall, within 3 Business Days, notify
details of the recovery to the Agent;
(b) the Agent shall determine whether the recovery is in excess of the
amount which the recovering Finance Party would have received had the
recovery been received by the Agent and distributed in accordance with
Clause 12 (Payments);
(c) subject to Clause 32.3 (Exceptions), the recovering Finance Party
shall, within 3 Business Days of demand by the Agent, pay to the Agent
an amount (the "redistribution") equal to the excess;
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(d) the Agent shall treat the redistribution as if it were a payment by
the Obligor concerned under Clause 12 (Payments) and shall pay the
redistribution to the Finance Parties (other than the recovering
Finance Party) in accordance with Clause 12.7 (Partial payments); and
(e) after payment of the full redistribution, the recovering Finance Party
will be subrogated to the portion of the claims paid under paragraph
(d) above, and that Obligor will owe the recovering Finance Party a
debt which is equal to the redistribution, immediately payable and of
the type originally discharged.
32.2 Reversal of Redistribution
If under Clause 32.1 (Redistribution):
(a) a recovering Finance Party must subsequently return a recovery, or an
amount measured by reference to a recovery, to an Obligor; and
(b) the recovering Finance Party has paid a redistribution in relation to
that recovery,
each Finance Party shall, within 3 Business Days of demand by the
recovering Finance Party through the Agent, reimburse the recovering
Finance Party all or the appropriate portion of the redistribution paid to
that Finance Party. Thereupon the subrogation in paragraph (e) of Clause
32.1 (Redistribution) will operate in reverse to the extent of the
reimbursement.
32.3 Exceptions
(a) A recovering Finance Party need not pay a redistribution to the extent that
it would not, after the payment, have a valid claim against the Obligor
concerned in the amount of the redistribution pursuant to paragraph (e) of
Clause 32.1 (Redistribution).
(b) Where a recovering Finance Party has received a recovery as a consequence
of the satisfaction or enforcement of a judgment obtained in any legal
action or proceedings to which it is a party it need not pay a
redistribution to any Finance Party which (being entitled to do so) did not
join in with the recovering Finance Party in the legal action or
proceedings, unless the recovering Finance Party did not give prior notice
of its involvement in the legal action or proceedings to the Agent for
disclosure to all the Banks.
33. SEVERABILITY
If a provision of any Finance Document is or becomes illegal, invalid or
unenforceable in any jurisdiction, that shall not affect:
(a) the legality, validity or enforceability in that jurisdiction of any
other provision of the Finance Documents; or
(b) the legality, validity or enforceability in other jurisdictions of
that or any other provision of the Finance Documents.
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34. COUNTERPARTS
This Agreement may be executed in any number of counterparts, and this has
the same effect as if the signatures on the counterparts were on a single
copy of this Agreement
35. NOTICES
35.1 Giving of notices
All notices or other communications under or in connection with this
Agreement shall be given in writing or facsimile. Any such notice will be
deemed to be given as follows:
(a) if in writing, when delivered;
(b) if by facsimile, when received.
However, a notice given in accordance with the above but received other
than on a Business Day or after business hours in the place of receipt will
only be deemed to be given on the next Business Day in that place.
Facsimile notices to the Agent must be confirmed in writing (but
non-receipt of that confirmation will not affect the validity of the
original facsimile notice).
35.2 Notices
The address, facsimile and telephone numbers and contact details of each
Party for all notices and other matters under or in connection with this
Agreement are:
(i) identified with its signature below (or, in the case of any Bank that
becomes a Party pursuant to a Transfer Certificate, set out in the
relevant Transfer Certificate); or
(ii) as otherwise notified by that Party for this purpose to the Agent by
not less than five Business Days' notice.
36. GOVERNING LAW AND JURISDICTION
36.1 Governing Law
This Agreement is governed by English law.
36.2 Submission to Jurisdiction
(a) The Obligors irrevocably agree for the benefit of each of the Finance
Parties that the Courts of England shall have exclusive jurisdiction in
relation to any claim, dispute or difference concerning a Finance Document
and in relation to, or in relation to the enforcement of, any judgment
relating to any such claim, dispute or difference and accordingly submits
to the jurisdiction of the English Courts.
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(b) Each Obligor irrevocably waives any right that it may have to object to an
action being brought in the Courts of England, to claim that the action has
been brought in an inconvenient forum or to claim that the Courts of
England do not have jurisdiction.
(c) Nothing in this Clause shall (or be construed so as to) limit the right of
any Finance Party to bring legal proceedings in any other court of
competent jurisdiction (including, without limitation the courts have
jurisdiction by reason of an Obligor's place of incorporation) or
concurrently on more than one jurisdiction), whether by way of substantive
action, ancillary relief, enforcement or otherwise.
36.3 Service of process
Without prejudice to any other mode of service, each Obligor:
(a) irrevocably appoints NGG as its agent for service of process in
relation to any proceedings before the English courts in connection
with any Finance Document;
(b) agrees that failure by a process agent to notify the relevant Obligor
of the process will not invalidate the proceedings concerned;
(c) consents to the service of process relating to any such proceedings by
prepaid posting of a copy of the process to its address for the time
being applying under Clause 35.2 (Notices); and
(d) agrees that if the appointment of any person mentioned in paragraph
(a) above ceases to be effective, the relevant Obligor shall
immediately appoint a further person in England to accept service of
process on its behalf in England and, failing such appointment within
15 days, the Agent is entitled to appoint such a person by notice to
the Obligors.
36.4 Forum convenience and enforcement abroad
Each Obligor agrees that a judgment or order of a court of England in
connection with a Finance Document is conclusive and binding on it and may
be enforced against it in the courts of any other jurisdiction.
IN WITNESS whereof this Agreement has been entered into on the date set out
above.
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SCHEDULE 1
The Banks
Part I
Facility A Banks and Commitments
Banks Commitments
US$
ABN AMRO Bank N.V. 141,666,666
Barclays Bank PLC 141,666,666
The Chase Manhattan Bank 141,666,667
Deutsche Bank AG London 116,666,667
Deutsche Morgan Grenfell (C.I.) Limited 25,000,000
Dresdner Bank AG London Branch 141,666,667
Midland Bank plc 141,666,667
============================
Facility A Total Commitments 850,000,000
============================
Part II
Facility B Banks and Commitments
Banks Commitments
US$
ABN AMRO Bank N.V. 91,666,667
Barclays Bank PLC 91,666,667
The Chase Manhattan Bank 91,666,667
Deutsche Bank AG London 91,666,667
Dresdner Bank AG London Branch 91,666,666
Midland Bank plc 91,666,666
=============================
Facility B Total Commitments 550,000,000
=============================
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Part III
Facility C Banks and Commitments
Banks Commitments
US$
ABN AMRO Bank N.V. 225,000,000
Barclays Bank PLC 225,000,000
The Chase Manhattan Bank 225,000,000
Deutsche Bank AG London 225,000,000
Dresdner Bank AG London Branch 225,000,000
Midland Bank plc 225,000,000
=============================
Facility C Total Commitments 1,350,000,000
=============================
Part IV
Facility D Banks and Commitments
Banks Commitments
(pounds)
ABN AMRO Bank N.V. 41,666,667
Barclays Bank PLC 41,666,667
The Chase Manhattan Bank 41,666,666
Deutsche Bank AG London 41,666,666
Dresdner Bank AG London Branch 41,666,667
Midland Bank plc 41,666,667
=============================
Facility D Total Commitments 250,000,000
=============================
-106-
<PAGE>
SCHEDULE 2
Conditions Precedent Documents
Part I
To be delivered before the first Utilisation
(a) A copy of the memorandum and articles of association and certificate of
incorporation of the Borrowers;
(b) a copy of a resolution of the board of directors (or a duly constituted
committee of the board of directors and of the board of directors
establishing such committee) of each Borrower:
(i) approving the terms of, and the transactions contemplated by, the
Finance Documents and resolving that it execute the Finance Documents;
(ii) authorising a specified person or persons to execute and, where
applicable, deliver the Finance Documents to which it is a party on
its behalf; and
(iii) authorising a specified person or persons, on its behalf, to sign and
endorse Bills and to sign and/or despatch all other documents and
notices (including but not limited to Utilisation Requests) to be
signed and/or despatched by it under or in connection with the Finance
Documents;
(c) specimens of the signatures of each person authorised by the resolutions
referred to in paragraph (b) above;
(d) a copy of NG Company's Transmission Licence and the Licences (if any) of
each Borrower;
(e) a certificate of a director of each of the Borrowers on its behalf
confirming that utilisation of the Facilities in full would not, when
utilised, cause any borrowing limit binding on it to be exceeded;
(f) a certificate of an authorised signatory of each of the Borrowers
certifying that each copy document specified in Part I of this Schedule 2
is correct, complete and in full force and effect as at a date no earlier
than the date of this Agreement;
(g) a legal opinion of Allen & Overy addressed to the Finance Parties; and
(h) a notice of cancellation of the undrawn commitment (if any) under the 1996
Facility Agreement such cancellation to be effective no later than the
first Utilisation Date.
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<PAGE>
Part II
To be delivered before the first Advance under Facility A or Facility C
(a) a certified copy of the NEES Acquisition Agreement and the EUA Acquisition
Agreement;
(b) a certified copy of the circular to the shareholders of NGG to be
distributed in connection with the NEES Acquisition;
(c) a certified copy of the resolution passed by the shareholders of NGG
approving the NEES Acquisition;
(d) a certified copy of a resolution passed by the shareholders of NEES
approving the NEES Acquisition;
(e) a certificate from two directors of NGG dated no earlier than five Business
Days before the NEES Acquisition Completion Date (and no later than the
date of the first Utilisation Request for a Facility A Advance or a
Facility C Advance) to the effect that:
(i) the Offeror is to complete such acquisition on a specified date (being
a date on or prior to the first Facility A or Facility C Advance); and
(ii) the NEES Acquisition is being completed substantially in accordance
with the terms contemplated in the NEES Acquisition Agreement and upon
completion the Offeror will have acquired 100 per cent. of NEES; and
(iii) completion of the NEES Acquisition (taking into account any
governmental or other conditions affecting the NEES Acquisition after
completion and the aggregate cash receivable by NEES shareholders in
connection with the NEES Acquisition) will not, in the opinion of the
directors of NGG, materially and adversely impact on the ability of
the enlarged Group to comply with the financial covenants set out in
Clause 20.19 (Group Financial Covenants) or otherwise on the operation
of the business of the enlarged Group (taken as a whole);
(f) evidence in form and substance satisfactory to the Agent that the EIB
Agreement and all other existing credit agreements (if any) of any Obligor
have been cancelled and prepaid in full or where necessary have been
renegotiated so as to ensure that neither the NEES Acquisition nor any
Utilisation under this Agreement will constitute an event of default
(however defined) under any such credit agreement (such cancellation or
renegotiation to be effective prior to the first Utilisation Date under
Facility A or Facility C); and
(g) evidence in form and substance satisfactory to the Agent that NGG and each
other relevant member of the Group will as at the NEES Acquisition
Completion Date, be in compliance with any applicable provisions of PUHCA
and will have obtained any necessary orders, approvals or consents under
PUHCA in relation to this Agreement.
-108-
<PAGE>
Part III
To be delivered by an Additional Borrower
(a) A Borrower Accession Agreement, duly executed by the Additional Borrower
and NGG;
(b) a copy of the memorandum and articles of association and certificate of
incorporation or equivalent constitutional documents of the Additional
Borrower;
(c) a copy of a resolution of the board of directors or equivalent of the
Additional Borrower:
(i) approving the terms of, and the transactions contemplated by, the
Borrower Accession Agreement and resolving that it execute the
Borrower Accession Agreement;
(ii) authorising a specified person or persons to execute the Borrower
Accession Agreement on its behalf; and
(iii) authorising a specified person or persons, on its behalf, to sign and
endorse Bills and to sign and/or despatch all other documents and
notices including but not limited to Utilisation Requests to be signed
and/or despatched by it under or in connection with this Agreement;
(d) a certificate of a director of the Additional Borrower on its behalf
confirming that utilisation of the Facilities in full would not, when
utilised, cause any borrowing limit binding on it to be exceeded;
(e) a copy of any other authorisation or other document, opinion or assurance
which the Agent considers to be necessary in connection with the entry into
and performance of, and the transactions contemplated by, the Borrower
Accession Agreement or for the validity of any Finance Document;
(f) specimens of the signatures of each person authorised by the resolution
referred to in paragraph (c) above;
(g) the latest audited accounts of the Additional Borrower;
(h) a certificate of an authorised signatory of the Additional Borrower
certifying that each copy document specified in this Part III of Schedule 2
is correct, complete and in full force and effect as at a date no earlier
than the date of the Borrower Accession Agreement; and
(i) a legal opinion from the relevant jurisdiction addressed to the Finance
Parties.
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<PAGE>
Part IV
To be delivered by an Additional Guarantor
(a) A Guarantor Accession Agreement, duly executed as a deed by the Additional
Guarantor;
(b) a copy of the memorandum and articles of association and certificate of
incorporation or equivalent constitutional documents of the Additional
Guarantor;
(c) a copy of a resolution of the board of directors of the Additional
Guarantor:
(i) approving the terms of, and the transactions contemplated by, the
Guarantor Accession Agreement and resolving that it execute the
Guarantor Accession Agreement as a deed;
(ii) authorising a specified person or persons to witness the affixing of
the common seal of the Additional Guarantor to the Guarantor Accession
Agreement or otherwise execute the Guarantor Accession Agreement as a
deed; and
(iii) authorising a specified person or persons, on its behalf, to sign
and/or despatch all documents to be signed and/or despatched by it
under or in connection with this Agreement;
(d) a copy of a resolution, signed by all the holders of the issued or allotted
shares in the Additional Guarantor, approving the terms of, and the
transactions contemplated by, the Guarantor Accession Agreement;
(e) a copy of a resolution of the board of directors of each corporate
shareholder in the Additional Guarantor:
(i) approving the terms of the resolution referred to in paragraph (d)
above; and
(ii) authorising a specified person or persons to sign the resolution on
its behalf;
(f) a certificate of a director of the Additional Guarantor (if the Additional
Guarantor is also to be a Borrower) on its behalf certifying that
utilisation of the Facilities in full would not, when utilised, cause any
borrowing limit binding on it to be exceeded or, in the case of any
Additional Guarantor which is an NG Company Guarantor, a certificate
certifying that utilisation of Facility D in full would not, when utilised,
cause any borrowing limit binding on it to be exceeded;
(g) a copy of any other authorisation or other document, opinion or assurance
which the Agent considers to be necessary in connection with the entry into
and performance of, and the transactions contemplated by, the Guarantor
Accession Agreement or for the validity of any Finance Document;
(h) a specimen of the signature of each person authorised by the resolutions
referred to in paragraphs (c) and (e) above;
(i) a copy of the latest audited accounts of the Additional Guarantor;
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<PAGE>
(j) a certificate of any authorised signatory of the Additional Guarantor
certifying that each copy document specified in this Part IV of this
Schedule 2 is correct, complete and in full force and effect as at a date
no earlier than the date of the Guarantor Accession Agreement; and
(k) a legal opinion from the relevant jurisdiction addressed to the Finance
Parties.
-111-
<PAGE>
SCHEDULE 3
Calculation of the Mandatory Cost
(a) The Mandatory Cost for an Advance for its Term or Interest Period is the
rate determined by the Agent to be equal to the arithmetic mean (rounded
upward, if necessary, to four decimal places) of the respective rates
notified by each of the Reference Banks to the Agent and calculated in
accordance with the following formulae:
in relation to an Advance denominated in Sterling:
BY + S(Y-Z) + F x 0.01 % per annum
----------------------
100-(B+S)
in relation to any other Advance:
F x 0.01 % per annum
--------
300
where on the day of application of a formula:
B is the percentage of the Reference Bank's eligible liabilities (in
excess of any stated minimum) which the Bank of England requires the
Reference Bank to hold on a non-interest-bearing deposit account in
accordance with its cash ratio requirements;
Y is LIBOR at or about 11.00 a.m. on that day for the Term or Interest
Period;
S is the percentage of the Reference Bank's eligible liabilities which
the Bank of England requires the Reference Bank to place as a special
deposit;
Z is the interest rate per annum allowed by the Bank of England on
special deposits; and
F is the charge payable by the Reference Bank to the Financial Services
Authority under paragraph 2.02 or 2.03 (as appropriate) of the Fees
Regulations (but where for this purpose, the figure in paragraph 2.02b
and 2.03b will be deemed to be zero) expressed in pounds per
(pound)1,000,000 of the fee base of the Bank.
(b) For the purposes of this Schedule 3:
(i) "eligible liabilities" and "special deposits" have the meanings given
to them at the time of application of the formula by the Bank of
England; and
(ii) "fee base" has the meaning given to it in the Fees Regulations;
(iii) "Fees Regulations" means the Banking Supervision (Fees) Regulations
1998, and/or any other regulations governing the payment of fees for
banking supervision.
-112-
<PAGE>
(c) In the application of the formula, B, Y, S and Z are included in the
formula as figures and not as percentages, e.g. if B = 0.5% and Y = 15%, BY
is calculated as 0.5 x 15.
(d) If a Reference Bank does not supply a rate to the Agent, the applicable
Mandatory Cost will be determined on the basis of the rate(s) supplied by
the remaining Reference Banks.
(e) (i) The formula is applied on the first day of the Term or Interest Period
of the relevant Advance.
(ii) Each rate calculated in accordance with the formula is, if necessary,
rounded upward to four decimal places.
(f) If the Agent determines that a change in circumstances has rendered, or
will render, the formula inappropriate, the Agent (after consultation with
the Banks) shall notify NGG of the manner in which the Mandatory Cost will
subsequently be calculated. The manner of calculation so notified by the
Agent shall, in the absence of manifest error, be binding on all the
Parties.
-113-
<PAGE>
SCHEDULE 4
Form of Utilisation Request/Interest Period Selection Notice*
To: HSBC Investment Bank plc as Agent
From: [Relevant Borrower]
Date: [ ]
Dear Sirs
The National Grid Group plc/The National Grid Company plc
FACILITY A: US$850,000,000 TERM LOAN
FACILITY B: US$550,000,000 MULTI-CURRENCY REVOLVING CREDIT
FACILITY C: US$1,350,000,000 364 DAY REVOLVING CREDIT
FACILITY D: (pound)250,000,000 (NGC) MULTI-CURRENCY REVOLVING CREDIT
dated 5th March, 1999
(the "Agreement")
1. We refer to the Agreement.
2. We wish to utilise Facility A* and/or*/Facility B* and/or Facility C*
and/or the Facility* D by way of Advances* and/or Bills* as follows:
(a) Proposed Utilisation Date: Facility A: [ ]*
Facility B: [ ]*
Facility C: [ ]*
Facility D: [ ]*
(b) Requested Amount (including currency in Facility A: [ ]*
the case of Facility B or D): Facility B: [ ]*
Facility C: [ ]*
Facility D: [ ]*
(c) Interest Period/Term*: Facility A: [ ]*
Facility B: [ ]*
Facility C: [ ]*
Facility D: [ ]*
(d) Payment Instructions: Facility A: [ ]*
Facility B: [ ]*
Facility C: [ ]*
Facility D: [ ]*
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<PAGE>
(e) Initial Interest Period: Facility C: [ ]*
(for Term-out Advances only)*
(f) Final Maturity Date Facility C [ ]*
(for Term-out Advances only)*
(g) Tenor Facility D [ ]*
(for Bills only)*
3. We confirm that each condition specified in Clause 4.3 (Further conditions
precedent generally) is satisfied on the date of this Utilisation
Request.**
Yours faithfully
By:
.................................
[Relevant Borrower]
Authorised Signatory
- --------
* Delete as appropriate.
** Not applicable to selection of Interest Periods.
-115-
<PAGE>
SCHEDULE 5
Form of Bill
Face of Bill
No. for (pounds)
................19[ ]
On................19[ ] pay against this Bill of Exchange to our order the sum
of (pounds).................... for value received against [ ]
To: [ ]
Accepted by: [ ]
For and on behalf of For and on behalf of
[Accepting Bank] [Relevant Borrower]
................................... ....................................
Authorised Signatory Authorised Signatory
Reverse of Bill
For and on behalf of:
[Relevant Borrower]
...................................
Authorised Signatory
-116-
<PAGE>
SCHEDULE 6
Transfer Certificate
To: HSBC Investment Bank plc as Agent
From: [The Existing Bank] and [The New Bank]
Date: [ ]
The National Grid Group plc/The National Grid Company plc
FACILITY A: US$850,000,000 TERM LOAN
FACILITY B: US$550,000,000 MULTI-CURRENCY REVOLVING CREDIT
FACILITY C: US$1,350,000,000 364 DAY REVOLVING CREDIT
FACILITY D: (pound)250,000,000 (NGC) MULTI-CURRENCY REVOLVING CREDIT
dated 5th March , 1999
(the "Agreement")
1. We refer to Clause 29.3 (Procedure for transfers) of the Agreement. Terms
defined in the Agreement have the same meaning in this Transfer
Certificate.
2. We [ ] (the "Existing Bank") and we [ ] (the "New Bank") agree to the
Existing Bank and the New Bank transferring by way of novation all the
Existing Bank's rights and obligations referred to in the Schedule in
accordance with Clause 29.3 (Procedure for transfers).
3. The specified date for the purposes of Clause 29.3(c) (Procedure for
transfers) is [date of transfer].
4. The Facility Office and address for notices of the New Bank for the
purposes of Clause 35 (Notices) are set out in the Schedule.
5. The New Bank warrants that on the date of this Transfer Certificate it is a
Qualifying Bank.
6. [The New Bank confirms that if it is not a United States person (as such
term is defined in Section 7701(a)(30)) of the Code), it has complied with
the undertaking contained in Clause 13.6(b) (U.S. Taxes) or, if it is a
United States person, it has complied with the undertaking contained in
Clause 13.6(c) (U.S. Taxes).] / [The New Bank confirms that, if it is a
Qualifying Bank as defined in sub- paragraph (b) of that definition, it
will, as appropriate, comply with the undertaking contained in Clause
13.3(c) (Qualifying Bank).] *
7 This Transfer Certificate is governed by English law.
- ----------
* Insert as applicable.
-117-
<PAGE>
The Schedule
Rights and obligations to be novated
[Details of the rights and obligations of the Existing Bank to be transferred].
[New Bank]
[Facility Office] [Address for notices:]
[Telephone No.]
[Facsimile No.]
[Telex No.]
[Contact:]
[Existing Bank] [New Bank]
By: ..................... By: ..................... By: ........................
Date: ................... Date: ................... Date: ......................
-118-
<PAGE>
SCHEDULE 7
Borrower Accession Agreement
To: HSBC Investment Bank plc as Agent
From: [Proposed Additional Borrower] and The National Grid Group plc
Date: [ ]
The National Grid Group plc/The National Grid Company plc
FACILITY A: US$850,000,000 TERM LOAN
FACILITY B: US$550,000,000 MULTI-CURRENCY REVOLVING CREDIT
FACILITY C: US$1,350,000,000 364 DAY REVOLVING CREDIT
FACILITY D: (pound)250,000,000 (NGC) MULTI-CURRENCY REVOLVING CREDIT
dated 5th March , 1999
(the "Agreement")
Dear Sirs
We refer to Clause 29.4 (Additional Borrowers) of the Agreement.
[Name of company] of [registered office] (Registered no.[ ]) hereby agrees to
become an Additional Borrower and to be bound by the terms of the Agreement as
an Additional Borrower in accordance with Clause 29.4 (Additional Borrowers)
thereof.
The address for notices of [name of company] for the purposes of Clause 35.2
(Notices) is:
[ ]
This Accession Agreement is governed by English law.
Yours faithfully
By: .............................
[Proposed Additional Borrower]
Authorised Signatory
By: .............................
The National Grid Group plc
-119-
<PAGE>
Authorised Signatory
-120-
<PAGE>
SCHEDULE 8
Guarantor Accession Agreement
To: HSBC Investment Bank plc as Agent
From: [Proposed Additional Guarantor] and The National Grid Group plc
Date: [ ]
The National Grid Group plc/The National Grid Company plc
FACILITY A: US$850,000,000 TERM LOAN
FACILITY B: US$550,000,000 MULTI-CURRENCY REVOLVING CREDIT
FACILITY C: US$1,350,000,000 364 DAY REVOLVING CREDIT
FACILITY D: (pound)250,000,000 (NGC) MULTI-CURRENCY REVOLVING CREDIT
dated 5th March , 1999
(the "Agreement")
Dear Sirs
We refer to Clause 29.5 (Additional Guarantors) of the Agreement.
[Name of company] of [registered office] (Registered no.[ ]) hereby agrees to
become an Additional Guarantor [of each Borrower as contemplated in Clause
18.1(a)/of NG Company only as contemplated in Clause 18.1(b)]* and to be bound
by the terms of the Agreement as an Additional Guarantor in accordance with
Clause 29.5 (Additional Guarantors) thereof.
The address for notices of [name of company] for the purposes of Clause 35.2
(Notices) is:
[ ]
This Accession Agreement is governed by English law and is intended to be and is
delivered on the above date as a deed.
Yours faithfully
[THE COMMON SEAL of )
[Proposed Additional Guarantor] )
was affixed to this Deed )
in the presence of:- )
Director
- ------------------------
Director/Secretary]
-121-
<PAGE>
OR
EXECUTED AS A DEED by )
[Proposed Additional Guarantor] and )
signed by [name of director] and )
[name of director/secretary] pursuant )
to a resolution of the Board )
..............................
Director
..............................
Director/Secretary
-122-
<PAGE>
SCHEDULE 9
Timetables
In this Schedule 9:
B = Bank
D-[x] = x Business Days before the relevant Utilisation Date
UR = Utilisation Request
<TABLE>
<CAPTION>
Advance Facility
Clause Event Time
- ------ ----- ----
Sterling Forward Sterling Optional Currency
Terms of Terms Terms of Terms other Terms of Terms
1, 2, other than 1, 2, than 1, 2, 3 or 6 other than
3 or 6 1, 2, 3 or 6 3 or 6 1, 2, 3 or 6 months 1, 2, 3 or 6
months months months months months
<C> <C> <C> <C> <C> <C> <C>
5.1 Agent receives UR D-3 D-3 D-3 D-3 D-3 D-3
4.30 p 10.30 4.30 pm 10.30 am 4.30 pm 10.30 am
m am
5.7 Agent receives objection by D-3 D-3
B to selection of a Term 3.30 pm D-3 3.30 pm
other than 1,2,3 or 6 3.30 pm
months (if applicable)
5.9 Agent notifies Borrower D-2 D-2 D-2
and Bs of the new Term (if 9.00 am 9.00 am 9.00 am
applicable)
</TABLE>
<TABLE>
<CAPTION>
Bill Facility
Clause Event Time
- ------ ----- ----
<S> <C> <C>
6.1 Agent receives UR D-3
3.00 pm
6.4(a) Agent notifies Bs of details of UR and Bills to be accepted by each B D-3
5.00 pm
6.5(a) If applicable, Bs to notify Agent of election to make a Facility D Advance D-2
9.00 am
6.4(b) If applicable, Bs to notify Agent that Agent will not be required to discount D-1
Bills 4.00 pm
6.6(b) Agent notifies Bs and the relevant Borrower of EBDR D
and 6.10 12.00 noon
6.7 Banks to lodge Bills in accordance with Agent's instructions if not D
discounting their own Bills 11.00 am
Bs to endorse and accept Bills and lodge with CMO D
1.00 pm
6.8 Agent to elect whether or not to purchase Bills D
10.45am
</TABLE>
-124-
<PAGE>
SCHEDULE 10
Form Of Confidentiality Undertaking
To: [Existing Bank]
The National Grid Group plc
The National Grid Company plc
Dear Sirs,
We refer to the Credit Agreement dated [ ], 1999 relating to
US$850,000,000 Term Loan, US$550,000,000 Multi-Currency Revolving Credit,
US$1,350,000,000 364 Revolving Credit and (pound)250,000,000 (NGC) Multi-
Currency Revolving Credit Facilities (the "Credit Agreement") between, among
others, The National Grid Group plc, The National Grid Company plc and HSBC
Investment Bank plc as Agent.
This is a confidentiality undertaking referred to in Clause 30 (Disclosure of
Information) of the Credit Agreement. Terms defined in the Credit Agreement have
the same meaning in this undertaking.
We are considering entering into contractual relations with [insert name of
existing Bank] (the "Bank") and understand that it is a condition of our
receiving information about the Group and the NEES Group and its related
companies and any Finance Document and/or any information under or in connection
with any Finance Document (the "Information") that we execute this undertaking.
We undertake to treat as confidential any Information and to use the Information
solely for the purposes of determining whether or not to enter into contractual
relations and to keep any Information under secured and controlled conditions.
We will not disclose any of the Information to any third party (other than our
directors, officers, employees or outside advisors, in each case who need to
know the Information for such purposes and who shall be advised of and agree to
those confidentiality obligations) without the prior written consent of The
National Grid Group plc.
The foregoing undertakings do not apply to any Information that is publicly
available when provided or that thereafter becomes publicly available other than
through a breach by us (or by any person to whom disclosure of Information is
made as permitted under this undertaking) of the above undertakings, or that is
required to be disclosed by us by judicial or administrative process in
connection with any action, suit, proceedings or claim or in order to comply
with a request from any fiscal, monetary or other authority with which we are
accustomed to comply or otherwise by applicable law (provided that if we are
required to disclose any of the Information we will give you such prior notice
of that disclosure as is reasonably practicable). Information shall be deemed
"publicly available" if it becomes a matter of public knowledge or is contained
in materials available to the public or is obtained by us from any source other
than the Bank or from you (or its or your directors, officers, employees or
outside advisors), provided that such source has not entered into a
confidentiality agreement with respect to the Information.
Yours faithfully,
-125-
<PAGE>
SCHEDULE 11
APPROVED INVESTMENT GUIDELINES
Permitted Investment Instruments
Money market deposits
Certificates of deposit
Sterling commercial paper
Gilt edged securities
Euro commercial paper
Maturities
Less than one year, except in the case of commercial paper, which is restricted
to periods of up to 3 months.
Credit Quality Criteria
In the case of commercial paper, at least A1/P1 short term credit rating from
Standard & Poor's / Moody's; and
In all other cases, at least AA-/Aa3 long term credit rating from Standard &
Poor's / Moody's.
-126-
<PAGE>
SIGNATORIES
NGG
THE NATIONAL GRID GROUP plc
as Guarantor and Borrower
By: STEPHEN BOX
NG Company
THE NATIONAL GRID COMPANY plc
as Borrower
By: STEPHEN BOX
The Arrangers
ABN AMRO BANK N.V.
as Arranger
By: RICHARD HILL JUDITH SPENSLEY
BARCLAYS CAPITAL
as Arranger
By: MICHAEL JOYNER
CHASE MANHATTAN PLC
as Arranger
By: NEVILLE CROW
DEUTSCHE BANK AG LONDON
as Arranger
By: BRIAN STEVENSON MICHAEL STARMER-SMITH
DRESDNER KLEINWORT BENSON
as Arranger
-127-
<PAGE>
By: CHARLES MORGAN MICHAEL LEE
HSBC INVESTMENT BANK plc
as Arranger
By: EDWARD FLANDERS
Banks
ABN AMRO BANK N.V.
as a Bank
By: RICHARD HILL JUDITH SPENSLEY
BARCLAYS BANK PLC
as a Bank
By: MICHAEL JOYNER
THE CHASE MANHATTAN BANK
as a Bank
By: BRUCE BETTENCOURT
DEUTSCHE BANK AG LONDON
as a Bank
By: BRIAN STEVENSON MICHAEL STARMER-SMITH
DEUTSCHE MORGAN GRENFELL (C.I.) LIMITED
as a Bank
By: MICHAEL STARMER-SMITH
DRESDNER BANK AG LONDON BRANCH
as a Bank
By: CHARLES MORGAN MICHAEL LEE
-128-
<PAGE>
MIDLAND BANK PLC
as a Bank
By: PAUL TWEEDALE
HSBC INVESTMENT BANK PLC
as Agent
By: JOHN HAIRE
-129-
<PAGE>
CONTENTS
Clause Page
1. INTERPRETATION............................................................1
2. THE FACILITIES...........................................................26
3. PURPOSE..................................................................30
4. CONDITIONS PRECEDENT.....................................................31
5. AVAILABILITY OF ADVANCEs.................................................32
6. AVAILABILITY OF THE BILL FACILITY........................................36
7. BILLS....................................................................39
8. REPAYMENT................................................................40
9. PREPAYMENT AND CANCELLATION..............................................41
10. INTEREST.................................................................47
11. OPTIONAL CURRENCIES......................................................50
12. PAYMENTS.................................................................51
13. TAXES....................................................................53
14. MARKET DISRUPTION........................................................57
15. INCREASED COSTS..........................................................59
16. MITIGATION...............................................................60
17. ILLEGALITY...............................................................60
18. GUARANTEE................................................................61
19. REPRESENTATIONS AND WARRANTIES...........................................64
20. COVENANTS................................................................70
21. DEFAULT..................................................................81
22. THE AGENT AND THE ARRANGERs..............................................86
23. FEES.....................................................................91
24. EXPENSES.................................................................93
25. STAMP DUTIES.............................................................93
26. INDEMNITIES..............................................................93
27. CALCULATIONS AND EVIDENCE OF DEBT........................................94
28. AMENDMENTS AND WAIVERS...................................................95
29. CHANGES TO THE PARTIES...................................................96
30. DISCLOSURE OF INFORMATION...............................................101
31. SET-OFF.................................................................101
32. REDISTRIBUTIONS.........................................................101
33. SEVERABILITY............................................................102
34. COUNTERPARTS............................................................103
35. NOTICES.................................................................103
36. GOVERNING LAW AND JURISDICTION..........................................103
-i-
<PAGE>
Schedules Page
1 The Banks Parts I, II, III and IV.......................................105
2 Conditions Precedent Documents Parts I, II, III and IV..................107
3 Calculation of the Mandatory Cost.......................................112
4 Form of Utilisation Request/Interest Period Selection Notice............114
5 Form of Bill............................................................116
6 Transfer Certificate....................................................117
7 Borrower Accession Agreement............................................119
8 Guarantor Accession Agreement...........................................121
9 Timetables..............................................................123
10 Form Of Confidentiality Undertaking.....................................125
11 Approved Investment Guidelines..........................................126
Signatories..................................................................127
-ii-
<PAGE>
CONFORMED COPY
DATED 5th March , 1999
THE NATIONAL GRID GROUP plc
as Guarantor and Borrower
THE NATIONAL GRID COMPANY plc
as Borrower
ABN AMRO BANK N.V.
BARCLAYS CAPITAL
CHASE MANHATTAN PLC
DEUTSCHE BANK AG LONDON
DRESDNER KLEINWORT BENSON
HSBC INVESTMENT BANK plc
as Arrangers
HSBC INVESTMENT BANK plc
as Agent
and
CERTAIN BANKS AND FINANCIAL INSTITUTIONS
as Banks
------------------------------------------------------------------------
FACILITY A: US$850,000,000 TERM LOAN
FACILITY B: US$550,000,000 MULTI-CURRENCY REVOLVING CREDIT
FACILITY C: US$1,350,000,000 364 DAY REVOLVING CREDIT
FACILITY D: (pound)250,000,000 (NGC) MULTI-CURRENCY REVOLVING CREDIT
------------------------------------------------------------------------
ALLEN & OVERY
London
THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION.
When considering what action you should take, you are recommended to seek your
own personal financial advice from your stockbroker, bank manager, solicitor,
accountant or other independent financial adviser authorised under the Financial
Services Act 1986 immediately.
If you have sold or otherwise transferred all of your National Grid Shares,
please pass this document, together with the accompanying Form of Proxy, as soon
as possible to the purchaser or transferee or to the stockbroker, bank or other
agent through whom the sale or transfer was effected for transmission to the
purchaser or transferee. The distribution of this document in jurisdictions
other than the United Kingdom may be restricted by law and therefore persons
into whose possession this document comes should inform themselves about and
observe any such restrictions. Any failure to comply with these restrictions may
constitute a violation of the securities laws of any such jurisdiction.
The National Grid Group plc
Proposed Acquisition of
New England Electric System
and
Notice of Extraordinary General Meeting
Your attention is drawn to the letter from the Chairman of National Grid which
is set out on pages 3 to 10 of this document and which recommends you to vote in
favour of the resolution to be proposed at the Extraordinary General Meeting
referred to below.
Your attention is specifically drawn to, and all statements relating to National
Grid's, NEES' and/or EUA's business and their financial position and prospects
should be viewed in the light of, the year 2000 compliance issues which are set
out in paragraph 10 of the Chairman's letter and in Part II of this document.
Notice convening an Extraordinary General Meeting of National Grid to be held at
10.00 a.m. on 22 April, 1999 at the International Convention Centre, Broad
Street, Birmingham B1 2EA is set out at the end of this document. The
accompanying Form of Proxy should be completed and returned as soon as possible
and, in any event, so as to reach Lloyds TSB Registrars, The Causeway, Worthing
BN99 6AD by no later than 10.00 a.m. on 20 April, 1999. Completion and return of
a Form of Proxy will not preclude a member from attending and voting at the
Extraordinary General Meeting. Attending members should bring their admission
card with them. A map showing the location of the International Convention
Centre, Broad Street, Birmingham B1 2EA is set out on the accompanying admission
card. A shuttle bus will be provided for shareholders arriving at Birmingham New
Street railway station. Limited free car parking will be available on a "first
come first served" basis in the North Car Park shown on the enclosed map. N M
Rothschild & Sons Limited and Kleinwort Benson Limited, which are each regulated
in the UK by The Securities and Futures Authority Limited, are acting
exclusively for National Grid and no one else in connection with the Acquisition
and will not be responsible to anyone other than National Grid for providing the
protections afforded to their customers or for giving advice in relation to the
Acquisition.
CONTENTS
PART I: Letter from the Chairman
1. Introduction 3
2. Background to and reasons for the Acquisition 4
3. Benefits of the Acquisition 6
4. Board, management and employees 6
5. Financing the Acquisition 6
6. Financial effects of the Acquisition 6
7. Structure of the Acquisition 7
8. Recent developments 8
<PAGE>
9. National Grid Group prospects 9
10. Year 2000 10
11. Extraordinary General Meeting 10
12. Action to be taken 10
13. Further information 10
14. Recommendation 10
PART II: YEAR 2000
PART III: INFORMATION RELATING TO NEES
PART IV: STATEMENTS OF INDEBTEDNESS AND WORKING CAPITAL
PART V: SUMMARY OF THE PRINCIPAL TERMS AND CONDITIONS OF THE MERGER
AGREEMENT
PART VI: ADDITIONAL INFORMATION
DEFINITIONS
Notice of Extraordinary General Meeting
How to fill in the Form of Proxy
OUTLINE TIMETABLE
Latest time and date for receipt of Forms of Proxy
for the Extraordinary General Meeting 10.00 a.m. on 20 April, 1999
Extraordinary General Meeting 10.00 a.m. on 22 April, 1999
Completion of the Acquisition By early 2000, depending on timing of various
regulatory approvals/consents The shareholder meeting of NEES is to be held on 3
May, 1999.
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<PAGE>
PART I
The National Grid Group plc
(Incorporated and registered in England and Wales with number 2367004)
Directors: Registered office:
David Jefferies CBE, FEng* (Chairman) National Grid House
James Ross* (Deputy Chairman) Kirby Corner Road
David Jones (Group Chief Executive) Coventry
Stephen Box (Finance Director) CV4 8JY
Wob Gerretsen (Business Development Director)
Dr. Roger Urwin (Managing Director, Transmission)
Bob Faircloth* (Director)
John Grant* (Director)
Richard Reynolds* (Director)
Malcolm Williamson* (Director)
*Non-executive
31 March, 1999
To National Grid Shareholders and, for information only, to participants in the
Share Option Schemes. Dear Shareholder,
AGREED $3.2 BILLION ACQUISITION OF
NEW ENGLAND ELECTRIC SYSTEM ("NEES")
1. Introduction
On 14 December, 1998, National Grid and NEES announced that they had signed a
Merger Agreement setting out the terms under which National Grid will acquire
NEES, an electricity transmission and distribution business operating in
Massachusetts, Rhode Island and New Hampshire in the Northeast US.
Under the terms of the Merger Agreement, NEES Shareholders will receive a cash
payment of $53.75 for each NEES Share held at Completion plus an additional
amount per share if Completion does not take place within six months of NEES
Shareholders' approval of the Acquisition, subject to a maximum additional
amount of $0.60 per NEES Share. The terms value the equity of NEES at
approximately $3.2 billion (approximately (pound) 2.0 billion) which, together
with consolidated net debt, as at 31 December, 1998, of approximately $0.8
billion (approximately (pound) 0.5 billion) gives an enterprise value of NEES of
approximately $4.0 billion (approximately (pound) 2.5 billion).
The Acquisition is subject to a number of conditions, including regulatory and
other consents and approvals in the US and the approval of the shareholders of
both National Grid and NEES. The Acquisition is expected to be completed by
early 2000. Upon Completion, NEES will become a wholly-owned subsidiary of
National Grid. A summary of the principal terms and conditions of the Merger
Agreement is set out in Part V of this document.
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<PAGE>
The purpose of this document is to provide you with details of the Acquisition,
to explain why the Board considers that it is in the best interests of National
Grid and its shareholders as a whole and to recommend that you vote in favour of
the Resolution to be proposed at the Extraordinary General Meeting, the sole
purpose of which is to consider the Acquisition.
2. Background to and reasons for the Acquisition
National Grid's strategy is to build shareholder value by developing earnings
from outside the UK transmission business through exploitation of its core
skills in the development and management of infrastructure assets and systems.
The Acquisition is a major step in achieving National Grid's strategy and the
Directors believe that NEES:
represents a significant investment in an efficient, focused transmission
and distribution business with a strong operational track record, which
will benefit from National Grid's core skills;
provides an attractive point of entry into the US for National Grid, given
that New England has a favourable economic climate and a more advanced
state of regulatory evolution compared with many other regions in the US;
brings National Grid a high-quality management team with proven
distribution expertise and a shared view of the industry's future
development in the Northeast US; and
provides an excellent regional platform for growth in transmission and
distribution.
The US market
In the US, the electricity industry is being restructured with the introduction
of competitive energy markets and the development of new regulatory frameworks.
Whilst the pace of this restructuring varies from region to region, National
Grid considers that the US electricity industry offers attractive investment
opportunities given:
changing regulatory frameworks are resulting in the separation of
generation from transmission and distribution assets, increasing focus on
efficient delivery of services, the introduction of customer choice and
progress towards performance-based regulation; and
the high degree of fragmentation within the industry, which offers
opportunities for strategic growth through accessible investments.
NEES' regulatory environment
NEES operates in the Northeast US where changes to the regulatory environment
are well advanced. The two principal states in which NEES operates,
Massachusetts and Rhode Island, have enacted legislation which permits
performance-based regulation. The Directors believe that changes to the
regulatory environment will continue, allowing both customers and shareholders
to benefit from increasing efficiency.
NEES' existing regulatory settlements, negotiated over the period 1996 to 1998
with the federal and individual state regulators, provided rate reductions for
customers while:
allowing recovery of the stranded costs associated with its generating
business not recovered through the sale of substantially all of that
business (as more fully discussed in Note C to NEES' 1998 Annual Report set
out in Part III of this document); and
offering stable rate settlements for a transitional period as well as
incentives to improve performance for customers and increased returns for
shareholders.
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<PAGE>
NEES' management
NEES has a high-quality management team which:
has delivered strong operational performance within its transmission and
distribution businesses. NEES is one of the most efficient transmission and
distribution service providers among the Northeast US utilities;
has been proactive in changing the regulatory landscape. This has included
the negotiation of settlements with individual state regulatory authorities
which involved the disposal of substantially all of NEES' generating
business (the sale of which was completed in September 1998 for $1.59
billion), and the recovery of related stranded costs; and
is committed to developing the business within the region around NEES' core
skills in transmission and distribution.
NEES' business
NEES is one of the leading electric utilities in the Northeast US. Following the
sale of substantially all of its generating business in September 1998, NEES is
primarily an electricity transmission and distribution business serving retail
customers in the states of Massachusetts, Rhode Island and New Hampshire.
NEES' system consists of approximately 2,700 route miles of transmission lines
and approximately 28,000 route miles of distribution networks. NEES serves
approximately 1.3 million customers through its retail electric companies. NEES
has also been developing a number of small, unregulated businesses.
NEES has minority (20 per cent. or less) non-operating interests in three
nuclear power plants in New Hampshire, Connecticut and Vermont. It also has
minority interests (30 per cent. or less) in three other nuclear plants in
Massachusetts, Connecticut and Maine which have been permanently closed. The
regulatory settlements allow recovery of all plant investment and shutdown costs
(including decommissioning and spent fuel). NEES is endeavouring to dispose of
these interests.
Further information relating to NEES is set out in Part III of this document.
Complementary skills
National Grid has considerable experience of:
operating as a facilitator of competition in a regulatory environment which
promotes and rewards efficiency; and
improving system performance through investing in and managing complex
transmission networks and the sophisticated software systems that control
the networks in real time.
The Directors believe that National Grid's own management skills and experience
complement NEES' expertise of operating efficient distribution businesses in an
evolving regulatory environment. This combination will provide the enlarged
group with an important competitive advantage in the US transmission and
distribution business and assist it in pursuing opportunities elsewhere.
National Grid and NEES are committed to providing a reliable and efficient
service and enhancing overall performance standards for the benefit of customers
and shareholders.
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<PAGE>
3. Benefits of the Acquisition
The Acquisition represents a major step in National Grid's strategy.
The Directors expect the Acquisition to enhance National Grid's earnings per
share, before the amortisation of goodwill, and significantly to enhance its
total cash flow per share immediately following acquisition.
In the medium term, the Directors expect NEES' performance to be enhanced
through general efficiency improvements. In addition, further investment
opportunities are expected to arise from rationalisation and consolidation of
the electricity industry in the Northeast US. These opportunities are expected
to provide synergy and cost cutting benefits for the enlarged NEES business. An
example of such an opportunity is provided by NEES' proposed acquisition of EUA
described more fully in "Recent developments" (paragraph 8 below).
National Grid, as enlarged by the Acquisition, should have strong operational
cash flows allowing it to meet its capital expenditure, interest and tax
payments and to service a growing dividend.
4. Board, management and employees
Board and management
An Interim Joint Integration Committee of NEES, chaired by David Jones, has been
established to ensure a smooth transition in the period between announcement and
Completion.
Upon Completion, it is intended that the NEES Board will be reconstituted as an
executive-only Board chaired by David Jones.
Alfred D. Houston, Chairman of NEES, will step down at Completion, but will be
retained as a consultant for two years. A NEES Advisory Board will be
established for two years following Completion to maintain and develop NEES'
customer and community relationships.
Upon Completion, Rick Sergel, President and Chief Executive Officer of NEES,
will join the National Grid Board as an executive Director together with one of
NEES' non-executive Directors. Details of Rick Sergel's proposed service
contract are set out in paragraph 3.5 of Part VI of this document.
Employees
Employees of National Grid and of NEES will benefit from potential transfers
within the enlarged group. National Grid has confirmed that all employment
agreements will be honoured and that the headquarters for the enlarged group's
US operations will remain in Massachusetts.
5. Financing the Acquisition
The Board intends to finance the Acquisition wholly from borrowings. Details of
the new banking facilities are set out in paragraph 5.1 of Part VI of this
document.
6. Financial effects of the Acquisition
The Acquisition will be accounted for under FRS10, with the goodwill arising on
acquisition being capitalised on National Grid's balance sheet and amortised
over a period of 20 years.
The Directors expect the Acquisition to enhance National Grid's earnings per
share, before the amortisation of goodwill, and significantly to enhance its
total cash flow per share immediately following acquisition.
-6-
<PAGE>
Completion of the Acquisition will result in a cash outflow of approximately
$3.2 billion (approximately (pound) 2.0 billion). At their respective latest
published balance sheet dates of 30 September, 1998 and 31 December, 1998,
National Grid Group had consolidated net debt of (pound) 1,507 million and NEES
Group had consolidated debt, net of cash and marketable securities, of $846
million (approximately (pound) 519 million). The consolidated net assets of
National Grid Group and NEES Group at their respective latest published balance
sheet dates were (pound) 1,014 million and $1,628 million (approximately (pound)
999 million).
You should read the whole of this document and should not just rely on this
summary.
7. Structure of the Acquisition
Structure
The Acquisition will be effected in accordance with the terms of the Merger
Agreement entered into between National Grid, NGG Holdings and NEES.
A brief description of the principal terms and conditions of the Merger
Agreement is set out in Part V of this document.
Acquisition terms
Under the terms of the Merger Agreement, NEES Shareholders will receive a cash
payment of $53.75 for each NEES Share held at the time of Completion. The Merger
Agreement also provides that the cash payment will be subject to an increase if
Completion does not take place on or before the date following six months after
approval of the Acquisition by NEES Shareholders which is to be sought on 3 May,
1999. The amount of any such cash adjustment shall be determined using a daily
accrual rate of $0.003288 per NEES Share until Completion, subject to a maximum
increase of $0.60 per NEES Share.
Up to Completion, NEES may declare and pay regular quarterly dividends, not in
excess of the dividends paid in the same period in the prior fiscal year, and a
stub dividend pro-rated for the quarter in which Completion takes place.
The terms of the Acquisition:
value the equity of NEES at approximately $3.2 billion (approximately
(pound)2.0 billion) which, together with consolidated net debt, as at 31
December, 1998, of approximately $0.8 billion (approximately (pound) 0.5
billion) gives an enterprise value of NEES of approximately $4.0 billion
(approximately (pound) 2.5 billion); and
represent a 25.0 per cent. premium if the minimum price per NEES Share is
paid and a 26.4 per cent. premium if the maximum price per NEES Share is
paid, in each case as compared to the closing price of $43.00 per NEES
Share on 11 December, 1998 (the last trading day prior to the execution of
the Merger Agreement).
Shareholder approvals
(a) National Grid
The Acquisition is subject to approval by a majority of National Grid
Shareholders voting at the Extraordinary General Meeting. The Merger
Agreement is conditional upon such approval being obtained and the
satisfaction or waiver of the other conditions in the Merger Agreement.
This document includes the notice of the Extraordinary General Meeting and
explains the necessary actions to be taken by National Grid Shareholders.
-7-
<PAGE>
(b) NEES
The Acquisition is conditional upon, amongst other matters, the approval of
the Acquisition by the affirmative vote of the holders of a majority of
NEES Shares and the satisfaction or waiver of the other conditions in the
Merger Agreement.
A proxy statement dated 26 March, 1999 to NEES Shareholders contains a
notice convening a meeting of NEES Shareholders. At the meeting, which is
to be held on 3 May, 1999, NEES Shareholders will be asked to approve the
Acquisition.
Regulatory consents and timing
The Acquisition is subject to a number of conditions, including regulatory and
other consents and approvals in the US. The principal regulatory approvals
required include approval by or filings with the SEC, the Federal Energy
Regulatory Commission, the Nuclear Regulatory Commission and approvals, consents
or support in the states in which NEES operates or has non-operating interests.
The Acquisition also requires clearance under US anti-trust laws.
Formal filings have been made with the SEC, the Federal Energy Regulatory
Commission and the Nuclear Regulatory Commission and National Grid and NEES are
confident the regulatory approval process for the Acquisition is on schedule to
enable Completion to occur by early 2000.
It is possible, however, that some of the government authorities with which
filings have been or are to be made may impose conditions for granting approval.
National Grid and NEES cannot predict whether they will obtain the required
regulatory approvals within the time-frame contemplated by the Merger Agreement
or whether any approvals will include conditions that would be detrimental to
either National Grid or NEES.
8. Recent developments
Investment in Energis
On 3 February, 1999, National Grid placed 60,000,000 Energis ordinary shares at
(pound) 16.50 per share and simultaneously completed the offering for
subscription of 14,700,000 6 per cent. Equity Plus Income Convertible securities
("EPICs") due 2003 in the aggregate principal amount of $401,163,000, redeemable
for Energis ordinary shares.
The proceeds of the combined offering, amounting to approximately (pound) 1.2
billion, are to be used by National Grid for general corporate purposes. The
exceptional profit before taxation on the partial disposal of National Grid's
shareholding in Energis amounts to approximately (pound) 892 million.
Following the combined offering and conversion of its remaining Energis
convertible preference shares, National Grid has an economic interest in Energis
of 48.3 per cent.
National Grid has agreed to a lock-up period of six months from 22 January,
1999, during which time it shall not dispose of any further Energis ordinary
shares or convertible preference shares without the prior consent of HSBC.
NEES' proposed acquisition of EUA
On 1 February, 1999, NEES announced that it had entered into a merger agreement
to acquire EUA. The terms of the acquisition value the equity of EUA at
approximately $634 million (approximately (pound) 389 million). Allowing for
EUA's net debt at 31 December, 1998, EUA's enterprise value at the acquisition
price is approximately $1.0 billion (approximately (pound) 0.6 billion).
EUA's principal activities are the transmission and distribution of electricity
in Massachusetts and Rhode Island, adjacent to NEES' service territories. EUA
serves approximately 300,000 customers through its retail electric
-8-
<PAGE>
companies which operate a system consisting of approximately 6,900 route miles
of transmission lines and distribution networks. As set out in its audited
results for the year ended 31 December, 1998, EUA had revenues of $539 million
(approximately (pound) 331 million), net income of $37 million (approximately
(pound) 23 million) and net assets of $409 million (approximately pound) 251
million). Upon completion of the EUA Acquisition, NEES will serve approximately
1.6 million electricity customers.
National Grid consented to, and is fully supportive of, the EUA Acquisition. The
Directors believe that the EUA Acquisition is in line with National Grid's
strategy in the US which envisages the pursuit of investment opportunities with
NEES in the Northeast US electricity industry. The addition of EUA will, before
restructuring costs, further enhance National Grid's earnings per share, before
the amortisation of goodwill, and total cash flow per share.
The EUA Acquisition is subject to regulatory approvals by the SEC, the Federal
Energy Regulatory Commission, the Nuclear Regulatory Commission and the state
utility commissions in Massachusetts and Rhode Island. The EUA Acquisition,
which is expected to be completed by early 2000 (in line with Completion) also
requires approval by an affirmative vote of two-thirds of EUA shareholders. The
EUA Acquisition is not contingent upon Completion and the approval of neither
NEES Shareholders nor National Grid Shareholders is required for the
transaction.
A copy of NEES' announcement of the EUA Acquisition is set out in full in Part
III of this document.
Bond issue
On 26 January, 1999, NGC announced an issue of (pound) 450 million 5.875 per
cent. Bonds due 2024. The net proceeds of the issue will be used for general
corporate purposes.
Brazil
In January 1999, National Grid announced that a consortium in which it is a
partner had been awarded, for a consideration of (pound) 25 million, a licence
to provide telecommunications services, including inter-regional and
international services, in Brazil. The consortium, of which 50 per cent. is
owned by National Grid and 25 per cent. each by France Telecom and Sprint, will
construct a new telecommunications network which is intended to cover the major
population centres of the country within three years.
National Air Traffic Services
National Grid has confirmed to HM Government its support in principle for the
possible Public Private Partnership (PPP) for National Air Traffic Services.
National Grid will await HM Government's proposals before determining whether or
not to participate in any PPP.
Board appointment
National Grid announced on 1 March, 1999 that James Ross has been appointed as a
non-executive Director and Deputy Chairman with immediate effect and will become
Chairman following the retirement of David Jefferies at the Annual General
Meeting of National Grid to be held in July 1999.
9. National Grid Group prospects
National Grid intends to enhance shareholder value through investments both in
the UK and internationally. The Acquisition and the recent developments
described in paragraph 8 above are consistent with this intention and represent
important steps towards its achievement. On this basis, and in the absence of
adverse changes in taxation or regulatory regimes, the Directors expect to
maintain their stated policy of delivering real growth in dividend per share of
4 to 5 per cent. per annum until March 2001.
The Directors believe that the prospects of National Grid will be enhanced by
the Acquisition.
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<PAGE>
10. Year 2000
It is widely expected that many computer programs and applications written in
the past will be unable properly to recognise calendar dates associated with the
year 2000. As a result, computers throughout the world may either shut down or
fail to operate correctly on specific dates.
National Grid, NEES and EUA depend on computer technology for the operation and
maintenance of their own networks, the integrity of operational interfaces with
other electricity companies and the provision of services to their customers.
All three companies are aware of potential risks arising from the year 2000 date
change and have actions in hand to modify or replace business-critical systems
as necessary designed to ensure that, as far as possible, there is no material
disruption to their operations. Details of the programme being pursued by
National Grid are set out in Part II of this document. In addition, extracts
from NEES' 1998 Annual Report dated 23 February, 1999, describing NEES' year
2000 readiness, and from EUA's 1998 Annual Report dated 11 March, 1999,
describing EUA's year 2000 readiness, are also set out in Part II of this
document.
The degree of uncertainty facing all companies, in addition to the potential
disruption which may be caused by third parties, means that there can be no
assurance that the programmes being implemented by National Grid, NEES or EUA
will ensure year 2000 readiness or prevent disruption to their businesses or
that the date change from 1999 to 2000 will not have a material adverse effect
on National Grid's and/or NEES' and/or EUA's operations, financial position or
prospects. However, the Directors believe that the programmes being implemented
by National Grid, NEES and EUA to address critical operational and
system-related issues should mitigate the impact of year 2000 risks.
11. Extraordinary General Meeting
At the end of this document, shareholders will find a notice of an Extraordinary
General Meeting to be held at the International Convention Centre, Broad Street,
Birmingham B1 2EA at 10.00 a.m. on 22 April, 1999 at which a resolution will be
proposed to approve the Acquisition.
12. Action to be taken
Shareholders will find enclosed with this document a Form of Proxy for use at
the Extraordinary General Meeting. Whether or not you intend to be present at
the meeting, you are requested to complete, sign and return your Form of Proxy
to Lloyds TSB Registrars, The Causeway, Worthing BN99 6AD as soon as possible
and, in any event, so as to arrive by no later than 10.00 a.m. on 20 April,
1999. The completion and return of a Form of Proxy will not preclude you from
attending the meeting and voting in person should you wish to do so, but if you
do wish to attend, you should bring your admission card with you. Instructions
on how to complete the Form of Proxy are set out at the end of this document.
If you require any further information, please telephone the National Grid
Shareholder helpline on 01203 423940 between 9.00 a.m. and 5.00 p.m. on any
business day or write to the Shareholder Enquiry Unit at National Grid House,
Kirby Corner Road, Coventry CV4 8JY before the Extraordinary General Meeting.
13. Further information
Your attention is drawn to the further information set out in Parts II to VI of
this document.
14. Recommendation
The Board of National Grid, which has been advised by Rothschild and Dresdner
Kleinwort Benson, considers the Acquisition to be in the best interests of
National Grid and its shareholders as a whole. In giving their advice,
Rothschild and Dresdner Kleinwort Benson have relied upon the National Grid
Board's views of the commercial merits of the Acquisition.
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<PAGE>
The Directors unanimously recommend shareholders to vote in favour of the
resolution to be proposed at the Extraordinary General Meeting, as they intend
to do in respect of their respective beneficial holdings, which amount to
578,957 National Grid Shares in aggregate.
The Board of NEES has unanimously approved the Acquisition and is recommending
that NEES Shareholders vote in favour of the resolutions to be proposed at the
shareholder meeting of NEES.
Yours sincerely,
David G Jefferies CBE, FEng
Chairman
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<PAGE>
PART II YEAR 2000
Your attention is drawn to, and this Part II should be read in conjunction with,
the discussion of year 2000 issues set out in paragraph 10 of the Chairman's
letter.
1. National Grid
It is widely expected that many computer programs and applications written in
the past will be unable properly to recognise calendar dates associated with the
year 2000. As a result, computers throughout the world may either shut down or
fail to operate correctly on specific dates.
National Grid has in place a group-wide project to review its business-critical
information systems and to plan and implement changes as necessary to
accommodate the year 2000 date change. The project commenced in 1996 when a year
2000 project coordination team was established with responsibility for
developing an overall plan to achieve year 2000 readiness, including the
monitoring of year 2000-related activities within operating units. Each
operating unit has its own year 2000 compliance officer, whose activities are
directed by the project coordination team. Detailed progress reports are made by
the project coordination team to the Executive Committee of National Grid on a
regular basis and the Board is kept fully informed of progress. Responsibility
for the programme rests with Wob Gerretsen, National Grid's Business Development
Director.
To enable work to be prioritised according to the potential impact of failure on
the continuity of its operations, National Grid has defined five categories of
information system criticality, as follows:
Category 5 Severe impact on business if information system failed to operate
for more than three days
- ----------
Category 4 Severe impact on business if information system failed to operate
for more than one month
- ----------
Category 3 Information system may be out of commission for several months
but a tried and tested contingency solution meets functionality
required
- ----------
Category 2 No date-related issues to be addressed (although information
system may be critical to National Grid operations)
- ----------
Category 1 No compliance required
- ----------
Under the guidance of the project coordination team, each operating unit has (1)
identified and categorised their business, engineering and facility systems, (2)
carried out off-line testing of those systems deemed to be at risk of failure as
a result of the year 2000 date change and (3) amended or replaced such systems
and carried out re-testing to confirm the effectiveness of the remedial action
taken.
In addition, National Grid has implemented a communications programme on year
2000 issues with generators, suppliers and other electricity industry parties to
share information on their respective year 2000 progress. This programme has
addressed contingency arrangements for the year 2000 date change. National Grid
also participates in the Y2K Utilities Group, which acts as a forum for year
2000 issues on behalf of the electricity, gas, water and telecommunications
industries.
On-going work for National Grid's year 2000 programme involves the completion of
outstanding remedial action, the consolidation of work already undertaken, the
establishment of compliance programmes for less critical systems to avoid the
need for excessive use of temporary contingency solutions, development and
implementation of business continuity and contingency arrangements and the more
detailed investigation of interfaces with third parties.
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<PAGE>
National Grid considers that approximately 79 per cent. of all
computer-dependent systems, applications and equipment, including all of those
which are critical to the secure operation and control of the transmission
system, are now year 2000-ready.
National Grid estimates that the total cost of modifying or replacing systems to
achieve year 2000 readiness will be approximately (pound) 16.0 million, of which
approximately (pound) 11.0 million had been spent as at 25 March, 1999 (the
latest practicable date prior to publication of this document).
Monitoring of year 2000 preparations in the electricity industry is being
carried out by independent assessors on behalf of the industry's regulator,
OFFER. In December 1998, National Grid provided a detailed response to a
self-assessment questionnaire issued by OFFER to companies within the
electricity sector. OFFER's report published on 17 March, 1999 stated that the
electricity industry's preparations for the year 2000 date change were well
advanced, with most compliance activities expected to be completed by the end of
June 1999. The few systems programmed for completion by September 1999 had
adequate resources to meet these deadlines and, in OFFER's view, would not pose
a risk to electricity supplies at the year 2000 date change. OFFER also stated
that it intended to continue to monitor and report on progress to full year 2000
compliance.
2. NEES
The following is an extract from NEES' 1998 Annual Report dated 23 February,
1999, describing NEES' year 2000 readiness:
"Over the next year, most companies will face a potentially serious information
systems (computer) problem because many software applications and operational
programs written in the past may not properly recognize calendar dates
associated with the year 2000 (Y2K). This could cause computers to either shut
down or lead to incorrect calculations.
During 1996, the NEES companies began the process of identifying the changes
required to their computer software and hardware to mitigate Y2K issues. The
NEES companies established a Y2K Project team to manage these issues. This team
reports project progress to a Y2K Executive Oversight Committee each month. The
team also makes regular reports to NEES' Board of Directors and its Audit
Committee. The NEES companies have separated their Y2K Project into four parts
as shown, along with the estimated completion dates for each part.
<TABLE>
<CAPTION>
Category Specific Example Substantial Contingency Testing,
Completion of Documentation, and
Critical Systems Clean Management
- --------
<S> <C> <C> <C>
Mainframe/Midrange Accounting/Customer service Completed Throughout 1999
systems integrated systems
- --------
Desktop systems Personal computers/Department June 30, 1999 Throughout 1999
software/Networks
- --------
Operational/Embedded Dispatching June 30, 1999 Throughout 1999
systems systems/Transmission and
Distribution systems/Telephone
systems
- --------
External issues Electronic Data June 30, 1999 Throughout 1999
Interchange/Vendor
communications
- --------
</TABLE>
-13-
<PAGE>
The NEES companies are using a three-phase approach in coordinating their Y2K
Project for system-related issues: (I) Assessment and Inventory, (II) Pilot
Testing, and (III) Renovation, Conversion, or Replacement of Application and
Operating Software Packages and Testing. Phase I, which was an initial
assessment of all systems and devices for potential Y2K defects, was completed
in mid-1997. Phase II, which consisted of renovation pilots for a cross-section
of systems in order to facilitate the establishment of templates for Phase III
work, was completed in late 1997. Phase III, which is currently ongoing,
requires the renovation, conversion, or replacement of the remaining
applications and operating software packages.
The NEES companies have also implemented a formalized communication process with
third parties to give and receive information related to their progress in
remediating their own Y2K issues, and to communicate the NEES companies'
progress in addressing the Y2K issue. These third parties include major
customers, suppliers, and significant businesses with which the NEES companies
have data links (such as banks). The NEES companies cannot predict the outcome
of other companies' remediation efforts.
The NEES companies believe total costs associated with making the necessary
modifications to all centralized and noncentralized systems will be
approximately $28 million. In addition, the NEES companies are spending $4
million related to the replacement of the human resources and payroll system, in
part due to the Y2K issue. To date, total Y2K- related costs of $25 million have
been incurred, of which $2 million has been capitalized.
The NEES companies are in the process of developing Y2K contingency plans to
allow for critical information and operating systems to function from January 1,
2000 forward. If required, these plans are intended to address both internal
risks as well as potential external risks related to suppliers and customers.
Part of the contingency planning for accounting and desktop systems will include
taking extensive data back-ups prior to year-end closing. For operational
systems, the NEES companies have in place an overall disaster recovery program,
which already includes periodic disaster simulation training (for outages due to
severe weather, for instance). As part of Y2K contingency planning, the NEES
companies will review their disaster recovery plans, modifying them for
Y2K-specific issues. The NEES companies expect that these contingency plans will
be in place by the third quarter of 1999.
Interregional and regional contingency plans are being formulated that address
emergency scenarios due to the interconnection of utility systems throughout the
United States. At a regional level, the NEES companies are participating and
cooperating with the New England Power Pool (NEPOOL) and the Independent System
Operator of the NEPOOL area (ISO New England). Overall regional activities,
including those of NEPOOL and ISO New England, will be coordinated by the
Northeast Power Coordinating Council, whose activities will be incorporated into
the interregional coordinating effort by the North American Electric Reliability
Council. The target for the completion of this planning process is mid-1999. The
NEES companies have noted that the Y2K coordination efforts by ISO New England
began in May 1998, resulting in a demanding and difficult schedule to attain
regional and interregional target dates.
The NEES companies believe the worst case scenario with a reasonable chance of
occurring is temporary disruptions of electric service. This scenario could
result from a failure to adequately remediate Y2K problems at NEES company
facilities or could be caused by the inability of entities, such as ISO-New
England, to maintain the short-term reliability of various generators and/or
transmission lines on a regional or interregional basis. The NEES companies
believe that the contingency plans being developed both internally and on a
regional level, as described above, should substantially mitigate the risks of
this potential scenario. In the event that a short-term disruption in service
occurs, NEES does not expect that it would have a material impact on its
financial position and results of operations.
While the NEES companies believe that their overall Y2K program will
satisfactorily address all critical operational and system-related issues,
significant risks remain. These risks include, but are not limited to, the Y2K
readiness of third parties, including other utilities and power suppliers, cost
and timeline estimates of remaining Y2K mitigation efforts, and the overall
accuracy of assumptions made related to future events in the development of the
Y2K mitigation effort."
-14-
<PAGE>
3. EUA
The following is an extract from EUA's 1998 Annual Report dated 11 March, 1999
describing EUA's year 2000 readiness:
"EUA's Year 2000 Program (the Program) is proceeding on schedule. The Program is
addressing the potential impact on computer systems and embedded systems and
components resulting from a common software program code convention that
utilizes two digits instead of four to represent a year. If not addressed, the
year 2000 may be systemically recognized as the year 1900, which could cause
system or equipment failures or malfunctions, and ultimately result in
disruptions to Company operations.
EUA's State of Readiness: To address potential Year 2000 issues, EUA has divided
the focus of its Year 2000 Program into three major categories of business
activity: the generation and delivery of electricity to customers, the
acquisition of goods and services (including purchased power), and ongoing
general and administrative activities relating to the corporate infrastructure
and support functions, which includes among other things, billings and
collections.
EUA has adopted a four phase approach in addressing information technology (IT)
issues. As of January 31, 1999, each phase was at the following percentage of
completion: analysis - 100%; remediation - 79%; unit testing - 78%; and
integrated testing - 11%. EUA is on schedule to achieve Year 2000 readiness for
100% of mission critical projects by June 30, 1999. For non-IT projects,
approximately 90% are either Year 2000 ready or not affected by the Year 2000.
The remaining items are in the process of being remediated and tested and are
scheduled to be Year 2000 ready by June 30, 1999.
EUA has an ongoing process to identify and assess the Year 2000 readiness of
third parties with which it has a material relationship. Where necessary,
contingency plans will be developed. This process is on schedule to be completed
by June 30, 1999.
Costs to address EUA's Year 2000 Issues: Through December 31, 1998, EUA has
incurred costs of approximately $3.0 million to address Year 2000 issues,
including approximately $1.5 million of non-incremental labor, $1.2 million of
capital expenditures and $300,000 of consulting and other costs. EUA estimates
it will incur additional costs approximating $7.0 million during the period
January 1, 1999 through March 31, 2000, to complete its resolution of Year 2000
issues including approximately $5.5 million of non-incremental labor, $500,000
of capital expenditures and $1.0 million of consulting and other costs. Because
70% of the total estimated costs associated with the Year 2000 issue relate to
non-incremental internal labor, management continues to believe that the Year
2000 will not present a material incremental impact to future operating results
or financial condition.
Risks of EUA's Year 2000 Issues: EUA's first priority continues to be the
minimization of any potential disruptions to electric service as a result of the
Year 2000. The provision of electric service depends in large part on the
viability of the New England power grid which is managed by ISO/NEPOOL. EUA is
actively participating on ISO/NEPOOL's Year 2000 operating and oversight
committees. EUA's assessment of its own transmission and distribution equipment
and facilities indicated that the risk of failure of this equipment does not
appear to be significant. However, due to the interconnectivity of the New
England power grid, and the reliance on many other entities also connected to
the grid, it is not possible to conclude with certainty that there will be no
significant interruptions in service.
In addition, dependable voice and data telecommunications are critical to EUA's
ongoing operations. EUA's internal telecommunication systems are either Year
2000 ready now, or on schedule to become Year 2000 ready by June 30, 1999. EUA
also relies heavily on external telecommunication systems, i.e., the local and
regional telephone systems, and has identified these providers as critical
vendors. EUA has made direct contact with representatives of the telephone
companies on which EUA depends, each of which anticipates being Year 2000 ready
and devoid of major system failures.
No other significant reasonably likely failure scenarios stemming solely from
Year 2000 related problems have been identified thus far. Accordingly, EUA does
not currently believe that any Year 2000 related risks in and of themselves
-15-
<PAGE>
constitute reasonably likely worst case scenarios. Rather, EUA's most reasonably
likely Year 2000 related worst case scenario would be the occurrence of isolated
year 2000 failures such as described above in conjunction with a severe winter
storm. However, EUA believes that such year 2000 failures would not likely
affect whether the storm event would have a material impact on EUA's business or
financial condition.
Year 2000 Contingency Plans: Contingency planning teams consisting of managers
and employees experienced in system reliability, disaster recovery and risk have
been established and are responsible for developing contingency plans. The
overall strategy will be to identify Year 2000 risks, both internal and external
to EUA, that could have a material impact on EUA's operations or financial well
being. Preliminary plans are expected by the end of the first quarter of 1999.
Final plans are scheduled to be in place and ready to implement, if necessary,
by June 30, 1999.
Summary: The amount of effort and resources necessary to address Year 2000
issues and make EUA Year 2000 ready is significant. There are dedicated teams in
place to ensure EUA's transition into the next century occurs with minimal
disruption. EUA's Year 2000 program is on schedule and in accordance with
timetables and progress points published by the North American Electric
Reliability Council. In addition, EUA is utilizing outside technical consultants
and other experts to help ensure EUA's Year 2000 program remains on schedule and
effective. Management believes EUA's Year 2000 project is well managed and has
the appropriate resources and plans in place to ensure the Company is positioned
for a successful transition to the Year 2000.
The foregoing constitutes a Year 2000 Statement and Readiness Disclosure subject
to the protections afforded it as such by the federal Year 2000 Information and
Readiness Disclosure Act of 1998."
-16-
<PAGE>
PART III INFORMATION RELATING TO NEES
1. Business description
NEES is a public utility holding company headquartered in Westborough,
Massachusetts. NEES' principal activities are the transmission and distribution
of electricity in Massachusetts, Rhode Island and New Hampshire. NEES serves
approximately 1.3 million customers through its retail electric companies. NEES'
principal operating companies are Massachusetts Electric Company, The
Narragansett Electric Company, Granite State Electric Company, Nantucket
Electric Company and New England Power Company.
NEES is one of the leading electric utilities in the Northeast US. It was one of
the first utilities in the US to finalise restructuring plans that provided
guaranteed savings to customers and that provided for the recovery of stranded
costs, and one of the first to agree to divest its generation business.
Other subsidiaries include NEESCom, a telecommunications network infrastructure
provider, and AllEnergy, an unregulated energy marketing company.
On 1 February, 1999, NEES announced that it had signed a merger agreement under
which NEES will acquire all of the outstanding shares of EUA.
2. Historical financial information
The financial information set out in this part has been extracted without
material adjustment from the NEES 1998 and 1997 Annual Reports which include the
audited consolidated financial statements for the three years ended 31 December,
1998. The financial information has been prepared in accordance with US GAAP and
under the accounting policies set out in the notes below. US GAAP differs from
UK GAAP in certain material respects. The main differences between the
accounting policies adopted by NEES under US GAAP and those adopted by National
Grid under UK GAAP, which impact on net income and common share equity, relate
to the accounting for pension costs, deferred taxation and the allowance for
equity funds used during construction. A summary of these differences for the
three years to and at 31 December, 1998 is set out in section 3 below.
The financial information set out in this part covers a period during which NEES
operated as a vertically integrated electric utility, engaged in the
transmission, distribution, sale and generation of electricity. As Notes C and D
to the financial statements explain, NEES' electricity supply markets have been
opened to competition and on 1 September, 1998, NEES completed the sale of its
fossil-fuel and hydro-electric generation assets. As a consequence, the future
financial profile of NEES may differ significantly from that presented by the
historic financial information set out below.
-17-
<PAGE>
<TABLE>
<CAPTION>
NEES Group
Statements of Consolidated Income
Year ended 31 December ($ thousand, except per share data)
1998 1997 1996
<S> <C> <C> <C>
Operating revenue $2,420,533 $2,502,591 $2,350,698
---------- ---------- ----------
Operating expenses:
Fuel for generation 229,722 372,461 334,994
Purchased electric energy 633,347 528,229 509,400
Other operation 675,806 556,658 501,090
Maintenance 109,040 143,372 127,785
Depreciation and amortisation 206,662 236,492 246,379
Taxes, other than income taxes 134,763 146,494 143,733
Income taxes 122,354 152,024 139,199
---------- ---------- ----------
Total operating expenses 2,111,694 2,135,730 2,002,580
---------- ---------- ----------
Operating income 308,839 366,861 348,118
Other income:
Allowance for equity funds used during construction 633 -- --
Equity in income of generating companies 9,437 10,240 10,334
Other income (expense), net (3,262) (15,755) (8,166)
---------- ---------- ----------
Operating and other income 315,647 361,346 350,286
---------- ---------- ----------
Interest:
Interest on long-term debt 89,805 107,311 110,479
Other interest 27,822 16,939 19,527
Allowance for borrowed funds used during construction (1,754) (1,908) (2,246)
---------- ---------- ----------
Total interest 115,873 122,342 127,760
---------- ---------- ----------
Income after interest 199,774 239,004 222,526
Preferred dividends and net gain/loss on reacquisition of preferred 3,454 12,319 6,463
stock of subsidiaries
Minority interests 6,278 6,647 7,127
---------- ---------- ----------
Net income $ 190,042 $ 220,038 $ 208,936
========== ========== ==========
Average common shares - Basic 62,359,122 64,899,322 64,960,496
Average common shares - Diluted 62,456,103 64,952,185 64,986,136
Per share data:
Net income - Basic $ 3.05 $ 3.39 $ 3.22
Net income - Diluted $ 3.04 $ 3.39 $ 3.22
Dividends declared $ 2.36 $ 2.36 $ 2.36
---------- ---------- ----------
Statements of Consolidated Retained Earnings
Year ended 31 December ($ thousand)
1998 1997 1996
Retained earnings at beginning of year $ 954,518 $ 887,292 $ 831,529
Net income 190,042 220,038 208,936
Dividends declared on common shares (145,648) (152,812) (153,173)
---------- ---------- ----------
Retained earnings at end of year $ 998,912 $ 954,518 $ 887,292
========== ========== ==========
See accompanying notes to consolidated financial statements.
</TABLE>
-18-
<PAGE>
<TABLE>
<CAPTION>
NEES Group
Consolidated Balance Sheets
At 31 December ($ thousand)
1998 1997 1996
<S> <C> <C> <C>
Assets
Utility plant, at original cost $4,130,102 $5,860,101 $5,692,956
Less accumulated provisions for depreciation and amortisation 1,694,653 1,995,017 1,853,003
---------- ---------- ----------
2,435,449 3,865,084 3,839,953
Construction work in progress 52,977 48,708 56,652
---------- ---------- ----------
Net utility plant 2,488,426 3,913,792 3,896,605
---------- ---------- ----------
Oil and gas properties, at full cost (Note A) -- 1,299,817 1,286,661
Less accumulated provision for amortisation -- 1,128,659 1,081,940
---------- ---------- ----------
Net oil and gas properties -- 171,158 204,721
---------- ---------- ----------
Investments:
Nuclear power companies, at equity (Note E) 48,538 49,825 47,902
Other subsidiaries, at equity 2,374 37,418 40,124
Other investments 169,196 117,645 96,399
---------- ---------- ----------
Total investments 220,108 204,888 184,425
---------- ---------- ----------
Current assets:
Cash 187,673 14,264 8,477
Marketable securities 57,915 -- --
Accounts receivable, less reserves of $18,196, $17,834 and $18,702 294,943 257,185 262,103
Unbilled revenues 87,467 71,260 59,093
Fuel, materials, and supplies, at average cost 38,339 66,509 74,111
Prepaid and other current assets 57,081 64,265 85,096
---------- ---------- ----------
Total current assets 723,418 473,483 488,880
---------- ---------- ----------
Regulatory assets (Note C) 1,599,657 532,213 431,079
Deferred charges and other assets 38,926 16,113 17,541
---------- ---------- ----------
$5,070,535 $5,311,647 $5,223,251
========== ========== ==========
Capitalisation and liabilities
Capitalisation (see accompanying statements):
Common share equity $1,570,003 $1,744,442 $1,685,417
Minority interests in consolidated subsidiaries 38,742 43,062 46,293
Cumulative preferred stock of subsidiaries 19,480 39,113 126,166
Long-term debt 1,055,740 1,487,481 1,614,578
---------- ---------- ----------
Total capitalisation 2,683,965 3,314,098 3,472,454
---------- ---------- ----------
Current liabilities:
Long-term debt due within one year 36,307 89,910 79,705
Short-term debt -- 251,950 145,050
Accounts payable 204,992 136,218 148,592
Accrued taxes 24,196 14,831 14,911
Accrued interest 16,680 24,969 27,494
Dividends payable 34,412 36,162 37,276
Other current liabilities (Note H) 142,975 120,002 109,582
---------- ---------- ----------
Total current liabilities 459,562 674,042 562,610
---------- ---------- ----------
Deferred federal and state income taxes 472,140 720,375 750,929
Unamortised investment tax credits 65,292 90,018 91,936
-19-
<PAGE>
1998 1997 1996
Accrued Yankee nuclear plant costs (Note E) 242,138 299,564 166,413
Purchased power obligations 832,668 -- --
Other reserves and deferred credits 314,770 213,550 178,909
Commitments and contingencies (Note E)
$5,070,535 $5,311,647 $5,223,251
See accompanying notes to consolidated financial statements.
</TABLE>
-20-
<PAGE>
<TABLE>
<CAPTION>
NEES Group
Consolidated Statements of Cash Flows
Year ended 31 December ($ thousand)
1998 1997 1996
<S> <C> <C> <C>
Operating activities
Net income $ 190,042 $ 220,038 $ 208,936
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortisation 211,069 239,654 250,508
Deferred income taxes and investment tax credits, net (273,448) (31,178) (30,328)
Allowance for funds used during construction (2,387) (1,908) (2,246)
Buyout of purchased power contracts (326,590) -- --
Minority interests 6,278 6,647 7,127
Decrease (increase) in accounts receivable, net and unbilled (44,682) 4,217 30,770
revenues
Decrease (increase) in fuel, materials, and supplies (19,141) 10,664 126
Decrease (increase) in prepaid and other current assets 2,708 24,729 (7,209)
Increase (decrease) in accounts payable 63,232 (15,710) (9,568)
Increase (decrease) in other current liabilities 22,241 (2,718) 33,999
Other, net 13,481 66,678 40,455
--------- --------- --------
Net cash provided by (used in) operating activities $ (157,197) $ 521,113 $ 522,570
--------- --------- --------
Investing activities
Proceeds from sale of generating assets $ 1,728,588 $-- $--
Plant expenditures, excluding allowance for funds used during (181,941) (203,095) (234,409)
construction
Oil and gas exploration and development -- (13,156) (20,371)
Proceeds from sale of New England Energy Incorporated oil and 50,000 -- --
gas property
Purchase of available-for-sale securities, net (57,915) -- --
Other investing activities (46,718) (22,669) (10,309)
--------- --------- --------
Net cash provided by (used in) investing activities $ 1,492,014 $ (238,920) $ (265,089)
--------- --------- --------
Financing activities
Dividends paid to minority interests $ (6,704) $ (6,809) $ (8,878)
Dividends paid on NEES common shares (147,350) (152,763) (153,759)
Short-term debt (251,950) 105,900 (59,862)
Long-term debt - issues 55,000 25,000 97,850
Long-term debt - retirements (543,630) (142,205) (106,811)
Preferred stock - redemptions (19,614) (87,221) (20,900)
Premium on reacquisition of long-term debt (22,116) (2,163) --
Return of capital to minority interests and related premium (3,786) (3,348) (1,633)
Repurchase of common shares (221,258) (12,797) (2,075)
--------- --------- --------
Net cash provided by (used in) financing activities $ (1,161,408) $ (276,406) $ (256,068)
--------- --------- --------
Net increase in cash and cash equivalents $ 173,409 $ 5,787 $ 1,413
Cash and cash equivalents at beginning of year 14,264 8,477 7,064
--------- --------- --------
Cash and cash equivalents at end of year $ 187,673 $ 14,264 $ 8,477
========= ========= ========
Supplementary information
Interest paid less amounts capitalised $ 114,316 $ 115,545 $ 119,710
--------- --------- --------
Federal and state income taxes paid $ 399,754 $ 174,000 $ 168,255
--------- --------- --------
Dividends received from investments at equity $ 12,387 $ 10,802 $ 12,987
--------- --------- --------
</TABLE>
See accompanying notes to consolidated financial statements.
-21-
<PAGE>
NEES Group
Consolidated Statements of Capitalisation
At 31 December ($ thousand)
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Common share equity
Common shares, par value $1 per share
Authorised - 150,000,000 shares
Issued - 64,969,652 shares $ 64,970 $ 64,970
Paid-in capital 736,744 736,605
Retained earnings 998,912 954,518
Treasury stock - 5,798,637 and 431,875 shares, respectively (237,767) (16,415)
Accumulated other comprehensive income, net 7,144 4,764
----------- -----------
Total common share equity $ 1,570,003 $ 1,744,442
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
1998 1997 1998 1997
Shares Shares
outstanding outstanding
<S> <C> <C> <C> <C>
Cumulative preferred stock of subsidiaries
$100 Par value
4.44% to 4.76% 52,745 106,400 $ 5,275 $ 10,640
6.00% to 6.99% 69,672 108,690 6,967 10,869
$50 Par value
4.50% to 6.95% 144,766 256,000 7,238 12,800
$25 Par value
6.84% -- 192,160 -- 4,804
------- ------- -------- --------
Total cumulative preferred stock of subsidiaries
(annual dividend requirement of $1,091 for 1998 and
$2,284 for 199 267,183 663,250 $ 19,480 $ 39,113
======= ======= ======== ========
</TABLE>
<TABLE>
<CAPTION>
Maturity Rate 1998 1997
<S> <C> <C> <C> <C>
Long-term debt (Note I)
Mortgage bonds 1998 through 2000 6.040%-8.280% $ 59,000 $ 199,000
2002 through 2005 6.240%-8.520% 156,500 191,500
2006 through 2015 5.720%-7.250% 80,000 93,500
2021 through 2028 6.910%-9.125% 252,200 393,700
2018 through 2022 Variable -- 371,850
Pollution control revenue bonds
New England Power Company 2018 through 2022 Variable 371,850 --
Notes
Granite State Electric Company 2001 through 2028 7.300%-9.440% 20,000 15,000
Nantucket Electric Company 1998 through 2017 4.600%-8.500% 29,265 30,735
New England Energy Incorporated 1998 through 2002 Variable -- 122,000
Hydro-Transmission companies 2001 through 2015 8.820%-9.410% 124,970 136,490
Narragansett Energy Resources 2010 7.250% -- 28,640
Company
AllEnergy Marketing Company, L.L.C. 2001 through 2003 0.000%-8.000% 1,135 --
Unamortised discounts and (2,873) (5,024)
premiums, net ----------- -----------
Total long-term debt 1,092,047 1,577,391
Long-term debt due in one year (36,307) (89,910)
----------- -----------
$ 1,055,740 $ 1,487,481
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
-22-
<PAGE>
<TABLE>
<CAPTION>
NEES Group
Statements of Consolidated Comprehensive Income
At 31 December ($ thousand)
1998 1997 1996
<S> <C> <C> <C>
Net income $ 190,042 $ 220,038 $ 208,936
Other comprehensive income, net of tax:
Unrealised gains, net of tax expense of $2,762, $3,053 and $0
respectively 5,466 4,731 --
Less: Reclassification adjustments for realised gains/(losses) included in
net income net of tax expense/(benefit) of $109, $(21) and $0
respectively 169 (33) --
Minimum pension liability adjustment, net of tax expense of $1,570, $0
and $0, respectively (2,917) -- --
--------- --------- ---------
Total comprehensive income $ 192,422 $ 224,802 $ 208,936
</TABLE>
See accompanying notes to consolidated financial statements.
-23-
<PAGE>
NEES Group
Notes to Consolidated Financial Statements
Note A - Significant Accounting Policies
1. Nature of operations
NEES is a public utility holding company headquartered in Westborough,
Massachusetts. NEES' regulated subsidiaries are engaged in the transmission,
distribution, and sale of electricity. NEES' electricity distribution
subsidiaries serve 1.3 million customers in Massachusetts, Rhode Island, and New
Hampshire. Unregulated subsidiaries are engaged in the marketing of energy
commodities and services and the construction and leasing of telecommunications
infrastructure.
The NEES system provides electric service to distribution customers through
separate distribution subsidiaries: Massachusetts Electric Company
(Massachusetts Electric) and Nantucket Electric Company (Nantucket Electric),
which operate in Massachusetts; The Narragansett Electric Company (Narragansett
Electric), which operates in Rhode Island; and Granite State Electric Company
(Granite State Electric), which operates in New Hampshire.
2. Basis of consolidation and financial statement presentation
The consolidated financial statements include the accounts of NEES and all
subsidiaries except New England Electric Transmission Corporation, which is
recorded under the equity method. Presentation of this subsidiary on the equity
basis is not material to the consolidated financial statements. New England
Power Company (NEP) has a minority interest in four regional nuclear generating
companies (Yankees). NEP accounts for these ownership interests under the equity
method. During 1997, NEES increased its ownership from 50 per cent. to 100 per
cent. of AllEnergy Marketing Company, LLC (AllEnergy), an energy marketing
enterprise.
NEES owns 50.4 per cent. of the outstanding common stock of both New England
Hydro-Transmission Electric Company, Inc. and New England Hydro-Transmission
Corporation (Hydro-Transmission companies). The consolidated financial
statements include 100 per cent. of the assets, liabilities, and earnings of the
Hydro-Transmission companies. Minority interests, which represent the minority
stockholders' proportionate share of the equity and income of the
Hydro-Transmission companies, have been separately disclosed on the NEES
consolidated balance sheets and income statements.
NEP is also a 12 per cent. and 10 per cent. joint owner, respectively, of the
Millstone 3 and Seabrook 1 nuclear generating units, each 1,150 megawatts (MW).
NEP's share of the related expenses for these units is included in "Operating
expenses".
The accounts of NEES and its utility subsidiaries are maintained in accordance
with the Uniform System of Accounts prescribed by regulatory bodies having
jurisdiction. All significant intercompany transactions between consolidated
subsidiaries have been eliminated.
In preparing the financial statements, management is required to make estimates
that affect the reported amounts of assets and liabilities and disclosures of
asset recovery and contingent liabilities as of the date of the balance sheets,
and revenues and expenses for the period. These estimates may differ from actual
amounts if future circumstances cause a change in the assumptions used to
calculate these estimates.
3. Electric sales revenue
All of NEES' distribution subsidiaries accrue revenues for electricity delivered
but not yet billed (unbilled revenues), with the exception of Granite State
Electric. Accrued revenues were also recorded in accordance with rate adjustment
mechanisms, which included Massachusetts Electric's and Nantucket Electric's
purchased power cost adjustment
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<PAGE>
(PPCA) mechanisms. Upon approval of the Massachusetts Settlement in November
1997, the PPCA mechanisms were eliminated as of 31 July, 1996. Pending final
approval of the settlement, Massachusetts Electric and Nantucket Electric had
accrued refund reserves of $9 million for the last five months of 1996 and an
additional $9 million in the first nine months of 1997. Upon final approval of
the settlement, these refund reserves were reversed in the fourth quarter of
1997.
4. Allowance for funds used during construction (AFDC)
The utility subsidiaries capitalise AFDC as part of construction costs. AFDC
represents the composite interest and equity costs of capital funds used to
finance that portion of construction costs not yet eligible for inclusion in
rate base. AFDC is capitalised in "Utility plant" with offsetting noncash
credits to "Other income" and "Interest". This method is in accordance with an
established rate-making practice under which a utility is permitted a return on,
and the recovery of, prudently incurred capital costs through their ultimate
inclusion in rate base and in the provision for depreciation.
5. Depreciation and amortisation
The depreciation and amortisation expense included in the statements of
consolidated income is composed of the following:
<TABLE>
<CAPTION>
Year ended 31 December ($ thousand) 1998 1997 1996
<S> <C> <C> <C>
Depreciation-- transmission and distribution related $ 112,254 $ 99,114 $ 93,897
Depreciation-- all other 53,293 72,896 77,296
Nuclear decommissioning costs (see Note E-4) 2,719 2,638 2,629
Amortisation:
Oil and gas properties (see Note A-6) -- 46,718 49,163
Investment in Seabrook 1 pursuant to rate settlement -- -- 15,210
Seabrook 2 property losses -- 113 6,280
Millstone 3 accelerated amortisation, pursuant to 1995 rate settlement 22,040 15,013 1,904
Regulatory assets covered by CTC (see Note C) 16,356 -- --
--------- --------- ---------
Total depreciation and amortisation expense $ 206,662 $ 236,492 $ 246,379
========= ========= =========
</TABLE>
Depreciation is provided annually on a straight-line basis. The provision for
depreciation as a percentage of weighted average depreciable transmission and
distribution property was 3.4 per cent. in 1998, 3.2 per cent. in 1997, and 3.1
per cent. in 1996. In 1996, New England Energy Incorporated (NEEI), a wholly
owned subsidiary of NEES, reduced amortisation expense of its oil and gas
properties by $13 million to correct amounts recorded in the years 1990 through
1996. Amortisation of Seabrook and Millstone 3 investments above normal
depreciation accruals was in accordance with rate settlement agreements.
6. Oil and gas investments
NEEI participated in a rate-regulated domestic oil and gas exploration,
development and production programme through a partnership with a non-affiliated
oil company. Losses from this programme, calculated under the full cost method
of accounting, have been charged to NEP, and ultimately to distribution
customers, in accordance with SEC and Federal Energy Regulatory Commission
(FERC) approvals. Such losses were $11 million and $22 million in 1997 and 1996,
respectively. In February 1998, NEEI sold its oil and gas properties for $50
million. NEEI's loss on the sale of approximately $120 million, before tax, has
been reimbursed by NEP, and is being recovered through contract termination
charges (CTCs). See Note C for a discussion of regulatory asset recovery.
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<PAGE>
7. Cash
NEES and its subsidiaries classify short-term investments with an original
maturity of 90 days or less as cash.
8. Marketable securities
At 31 December, 1998, marketable securities consist primarily of corporate debt,
mortgage-backed government securities, and collateralised mortgage obligations.
Marketable securities have been categorised as available-for-sale and, as a
result, are carried at fair value, based generally on quoted market prices. At
31 December, 1998, NEES had marketable securities with a fair value of
approximately $58 million. Fair value closely approximated cost. Marketable
securities are available for current operations and are classified as current
assets, and have contractual maturities of less than two years. During 1998, the
proceeds received from the sales of securities held as available-for-sale
totalled approximately $64 million, which resulted in immaterial realised gains
and losses.
9. Average common shares
The following table summarises the reconciling amounts between basic and diluted
earnings per share (EPS) computations, in compliance with Statement of Financial
Accounting Standards No. 128, Earnings per Share, which became effective during
1997 and requires restatement for all prior-period EPS data presented.
<TABLE>
<CAPTION>
Year ended 31 December 1998 1997 1996
<S> <C> <C> <C>
Income after interest and minority interest (thousand) $ 193,496 $ 232,357 $ 215,399
Less: preferred stock dividends and net gain/loss on reacquisition,
of preferred stock of subsidiaries (thousand) $ 3,454 $ 12,319 $ 6,463
---------- ---------- ----------
Income available to common shareholders (thousand) $ 190,042 $ 220,038 $ 208,936
---------- ---------- ----------
Basic EPS $ 3.05 $ 3.39 $ 3.22
Diluted EPS $ 3.04 $ 3.39 $ 3.22
---------- ---------- ----------
Average common shares outstanding for Basic EPS 62,359,122 64,899,322 64,960,496
Effect of Dilutive Securities
Average potential common shares related to share-based
compensation plans 96,981 52,863 25,640
---------- ---------- ----------
Average common shares outstanding for Diluted EPS 62,456,103 64,952,185 64,986,136
========== ========== ==========
</TABLE>
10. New accounting standards
In 1997, the Financial Accounting Standards Board (FASB) released Statement of
Financial Accounting Standards No. 131, Disclosure about Segments of an
Enterprise and Related Information (FAS 131), which went into effect in 1998.
FAS 131 requires the reporting in financial statements of certain new additional
information about operating segments of a business. FAS 131 does not currently
impact NEES' reporting requirements.
In February 1998, the FASB issued Statement of Financial Accounting Standards
No. 132, Employers' Disclosures about Pensions and Other Postretirement Benefits
(FAS 132), which revises disclosure requirements for pension and other
postretirement benefits. NEES has adopted FAS 132 in its financial statements
for the year ending 31 December, 1998. The adoption of FAS 131 and FAS 132 has
no impact on NEES' operating results, financial position, or cash flows.
11. Derivative instruments
NEES, through its wholly owned indirect subsidiary, AllEnergy, uses derivative
instruments to manage exposure in fluctuations in commodity prices. At this
time, AllEnergy uses derivative instruments to manage risks associated with
natural gas, propane, and oil prices. Hedge criteria used and accounting for
hedge transactions are in accordance with
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<PAGE>
Statement of Financial Accounting Standards No. 80, Accounting for Futures
Contracts (FAS 80). FAS 80 states that in order to qualify as a hedge, price
movements in commodity derivatives must be highly correlated with the underlying
hedged commodity and must reduce exposure to market fluctuations throughout the
hedged period. Any gain or loss on a derivative that qualifies as a hedge under
FAS 80 is deferred until recognised in the income statement in the same period
as the hedged item is recognised in the income statement.
In June 1998, the FASB issued Statement of Financial Accounting Standards No.
133, Accounting for Derivative Instruments and Hedging Activities (FAS 133),
which establishes accounting and reporting standards for such instruments. FAS
133 requires recognition of all derivatives as either assets or liabilities on
the balance sheet and requires measurement of those instruments at fair value.
If certain conditions are met, derivatives may be treated as hedges and
accounted for in the income statement in the same manner as under FAS 80. To the
extent these conditions are not met, that portion of the gain or loss is
reported in earnings immediately. FAS 133 is effective for fiscal years
beginning after 15 June, 1999.
As of 31 December, 1998, all of AllEnergy's derivative instruments qualified as
hedges under FAS 80, with limited exceptions, and are expected to qualify as
hedges under FAS 133. The derivative instruments that do not qualify as hedges
under FAS 80 and are recognisable in income immediately are immaterial to NEES.
Note B - Merger Agreements
Merger Agreement with National Grid
On 11 December, 1998, NEES, National Grid, and NGG Holdings entered into an
Agreement and Plan of Merger (Merger Agreement). Pursuant to the Merger
Agreement, NGG Holdings will merge with and into NEES (the Merger), with NEES
becoming a wholly owned subsidiary of National Grid. NEES shareholders will
receive $53.75 per share in cash, which will be increased at a rate of $0.003288
each day beginning six months after shareholder approval of the Merger until the
Merger is completed, up to a maximum price of $54.35 per share.
The Merger is subject to approval by a majority vote of NEES shareholders as
well as National Grid shareholder approval. In addition, the Merger is subject
to a number of regulatory and other approvals and consents, including approvals
by the SEC, FERC, and Nuclear Regulatory Commission (NRC), support or approval
from the states in which NEES operates, and approval under both the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the
Exon-Florio Provisions of the Omnibus Trade and Competitiveness Act of 1988.
National Grid has obtained governmental clearance in the UK for the Merger. The
Merger is expected to be completed by early 2000.
Merger Agreement with Eastern Utilities Associates
On 1 February, 1999, NEES, Eastern Utilities Associates (EUA), and Research
Drive LLC (Research Drive), a directly and indirectly wholly owned subsidiary of
NEES, entered into an Agreement and Plan of Merger (EUA Agreement). Pursuant to
the EUA Agreement, Research Drive will merge with and into EUA, with EUA
becoming a wholly owned subsidiary of NEES. EUA shareholders will receive $31.00
per share in cash, which will be increased at a rate of $0.003 each day
beginning six months after EUA shareholder approval of the EUA acquisition until
the acquisition is completed or until 30 April, 2000, whichever is earlier.
The acquisition of EUA is subject to approval by a two-thirds vote of EUA
shareholders. In addition, the acquisition is subject to a number of regulatory
and other approvals and consents, including approvals by the SEC, FERC, and NRC,
support or approval from the states in which EUA operates, and approval under
the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. The EUA
acquisition is expected to be completed by early 2000.
Note C - Industry Restructuring
During 1998, pursuant to legislation enacted in Massachusetts, Rhode Island, and
New Hampshire, and settlement agreements approved by state and federal
regulators (the Settlement Agreements), all NEES customers were provided
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the right to purchase electricity from the power supplier of their choice.
Customers who do not choose a power supplier are able, for a period of time, to
continue to purchase their electricity from the NEES companies at a transition
rate ("standard offer generation service") which, when combined with delivery
charges, results in total rate reductions ranging from 8 to 24 per cent.
compared with rates that had been in effect prior to the introduction of
customer choice. Substantially all of the obligations of the NEES companies to
provide standard offer generation service are backed by contracts with USGen New
England, Inc. (USGen), an indirect wholly owned subsidiary of PG&E Corporation,
and other power suppliers.
The Settlement Agreements provide that the costs of NEP's generating investments
and related contractual commitments, that were not recovered from the
divestiture of those investments ("stranded costs"), are to be recovered from
NEP's wholesale customers through CTCs. The affiliated wholesale customers, in
turn, are recovering those costs through their delivery charges to distribution
customers. Under the Settlement Agreements, the recovery of NEP's stranded costs
is divided into several categories. Unrecovered costs associated with generating
plants (nuclear and non-nuclear) and most regulatory assets will be fully
recovered through the CTC by the end of 2000 and earn a return on equity
averaging 9.7 per cent. NEP's obligation relating to the above-market cost of
purchased power contracts and nuclear decommissioning costs are recovered
through the CTC over a longer period of time, as such costs are actually
incurred. The CTC rate was originally set at 2.8 cents per kilowatthour (kWh),
and subsequently reduced to approximately 1.5 cents or less per kWh upon
completion of the sale of NEP's non-nuclear generating business. As the CTC rate
declines, NEP, under certain of the Settlement Agreements, earns incentives
based on successful mitigation of its stranded costs. These incentives
supplement NEP's return on equity. Finally, the Settlement Agreements provide
that until such time as NEP divests its operating nuclear interests, NEP will
share with customers, through the CTC, 80 per cent. of the revenues and
operating costs related to the units, with shareholders retaining the balance.
Accounting Implications
Historically, electric utility rates have been based on a utility's costs. As a
result, electric utilities are subject to certain accounting standards that are
not applicable to other business enterprises in general. Statement of Financial
Accounting Standards No. 71, Accounting for the Effects of Certain Types of
Regulation (FAS 71), requires regulated entities, in appropriate circumstances,
to establish regulatory assets, and thereby defer the income statement impact of
these charges because they are expected to be included in future customer
charges. In 1997, the Emerging Issues Task Force (EITF) of the Financial
Accounting Standards Board concluded that a utility that had received approval
to recover stranded costs through regulated transmission and distribution rates
would be permitted to continue to apply FAS 71 to the recovery of stranded
costs.
NEP has received authorisation from the FERC to recover through the CTC
substantially all of the costs associated with its former generating business
not recovered through the sale of that business. Additionally, FERC Order No.
888 enables transmission companies to recover their specific costs of providing
transmission service. Therefore, substantially all of NEP's business, including
the recovery of its stranded costs, remains under cost-based rate regulation.
Under existing ratemaking practices, NEES' distribution companies will have the
ability to recover through rates their specific costs of providing ongoing
distribution services. NEES believes these factors and the EITF conclusion allow
its principal utility subsidiaries to continue to apply FAS 71. Because of the
nuclear cost-sharing provisions related to NEP's CTC, NEP ceased applying FAS 71
in 1997 to 20 per cent. of its ongoing nuclear operations, the impact of which
is immaterial.
Currently, there is much regulatory and other movement toward establishing
performance-based rates. It is possible that the adoption of performance-based
rates, future regulatory rules, or other circumstances could cause the
application of FAS 71 to be discontinued. This discontinuation would result in a
non-cash write-off of previously established regulatory assets, including those
being recovered through NEP's CTC. In addition, reserves for depreciation may
also have to be increased to comply with unregulated accounting practices.
As a result of applying FAS 71, NEES has recorded a regulatory asset for the
costs that are recoverable from customers through the CTC. The regulatory asset
reflects the loss on the sale of NEES' oil and gas business and the unrecovered
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<PAGE>
plant costs in operating nuclear plants (assuming no market value), the costs
associated with permanently closed nuclear power plants, and the present value
of the payments associated with the above-market cost of purchased power
contracts, reduced by the gain from the sale of NEP's non-nuclear generating
business. At 31 December, 1998, the regulatory asset related to the CTC was
approximately $1.5 billion of which $1.2 billion related to the above-market
costs of purchased power contracts. All but approximately $60 million of total
net regulatory assets are recoverable under NEP's CTC. These costs relate
primarily to NEES' distribution subsidiaries and consist primarily of $48
million of deferred FAS 109 costs (see Note G), and $23 million of unamortised
loss on reacquired debt, partially offset by net regulatory liabilities
classified in current assets and liabilities.
As described above, the CTC regulatory asset includes the unrecovered plant
costs associated with NEP's interest in operating nuclear plants. This balance
sheet treatment is due to NEP's conclusion that its interests in the Millstone 3
and Seabrook 1 nuclear generating units have little, if any, market value. Three
proposed sales of nuclear units by other utilities have required the seller to
set aside amounts for decommissioning in excess of the proceeds from the sale of
the units. Two of these proposed sales were agreed upon prior to the end of the
third quarter of 1998. As a result, at the end of the third quarter of 1998, NEP
recorded an impairment writedown in its reserve for depreciation of
approximately $390 million, which represents the net book value at 31 December,
1995, less applicable depreciation subsequent to that date, of Millstone 3 and
Seabrook 1. Because the Settlement Agreements permit NEP to recover its pre-1996
investment as well as decommissioning expenses through the CTC, NEP established
a regulatory asset in an amount equal to the impairment writedown. Should NEP's
efforts to sell its nuclear interests result in a gain over the amounts
remaining in the plant account, such gain will be credited to customers through
the CTC.
Note D - Divestiture of Generating Business
On 1 September 1998, NEES subsidiaries NEP and Narragansett Electric
(collectively, the Sellers) completed the sale of substantially all of their
non-nuclear generating business to USGen. The assets sold include three
fossil-fueled and 15 hydroelectric generating stations, totalling approximately
4,000 MW of capacity, as well as NEES' 100 per cent. interest in Narragansett
Energy Resources Company, a 20 per cent. general partner in the Ocean State
Power project, all of which had a book value of approximately $1.1 billion. The
NEES companies received $1.59 billion for the sale. The gain on the sale is
passed on to customers as a reduction in CTCs, as described in Note C above. In
addition, the NEES companies were reimbursed approximately $140 million for
costs associated with early retirements and special severance programmes for
employees affected by industry restructuring, and the value of inventories.
USGen assumed responsibility for environmental conditions at the Sellers'
non-nuclear generating stations. USGen also assumed the Sellers' obligations
under long-term fuel and fuel transportation contracts, and certain collective
bargaining agreements.
As part of the sale, NEP also signed a purchased power transfer agreement
through which USGen purchased NEP's entitlement to approximately 1,100 MW of
power procured under long-term contracts in exchange for monthly fixed payments
by NEP averaging $9.5 million per month through January 2008 (having a net
present value of $833 million) toward the above-market cost of those contracts.
In some cases, these transfers involved formal assignment of the contracts to
USGen and a release of NEP from further obligations to the power supplier, while
others did not. For those that involved formal assignment, NEP was required to
make a lump sum payment equivalent to the present value of the monthly fixed
payment obligations of those contracts. On or prior to the closing date, NEP
made lump sum payments totalling approximately $340 million and was released
from further obligations relating to two of the contracts. These lump sum
payments are separate from the $833 million figure referred to above. USGen is
responsible for the balance of the costs under the purchased power contracts.
The present value of the future monthly fixed payments is recorded as a
liability on the balance sheet. This liability, as well as the lump sum payments
previously made, net of amortisation, are also recorded as a regulatory asset on
the balance sheet.
As part of the divestiture plan, in February 1998, NEEI sold its oil and gas
properties for approximately $50 million. NEEI's loss on the sale of
approximately $120 million, before tax, has been reimbursed by NEP.
In addition, NEP agreed under the Settlement Agreements to endeavour to sell its
minority interest in three nuclear power plants and a 60 MW interest in a
fossil-fuelled generating station in Maine.
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Note E - Commitments and Contingencies
1. Plant expenditures
The NEES subsidiaries' cash expenditures for utility plant and investments by
NEES' unregulated subsidiaries are estimated to be $280 million in 1999. At 31
December, 1998, substantial commitments had been made relative to future planned
expenditures.
2. Long-term contracts for the purchase of electricity
Historically, NEP purchased a portion of its electricity requirements pursuant
to long-term contracts with owners of various generating units. These contracts
expire in various years from 1998 to 2029. See Note D for a discussion of
USGen's purchase of NEP's entitlement to approximately 1,100 MW of power
procured under long-term contracts.
NEP retained one purchased power contract, with Vermont Yankee, which requires
minimum fixed payments, even when the supplier is unable to deliver power, to
cover a proportionate share of the capital and fixed operating costs of the
unit. This contract has fixed payment requirements of approximately $35 million
in 1999, $30 million in 2000, $35 million in 2001 and 2002, $30 million in 2003,
and approximately $300 million thereafter. NEP holds an ownership interest in
Vermont Yankee.
3. Hazardous waste
The Federal Comprehensive Environmental Response, Compensation and Liability
Act, more commonly known as the "Superfund" law, imposes strict, joint and
several liability, regardless of fault, for remediation of property contaminated
with hazardous substances. A number of states, including Massachusetts, have
enacted similar laws.
The electric utility industry typically utilises and/or generates in its
operations a range of potentially hazardous products and by-products. NEES
subsidiaries currently have in place an internal environmental audit programme
and an external waste disposal vendor audit and qualification programme intended
to enhance compliance with existing federal, state, and local requirements
regarding the handling of potentially hazardous products and by-products.
NEES and/or its subsidiaries have been named as potentially responsible parties
(PRPs) by either the United States Environmental Protection Agency or the
Massachusetts Department of Environmental Protection for 20 sites at which
hazardous waste is alleged to have been disposed. Private parties have also
contacted or initiated legal proceedings against NEES and certain subsidiaries
regarding hazardous waste clean-up. The most prevalent types of hazardous waste
sites with which NEES and its subsidiaries have been associated are manufactured
gas locations. (Until the early 1970s, NEES was a combined electric and gas
holding company system.) NEES is aware of approximately 40 such manufactured gas
locations including 10 for which the NEES companies have been identified by
either federal or state regulatory agencies as PRPs, mostly located in
Massachusetts. NEES has reported the existence of all manufactured gas locations
of which it is aware to state environmental regulatory agencies. NEES is engaged
in various phases of investigation and remediation work at approximately 20 of
the manufactured gas locations. NEES and its subsidiaries are currently aware of
other possible hazardous waste sites, and may in the future become aware of
additional sites, that they may be held responsible for remediating.
In 1993, the Massachusetts Department of Public Utilities approved a settlement
agreement that provides for the rate recovery of remediation costs of former
manufactured gas sites and certain other hazardous waste sites located in
Massachusetts. Under that agreement, qualified costs related to these sites are
paid out of a special fund established on Massachusetts Electric's books.
Rate-recoverable contributions of $3 million, adjusted since 1993 for inflation,
are added annually to the fund along with interest, lease payments and any
recoveries from insurance carriers and other third parties. At 31 December,
1998, the fund had a balance of $47 million.
Predicting the potential costs to investigate and remediate hazardous waste
sites continues to be difficult. There are also significant uncertainties as to
the portion, if any, of the investigation and remediation costs of any
particular
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<PAGE>
hazardous waste site that may ultimately be borne by NEES or its subsidiaries.
The NEES companies have recovered amounts from certain insurers, and, where
appropriate, intend to seek recovery from other insurers and from other PRPs,
but it is uncertain whether, and to what extent, such efforts will be
successful. At 31 December, 1998, NEES had total reserves for environmental
response costs of $53 million, which includes reserves established in connection
with the Massachusetts Electric hazardous waste fund referred to above. NEES
believes that hazardous waste liabilities for all sites of which it is aware,
and which are not covered by a rate agreement, are not material to its financial
position.
4. Nuclear units
Nuclear Units Permanently Shut Down
Three regional nuclear generating companies in which NEP has a minority interest
own nuclear generating units that have been permanently shut down. These three
units are as follows:
<TABLE>
<CAPTION>
NEP's Investment Future Estimated
Billings to NEP
Unit % ($ million) Date Retired ($ million)
<S> <C> <C> <C> <C>
Yankee Atomic 30 6 February 1992 24
Connecticut Yankee 15 16 December 1996 75
Maine Yankee 20 16 August 1997 143
</TABLE>
In the case of each of these units, NEP has recorded a liability and an
offsetting regulatory asset reflecting the estimated future billings from the
companies. In a 1993 decision, the FERC allowed Yankee Atomic to recover its
undepreciated investment in the plant as well as unfunded nuclear
decommissioning costs and other costs. Connecticut Yankee and Maine Yankee have
both filed similar requests with the FERC. Several parties have intervened in
opposition to both filings. In August 1998, a FERC Administrative Law Judge
(ALJ) issued an initial decision which would allow for full recovery of
Connecticut Yankee's unrecovered investment, but precluded a return on that
investment. Connecticut Yankee, NEP, and other parties have filed with the FERC
exceptions to the ALJ's decision. Should the FERC uphold the ALJ's initial
decision in its current form, NEP's share of the loss of the return component
would total approximately $12 million to $15 million before taxes. In January
1999, parties in the Maine Yankee proceeding filed a comprehensive settlement
agreement with the FERC, under which Maine Yankee would recover all unamortised
investment in the plant, including a return on its equity investment of 6.5 per
cent., as well as decommissioning costs and other costs. This settlement
agreement requires FERC approval. NEP's industry restructuring settlements allow
it to recover all costs that the FERC allows these Yankee companies to bill to
NEP.
NEP and several other shareholders (Sponsors) of Maine Yankee are parties to 27
contracts (Secondary Purchase Agreements) under which they sold portions of
their entitlements to Maine Yankee power output through 2002 to various
entities, primarily municipal and cooperative systems in New England (Secondary
Purchasers). Virtually all of the Secondary Purchasers had ceased making
payments under the Secondary Purchase Agreements, claiming that such agreements
excuse further payments upon plant shutdown. In February 1999, a settlement
agreement which fully resolves the dispute between the Sponsors and Secondary
Purchasers was filed with the FERC, under which the Secondary Purchasers would
be required to make certain payments to Maine Yankee, and, in turn, to NEP,
related to both past and future obligations under the Secondary Purchase
Agreements. This settlement agreement requires FERC approval. Shutdown costs are
recoverable from customers under the Settlement Agreements.
A Maine statute provides that if both Maine Yankee and its decommissioning trust
fund have insufficient assets to pay for the plant decommissioning, the owners
of Maine Yankee are jointly and severally liable for the shortfall.
Operating Nuclear Units
NEP has minority interests in three other nuclear generating units: Vermont
Yankee, Millstone 3, and Seabrook 1.
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Uncertainties regarding the future of nuclear generating stations, particularly
older units, such as Vermont Yankee, are increasing rapidly and could adversely
affect their service lives, availability, and costs. These uncertainties stem
from a combination of factors, including the acceleration of competitive
pressures in the power generation industry and increased NRC scrutiny. NEP
performs periodic economic viability reviews of operating nuclear units in which
it holds ownership interests.
Millstone 3
In July 1998, Millstone 3 returned to full operation after being shut down since
April 1996. Millstone 3 remains on the NRC "Watch List", signifying that it
continues to warrant increased NRC attention. Millstone 3 is operated by a
subsidiary of Northeast Utilities (NU). NEP is not an owner of the Millstone 2
nuclear generating unit, which is temporarily shut down under NRC orders, or the
Millstone 1 nuclear generating unit, which has been permanently shut down. A
criminal investigation related to Millstone 3 is ongoing.
In August 1997, NEP sued NU in Massachusetts Superior Court for damages
resulting from the tortious conduct of NU that caused the shutdown of Millstone
3. NEP's damages include the costs of replacement power during the outage, costs
necessary to return Millstone 3 to safe operation, and other additional costs.
Most of NEP's incremental replacement power costs have been recovered from
customers, either through fuel adjustment clauses or through provisions in the
Settlement Agreements. NEP also seeks punitive damages. NEP also sent a demand
for arbitration to Connecticut Light & Power Company and Western Massachusetts
Electric Company, both subsidiaries of NU, seeking damages resulting from their
breach of obligations under an agreement with NEP and others regarding the
operation and ownership of Millstone 3. The arbitration is scheduled for October
1999. In July 1998, the court denied NU's motion to dismiss and its motion to
stay pending arbitration. NEP subsequently amended its complaint by, among other
things, adding NU's Trustees as defendants. In December 1998, NU moved for
summary judgement. NEP's suit has been consolidated with suits filed by other
joint owners. The court is in the process of scheduling a trial date. Some or
all of the damages awarded from the lawsuit would be refunded to customers.
Nuclear Decommissioning
NEP is liable for its share of decommissioning costs for Millstone 3, Seabrook
1, and all of the Yankees. Decommissioning costs include not only estimated
costs to decontaminate the units as required by the NRC, but also costs to
dismantle the uncontaminated portion of the units. NEP records decommissioning
costs on its books consistent with its rate recovery. NEP is recovering its
share of projected decommissioning costs for Millstone 3 and Seabrook 1 through
depreciation expense. In addition, NEP is paying its portion of projected
decommissioning costs for all of the Yankees through purchased power expense.
Such costs reflect estimates of total decommissioning costs approved by the
FERC.
In New Hampshire, legislation was recently enacted which makes owners of
Seabrook 1, in which NEP owns a 10 per cent. interest, proportional guarantors
for decommissioning costs in the event that an owner without a franchise service
territory fails to fund its share of decommissioning costs. Currently, a single
owner of an approximate 12 per cent. share of Seabrook 1 has no franchise
service territory.
The New Hampshire Nuclear Decommissioning Finance Committee is reviewing
Seabrook Station's decommissioning estimate and associated annual funding
levels. Among the items being considered is the imposition of joint and several
liability among the Seabrook joint owners for decommissioning funding. NEP
cannot predict what additional liability, if any, may be imposed on it.
The Nuclear Waste Policy Act of 1982 establishes that the federal government
(through the Department of Energy (DOE)) is responsible for the disposal of
spent nuclear fuel. The federal government requires NEP to pay a fee based on
its share of the net generation from the Millstone 3 and Seabrook 1 nuclear
generating units. Prior to 1998, NEP recovered this fee through its fuel clause.
Under the Settlement Agreements, substantially all of these costs are recovered
through CTCs. Similar costs are billed to NEP by Vermont Yankee and also
recovered from customers through the same mechanism. In November 1997, ruling on
a lawsuit brought against the DOE by numerous utilities
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<PAGE>
and state regulatory commissions, the U.S. Court of Appeals for the District of
Columbia (the Appeals Court) held that the DOE was obligated to begin disposing
of utilities' spent nuclear fuel by 31 January, 1998. The DOE failed to meet
this deadline, and is not expected to have a temporary or permanent repository
for spent nuclear fuel for many years. In February 1998, Maine Yankee petitioned
the Appeals Court to compel the DOE to remove Maine Yankee's spent fuel from the
site. In May 1998, the Appeals Court rejected the petitions of Maine Yankee and
the other utilities and state regulatory commissions, stating that the issue of
damages was a contractual matter. The operators of the units in which NEP has an
obligation, including Maine Yankee, Connecticut Yankee, and Yankee Atomic,
continue to pursue damage claims against the DOE in the Federal Court of Claims
(Claims Court). In October 1998, the Claims Court ruled that the DOE violated a
commitment to remove spent fuel from Yankee Atomic. The Claims Court issued
similar rulings in November 1998 related to cases brought by Connecticut Yankee
and Maine Yankee. Further proceedings will be scheduled by the Claims Court to
decide the amount of damages.
Decommissioning Trust Funds
Each nuclear unit in which NEP has an ownership interest has established a
decommissioning trust fund or escrow fund into which payments are being made to
meet the projected costs of decommissioning. The table below lists information
on each operating nuclear plant in which NEP has an ownership interest.
<TABLE>
<CAPTION>
NEP's share of ($ million)
Estimated
NEP's Decom- Decom-
Ownership missioning missioning
Interest Net Plant Cost (in Fund License
Unit (%) Assets 1998 $) Balances* Expiration
<S> <C> <C> <C> <C> <C>
Vermont Yankee 20 34 105 38 2012
Millstone 3 12 9** 67 21 2025
Seabrook 1 10 15** 50 10 2026
</TABLE>
* Certain additional amounts are anticipated to be available through tax
deductions.
** Represents post December 1995 spending. See Note C for a discussion of an
impairment writedown and establishment of an offsetting regulatory asset.
There is no assurance that decommissioning costs actually incurred by Vermont
Yankee, Millstone 3, or Seabrook 1 will not substantially exceed these amounts.
For example, decommissioning cost estimates assume the availability of permanent
repositories for both low-level and high-level nuclear waste; those repositories
do not currently exist. The temporary low-level repository located in Barnwell,
South Carolina may become unavailable, which could increase the cost of
decommissioning the Yankee Atomic, Connecticut Yankee and Maine Yankee plants.
If any of the operating units were shut down prior to the end of their operating
licences, which NEP believes is likely, the funds collected for decommissioning
to that point would be insufficient. Under the Settlement Agreements discussed
in Note C, NEP will recover decommissioning costs through CTCs.
Nuclear Insurance
The Price-Andersen Act limits the amount of liability claims that would have to
be paid in the event of a single incident at a nuclear plant to $9.7 billion
(based upon 108 licensed reactors). The maximum amount of commercially available
insurance coverage to pay such claims is $200 million. The remaining $9.5
billion would be provided by an assessment of up to $88.1 million per incident
levied on each of the participating nuclear units in the United States, subject
to a maximum assessment of $10 million per incident per nuclear unit in any
year. The maximum assessment, which was most recently adjusted in 1998, is
adjusted for inflation at least every five years. NEP's current interest in
Vermont Yankee, Millstone 3, and Seabrook 1 would subject NEP to a $35.4 million
maximum assessment per incident. NEP's payment of any such assessment would be
limited to a maximum of $4.0 million per year. As a result of the permanent
-33-
<PAGE>
cessation of power operation of the Yankee Atomic, Connecticut Yankee, and Maine
Yankee plants, these units have received from the NRC an exemption from
participating in the secondary financial protection system under the Price-
Anderson Act. However, these plants must continue to maintain $100 million of
commercially available nuclear liability insurance coverage.
Each of the nuclear units in which NEP has either an ownership or purchased
power interest also carries nuclear property insurance to cover the costs of
property damage, decontamination, and premature decommissioning resulting from a
nuclear incident. These policies may require additional premium assessments if
losses relating to nuclear incidents at units covered by this insurance occur in
a prior six-year period. NEP's maximum potential exposure for these assessments,
either directly or indirectly, is approximately $4.6 million with respect to the
current policy period.
5. Town of Norwood dispute
In September l998, the United States District Court (District Court) for the
District of Massachusetts dismissed the lawsuit filed in April 1997 by the Town
of Norwood, Massachusetts against NEES and NEP. NEP had been a wholesale power
supplier for Norwood pursuant to rates approved by the FERC. In the lawsuit,
Norwood had alleged that NEP's divestiture of its power generating assets would
violate the terms of a 1983 power contract. Norwood also alleged that the
divestiture and recovery of stranded investment costs contravened federal
antitrust laws. The District Court judge granted NEES' and NEP's motion for
dismissal on the grounds that the contract did not require NEP to retain its
generating units, that the FERC-approved filed rates govern these matters, and
that Norwood had adequate opportunity at the FERC to litigate these matters.
Norwood filed a motion to alter or amend the order of dismissal, which was
denied. In December 1998, Norwood filed a second motion to amend judgement and
also filed an appeal with the First Circuit Court of Appeals (First Circuit).
In March 1998, Norwood gave notice of its intent to terminate its contract with
NEP, without accepting responsibility for its share of NEP's stranded costs, and
began taking power from another supplier commencing in April 1998. In May 1998,
the FERC ruled that NEP could assess a CTC to any of NEP's unaffiliated
customers that choose to terminate their wholesale power contracts early.
Norwood claimed that the CTC approved by the FERC did not apply to Norwood;
however, in denying Norwood's motion for rehearing, the FERC ruled that the
charge did apply to Norwood. Norwood has appealed this decision to the First
Circuit. NEP's billings to Norwood for this charge through December 1998 have
been approximately $6 million, which remain unpaid. NEP filed a collection
action with the Massachusetts Superior Court in December 1998 to recover these
amounts. Norwood filed a motion to dismiss or stay in January 1999.
Norwood also appealed the FERC's orders approving the divestiture and the
Massachusetts and Rhode Island industry restructuring settlement agreements
(including modification of NEP's contracts with Massachusetts Electric and
Narragansett Electric) to the First Circuit, despite the FERC's finding that
those settlement agreements do not apply to Norwood.
The First Circuit has consolidated all three of Norwood's appeals from the
FERC's orders with two other appeals filed by the Northeast Center for Social
Issue Studies, which challenge the FERC's approval of NEP's sale of its
hydroelectric facilities. The case is to be fully briefed by May 1999.
Note F - Employee Benefits
1. Pension Plans
The NEES companies' retirement plans are non-contributory defined-benefit plans
covering substantially all employees. The plans provide pension benefits based
on the employee's compensation during the five years prior to retirement. Absent
unusual circumstances, the NEES companies' funding policy is to contribute each
year the net periodic pension cost for that year. However, the contribution for
any year will not be less than the minimum contribution required by federal law
or greater than the maximum tax deductible amount.
-34-
<PAGE>
The plans' funded status at 31 December, 1998 and 1997 were calculated using the
assumed rates from 1999 and 1998, respectively, and the 1983 Group Annuity
Mortality table.
Plan assets are composed primarily of corporate equity, debt securities, and
cash equivalents.
In addition to its regular pension funds shown in the table below, NEES and its
subsidiaries have a separate trust fund, commonly referred to as a Rabbi Trust,
for certain supplemental pensions and deferred compensation for key executives
and employees. The Rabbi Trust is currently invested in municipal bonds,
equities, and NEES common shares. At 31 December, 1998 and 1997, the Rabbi Trust
held 184,233 and 148,875 NEES common shares, respectively, which are accounted
for as treasury stock. At the end of 1998 and 1997, the difference between cost
and the market value of investments, other than NEES shares, in the Rabbi Trust
was approximately $10.1 million, after tax, and $4.8 million, after tax,
respectively. These amounts represent unrealised gains in Rabbi Trust
investments. The market value of such external investments was $64 million and
$53 million at 31 December, 1998 and 1997, respectively.
2. Post-retirement Benefit Plans Other than Pensions (PBOPs)
The NEES subsidiaries provide health care and life insurance coverage to
eligible retired employees. Eligibility is based on certain age and length of
service requirements and in some cases retirees must contribute to the cost of
their coverage.
The plans' funded status at 31 December, 1998 and 1997 were calculated using the
assumed rates in effect for 1999 and 1998, respectively.
The assumptions used in the health care cost trends have a significant effect on
the amounts reported. A one percentage point change in the assumed rates would
increase the accumulated post-retirement benefit obligation (APBO) as of 31
December, 1998 by approximately $43 million or decrease the APBO by
approximately $39 million and change the net periodic cost for 1998 by
approximately $4 million.
The NEES subsidiaries fund the annual tax-deductible contributions. Plan assets
are invested in equity and debt securities and cash equivalents.
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<PAGE>
Net pension cost and total cost of PBOPs for 1998, 1997, and 1996 included the
following components:
<TABLE>
<CAPTION>
Pensions Post-retirement Benefits Other than
Pensions
Year ended 31 December ($
thousand) 1998 1997 1996 1998 1997 1996
<S> <C> <C> <C> <C> <C> <C>
Service cost - benefits earned
during the period $ 14,903 $ 15,019 $ 14,918 $ 6,397 $ 6,527 $ 6,794
Plus (less):
Interest cost on projected benefit
obligation 55,210 52,497 51,461 23,611 24,249 24,667
Return on plan assets at expected
long-term rate (60,235) (55,606) (52,085) (18,916) (16,397) (12,958)
Amortisation of transition
obligation (788) (766) (766) 16,897 18,397 18,397
Amortisation of prior service
cost 1,109 1,629 1,624 57 61 61
Amortisation of net (gain)/loss 1,889 717 2,029 (7,843) (7,348) (5,359)
Curtailment (gain)/loss (9,300) -- -- 56,124 -- --
-------- -------- -------- -------- ------- -------
Benefit cost $ 2,788 $ 13,490 $ 17,181 $ 76,327 $ 25,489 $ 31,602
======== ======== ======== ======== ======= =======
Special termination benefits
not included above $ 63,980 $-- $-- $ 4,335 $-- $--
======== ======== ======== ======== ======= =======
</TABLE>
The following table sets forth benefits earned and the plans' funded status:
<TABLE>
<CAPTION>
Pensions Post-retirement
Benefits Other than
Pensions
At 31 December ($ million) 1998 1997 1998 1997
<S> <C> <C> <C> <C>
Benefit obligation $ 843 $ 819 $ 365 $ 348
Unrecognised prior service costs (6) (8) (1) (1)
Transition liability not yet recognised (amortised) (2) (4) (194) (276)
Additional minimum liability 7 4 -- --
----- ----- ----- -----
842 811 170 71
----- ----- ----- -----
Plan assets at fair value 837 834 258 239
Transition asset not yet recognised (amortised) (6) (8) -- --
Net (gain) not yet recognised (amortised) (92) (52) (151) (153)
----- ----- ----- -----
739 774 107 86
----- ----- ----- -----
Accrued pension/(prepaid) payments recorded
on books $ 103 $ 37 $ 63 $ (15)
===== ===== ===== =====
</TABLE>
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<PAGE>
The following provides a reconciliation of benefit obligations and plan assets:
<TABLE>
<CAPTION>
Pension Benefits Post-retirement
Benefits Other than
Pensions
($ million) 1998 1997 1998 1997
<S> <C> <C> <C> <C>
Changes in benefit obligation
Benefit obligation at 1 January $ 819 $ 807 $ 348 $ 369
Service cost 14 15 6 7
Interest cost 55 53 24 24
Actuarial (gain)/loss (5) 59 8 (38)
Benefits paid from plan assets (94) (47) (16) (14)
Special termination benefits 64 -- 4 --
Curtailment (11) -- (9) --
Plan amendments 1 -- -- --
Dispositions (Yankee Atomic) -- (68) -- --
----- ----- ----- -----
Benefit obligation at 31 December $ 843 $ 819 $ 365 $ 348
===== ===== ===== =====
Reconciliation of change in plan assets
Fair value of plan assets at 1 January $ 834 $ 812 $ 239 $ 202
Actual return on plan assets during year 93 130 33 38
Company contributions 4 8 2 13
Benefits paid from plan assets (94) (47) (16) (14)
Dispositions (Yankee Atomic) -- (69) -- --
----- ----- ----- -----
Fair value of plan assets at 31 December $ 837 $ 834 $ 258 $ 239
===== ===== ===== =====
</TABLE>
Pension plans with benefit obligations in excess of the fair value of plan
assets had aggregate benefit obligations of $66 million and $62 million and plan
assets with a fair value of $0 and $0 at 31 December, 1998 and 1997,
respectively. All PBOP plans for 1998 and 1997 had aggregate benefit obligations
in excess of the fair value of plan assets, the amounts of which are disclosed
in the table above.
<TABLE>
<CAPTION>
Year ended 31 December 1999 1998 1997 1996
<S> <C> <C> <C> <C>
Assumptions used to determine pension cost:
Discount rate 6.75% 6.75% 7.25% 7.25%
Average rate of increase in future compensation levels 4.13% 4.13% 4.13% 4.13%
Expected long-term rate of return on assets 8.50% 8.50% 8.50% 8.50%
Assumptions used to determine post-retirement benefit cost:
Discount rate 6.75% 6.75% 7.25% 7.25%
Expected long-term rate of return on assets 8.25% 8.25% 8.25% 8.25%
Health care cost rate - 1996 to 1999 5.25% 5.25% 8.00% 8.00%
Health care cost rate - 2000 to 2004 5.25% 5.25% 6.25% 6.25%
Health care cost rate - 2005 and beyond 5.25% 5.25% 5.25% 5.25%
</TABLE>
3. Early retirement and special severance programmes
In 1998, NEES subsidiary companies offered a voluntary early retirement
programme to all employees who were at least 55 years old with 10 years of
service. This programme was part of an organisational review with the goal of
streamlining operations and reducing the work force to reflect the sale of the
non-nuclear generating business. The early retirement offer was accepted by 758
employees. A special severance programme was also utilised in 1998 for employees
affected by the organisational restructuring, but who were not eligible for, or
did not accept, the early
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<PAGE>
retirement offer. The cost of these programmes was in part reimbursed by USGen
at the closing of the sale of the non-nuclear generating business and will be
recovered in part from customers as a component of stranded cost recovery.
4. Stock-based compensation
At 31 December, 1998, NEES has three stock-based compensation plans and measures
its compensation cost for those plans using the method of accounting prescribed
by Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees, and related interpretations. The compensation cost charged against
income for these plans was $6.1 million, $3.3 million, and $3.7 million for
1998, 1997, and 1996, respectively. If compensation cost for stock- based
compensation had been accounted for under Statement of Financial Accounting
Standards No. 123, Accounting for Stock-Based Compensation, the cost figures
shown above would have been decreased, before taxes, by approximately $1 million
and $300,000 in 1998 and 1997, respectively, and had no impact on earnings in
1996. These changes would have increased earnings per average diluted common
share by $0.01 in 1998, and had no impact on earnings per share in 1997 and
1996.
Note G - Income Taxes
Total income taxes in the statements of consolidated income are as follows:
Year ended 31 December ($ thousand) 1998 1997 1996
Income taxes charged to operations $ 122,354 $ 152,024 $ 139,199
Income taxes charged to "Other income" (18,936) (7,268) (3,018)
-------- --------- ---------
Total income taxes $ 103,418 $ 144,756 $ 136,181
======== ========= =========
Total income taxes, as shown above, consist of the following components:
Year ended 31 December ($ thousand) 1998 1997 1996
Current income taxes $ 376,866 $ 175,934 $ 166,509
Deferred income taxes (248,722) (29,260) (28,652)
Investment tax credits, net (24,726) (1,918) (1,676)
-------- --------- ---------
Total income taxes $ 103,418 $ 144,756 $ 136,181
======== ========= =========
Total income taxes, as shown above, consist of federal and state components as
follows:
Year ended 31 December ($ thousand) 1998 1997 1996
Federal income taxes $ 81,963 $ 118,317 $ 111,573
State income taxes 21,455 26,439 24,608
-------- --------- ---------
Total income taxes $ 103,418 $ 144,756 $ 136,181
======== ========= =========
Investment tax credits (ITC) of subsidiaries are deferred and amortised over the
estimated lives of the property giving rise to the credits. Although investment
tax credits were generally eliminated by the 1986 tax legislation, additional
carry-forward amounts continue to be recognised. The increase in amortisation of
ITC in 1998 results from the recognition in income of unamortised ITC relating
to the generating assets divested during 1998.
With regulatory approval, the subsidiaries have adopted comprehensive
inter-period tax allocation (normalisation) for temporary book/tax differences.
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<PAGE>
Total income taxes differ from the amounts computed by applying the federal
statutory tax rates to income before taxes. The reasons for the differences are
as follows:
<TABLE>
<CAPTION>
Year ended 31 December ($ thousand) 1998 1997 1996
<S> <C> <C> <C>
Computed tax at statutory rate $ 103,920 $ 131,989 $ 123,053
Increases (reductions) in tax resulting from:
Amortisation of investment tax credits, net (18,682) (4,469) (4,347)
State income tax, net of federal income tax benefit 13,946 17,185 15,995
All other differences 4,234 51 1,480
--------- --------- ---------
Total income taxes $ 103,418 $ 144,756 $ 136,181
========= ========= =========
</TABLE>
The following table identifies the major components of total deferred income
taxes:
At 31 December ($ million) 1998 1997
Deferred tax asset:
Plant related $ 88 $ 99
Investment tax credits 28 39
All other 118 152
------- ---------
$ 234 $ 290
Deferred tax liability:
Plant related $ (384) $ (821)
Equity AFDC (38) (51)
All other (284) (138)
------- ---------
$ (706) $ (1,010)
------- ---------
Net deferred tax liability $ (472) $ (720)
======= =========
There were no valuation allowances for deferred tax assets deemed necessary.
Federal income tax returns for NEES and its subsidiaries have been examined and
reported on by the Internal Revenue Service through 1993.
Note H - Short-Term Borrowings and Other Current Liabilities
At 31 December, 1998, NEES and its consolidated subsidiaries had lines of credit
and standby bond purchase facilities with banks totalling approximately $900
million. These lines and facilities were used at 31 December, 1998 for liquidity
support for $372 million of NEP bonds in tax-exempt commercial paper mode (see
Note I). Fees are paid on the lines and facilities in lieu of compensating
balances.
-39-
<PAGE>
The components of other current liabilities are as follows:
At 31 December ($ thousand) 1998 1997
Accrued wages and benefits $ 23,875 $ 58,281
Rate adjustment mechanisms 79,952 27,152
Customer deposits 10,999 11,059
Other 28,149 23,510
--------- ---------
$ 142,975 $ 120,002
========= =========
Note I - Long-Term Debt
Substantially all of the properties of Massachusetts Electric and Narragansett
Electric are subject to the lien of mortgage indentures under which mortgage
bonds have been issued.
The aggregate payments to retire maturing long-term debt are as follows:
<TABLE>
<CAPTION>
($ thousand) 1999 2000 2001 2002 2003
<S> <C> <C> <C> <C> <C>
Maturing long-term debt $ 24,480 $ 37,485 $ 6,495 $ 41,500 $ 54,010
Mandatory prepayments 11,827 11,825 11,095 10,593 10,510
-------- -------- -------- -------- --------
Total $ 36,307 $ 49,310 $ 17,590 $ 52,093 $ 64,520
======== ======== ======== ======== ========
</TABLE>
At 31 December, 1998, interest rates on NEP's variable rate bonds ranged from
3.05 per cent. to 3.45 per cent.
At 31 December, 1998, the NEES subsidiaries' long-term debt had a carrying value
of approximately $1,095,000,000 and a fair value of approximately
$1,177,000,000. The fair value of debt that reprices frequently at market rates
approximates carrying value. The fair market value of the NEES subsidiaries'
long-term debt was estimated based on the quoted prices for similar issues or on
the current rates offered to the NEES companies for debt of the same remaining
maturity.
In order to satisfy certain terms of its mortgage indenture, NEP defeased or
retired all $641 million of its mortgage bonds outstanding at the time of the
sale of its non-nuclear generating business. NEP retired $372 million of
mortgage bonds securing the issuance of a like amount of pollution control
revenue bonds (PCRBs), leaving the underlying PCRBs outstanding as unsecured
obligations of NEP. Pursuant to a tender offer, NEP purchased $183 million of
bonds. Provisions for the payment of the remaining mortgage bonds were made by
depositing with trustees approximately $97 million of U.S. treasury obligations
sufficient to pay principal, interest, and premium, as applicable, to the
maturity date, or to the first date on which the bonds could be redeemed. Both
the U.S. treasury obligations and defeased bonds were removed from the balance
sheet effective 30 September, 1998.
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<PAGE>
Note J - Supplementary Quarterly Financial Information (unaudited)
<TABLE>
<CAPTION>
1998 Quarter ended 31 March 30 June 30 31
September December
<S> <C> <C> <C> <C>
($ thousand, except per share amounts)
Operating revenue $ 619,563 $ 572,008 $ 630,558 $ 598,404
Operating income $ 87,146 $ 67,150 $ 92,264 $ 62,279
Net income $ 56,878 $ 34,409 $ 66,193 $ 32,562
Net income per average common share, basic $ 0.88 $ 0.55 $ 1.06 $ 0.56
Net income per average common share, diluted $ 0.88 $ 0.54 $ 1.07 $ 0.55
========= ========= ========= =========
1997 Quarter ended 31 March 30 June 30 31
September December
($ thousand, except per share amounts)
Operating revenue $ 638,146 $ 577,625 $ 628,606 $ 658,214
Operating income $ 94,962 $ 66,583 $ 104,524 $ 100,792
Net income $ 61,820 $ 32,232 $ 67,746 $ 58,240
Net income per average common share, basic and
diluted $ 0.95 $ 0.50 $ 1.04 $ 0.90
========= ========= ========= =========
</TABLE>
3. Summary of differences from the accounting policies of National Grid under
UK GAAP
The main differences between the accounting policies adopted by NEES under US
GAAP and those adopted by National Grid under UK GAAP, which impact on net
income and common share equity, relate to the accounting for pension costs,
deferred taxation and the allowance for equity funds used during construction.
(a) Pension costs
Under US GAAP, the actuarial methods, assumptions and methods of amortising
surpluses and deficits differ from those used by National Grid under UK GAAP.
(b) Deferred taxation
Under US GAAP, deferred taxation is provided on a full liability basis on all
temporary differences. Under UK GAAP, provision for deferred taxation is
generally only made for timing differences which are expected to reverse in the
foreseeable future. The material adjustment in 1996 relates principally to the
recognised crystallisation of deferred tax liabilities in respect of fossil-fuel
and hydro-electric generation assets, following the decision to divest of these
assets.
(c) Allowance for equity funds used during construction
Under US GAAP, the estimated cost of equity funds used to finance construction
of fixed assets is recognised in other income as an allowance for equity funds
used during the course of construction and capitalised in fixed assets. The
capitalised allowance for equity funds used during construction is depreciated
over the course of the estimated lives of the relevant fixed assets. Under UK
GAAP this accounting treatment is not permitted.
The following unaudited statements summarise the material estimated adjustments
which reconcile NEES' net income and common share equity from that reported
under US GAAP to estimates of those which would have been reported in accordance
with the accounting policies of National Grid under UK GAAP.
-41-
<PAGE>
Net income
Year ended 31 December ($ million) 1998 1997 1996
Net income as reported $ 190 $ 220 $ 209
------- ------- -------
Adjustments for:
Pension costs (2) 5 8
Deferred taxation -- -- (160)
Allowance for equity funds used
during construction (net of depreciation) 4 4 4
------- ------- -------
Total adjustments 2 9 (148)
------- ------- -------
Net income as adjusted $ 192 $ 229 $ 61
======= ======= =======
Common share equity
At 31 December ($ million) 1998 1997 1996
Common share equity as reported $ 1,570 $ 1,744 $ 1,685
Adjustments for:
Pension costs 18 20 15
Deferred taxation 350 350 350
Allowance for equity funds used during
construction (net of depreciation) (111) (115) (119)
Total adjustments 257 255 246
------- ------- -------
Common share equity as adjusted $ 1,827 $ 1,999 $ 1,931
======= ======= =======
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<PAGE>
The following is a copy of a letter received from PricewaterhouseCoopers:
The Directors
The National Grid Group plc
National Grid House
Kirby Corner Road
COVENTRY CV4 8JY
N M Rothschild & Sons Limited
New Court
St Swithin's Lane
LONDON EC4P 4DU
Kleinwort Benson Limited
PO Box 560
20 Fenchurch Street
LONDON EC3P 3DB
31 March, 1999
Dear Sirs
The National Grid Group plc ("NGG")
We report on the unaudited restatements under United Kingdom Generally Accepted
Accounting Principles ("UK GAAP"), as applied in the financial statements of NGG
(the "UK GAAP restatements"), of the consolidated net income of the New England
Electric System ("NEES") for each of the years ended 31 December, 1996, 1997 and
1998, and of the common share equity as at those dates prepared under United
States Generally Accepted Accounting Principles ("US GAAP"), as applied in the
financial statements of NEES. The UK GAAP restatements are set out in Part III
of the Circular issued by NGG dated 31 March, 1999.
Responsibilities
It is the responsibility solely of the Directors of NGG to prepare the UK GAAP
restatements in accordance with paragraph 12.11 of the Listing Rules of the
London Stock Exchange (the "Listing Rules"). It is our responsibility to form an
opinion, as required by the Listing Rules, on the UK GAAP restatements and to
report our opinion to you.
The UK GAAP restatements incorporate significant adjustments to the historical
consolidated financial statements of NEES. The historical consolidated financial
statements of NEES for each of the years ended 31 December, 1996 and 1997 were
prepared under US GAAP and were audited by Coopers & Lybrand LLP who gave
unqualified reports thereon. Those for the year ended 31 December, 1998 were
audited by PricewaterhouseCoopers LLP who gave an unqualified report thereon. We
do not take any responsibility for any of the historical consolidated financial
statements of NEES.
Basis of opinion
We conducted our work in accordance with the Statements of Investment Circular
Reporting Standards issued by the Auditing Practices Board. Our work, which
involved no independent examination of any historical underlying financial
information, consisted primarily of making enquiries of management of NEES and
its auditors to establish the accounting policies which were applied in the
preparation of the historical underlying financial information.
We have considered the evidence supporting the UK GAAP restatements and have
discussed the UK GAAP restatements with the Directors of NGG.
-43-
<PAGE>
Opinion
In our opinion the adjustments made are those appropriate for the purpose of
presenting the consolidated net income of NEES for each of the years ended 31
December 1996, 1997 and 1998, and its common share equity as at those dates on a
basis consistent in all material respects with UK GAAP and the accounting
policies of NGG, and the UK GAAP restatements have been properly compiled on the
bases stated.
Yours faithfully
PricewaterhouseCoopers
-44-
<PAGE>
4. NEES' press release of 1 February, 1999
The following is the full text of NEES' press release of 1 February, 1999
announcing the proposed merger of NEES and EUA:
"NEES AND EUA TO MERGE IN $634-MILLION TRANSACTION
Industry Restructuring-Driven Consolidation Continues
WESTBOROUGH, Mass., Feb. 1, 1999 - In the latest consolidation driven by the
restructuring of the region's electricity industry, New England Electric System
(NYSE:NES) and Eastern Utilities Associates (NYSE:EUA) announced today that they
have signed a merger agreement under which NEES will acquire all outstanding
shares of EUA for $31 per share in cash, subject to upward adjustment, as
described later.
The merger agreement values the equity of EUA at approximately $634 million and
represents a 23% premium above the price of EUA shares on Dec. 4, 1998 (the last
trading day before other regional merger announcements affected EUA's share
price), and a 5% premium above the closing price on Jan. 29, 1999.
NEES is New England's second largest electric utility, serving 1.3 million
customers through its regulated electric companies in Massachusetts, Rhode
Island and New Hampshire. The company announced on Dec. 14, 1998, that it will
merge with National Grid Group plc, the world's largest independent transmission
company, which is based in Coventry, England. Upon completion of that merger,
NEES will become a wholly owned subsidiary of National Grid.
The NEES/EUA merger is not contingent upon the NEES/National Grid merger
closing, but has the full support of National Grid, according to Rick Sergel,
president and chief executive officer of NEES.
EUA is a Boston-based public utility holding company whose subsidiaries include
electric transmission and distribution utilities in southeastern Massachusetts
and northern and south coastal Rhode Island. These utilities provide electric
service to approximately 300,000 customers.
Upon completion of the merger, EUA's operations will be merged into NEES's. The
combined company will serve 1.6 million electricity customers in 228 New England
communities. The new company will serve more electricity customers in both
Massachusetts and Rhode Island than any other company.
NEES and EUA consistently have been the two lowest-cost, major electric
companies in the region. It is expected that the geographical fit of the two
companies will result in even greater efficiencies. The companies expect to file
a rate plan with state regulators in the near future, which will maintain NEES's
low rates, and bring EUA's rates to NEES levels in the future.
"This merger of New England's two most cost-conscious electric companies is a
natural fit in philosophy, geography and corporate structure," Sergel said.
"Furthermore, it is the first step in fulfilling the promise of the
NEES/National Grid merger."
"EUA and NEES share a long history of providing customers with high-quality
service at low rates. The synergies between the two companies will create an
even stronger company for our customers," EUA Chairman and Chief Executive
Officer Donald G. Pardus said. "Equally important, NEES and EUA customers will
continue to receive the same great service from the same people."
Sergel will be president and chief executive officer of the combined company
upon completion of the merger. Both Pardus and EUA President and Chief Operating
Officer John R. Stevens have opted to retire upon the merger's completion. EUA
board members will be offered positions on the NEES Advisory Board, and Pardus
and Sergel will appoint a transition team representing both companies. EUA
Executive Vice President Robert G. Powderly will become
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president of New England Power Service Company, NEES's subsidiary that provides
administrative and support services to the other subsidiaries.
"These are the logical steps to take to ensure a smooth transition as EUA and
NEES mesh into a larger, even more efficient, finely tuned operation," Pardus
said.
The combined company will have approximately 250 fewer positions. "Our goal is
to attain this through voluntary early retirement and attrition," Sergel said.
NEES will honor EUA's labor contracts.
The merger is subject to regulatory approvals by the Securities and Exchange
Commission, Federal Energy Regulatory Commission, Nuclear Regulatory Commission,
and the state utility commissions in Massachusetts and Rhode Island. NEES
expects to submit all principal regulatory filings, related both to EUA and
National Grid, this month. The merger also requires approval by EUA
shareholders. The merger is expected to be completed by early 2000.
EUA shareholders will receive a cash payment of $31 for each share held when the
merger is completed. The cash payment will be subject to an increase of $0.003
per share per day if the merger is not completed on or before the date following
six months after approval of the merger by EUA shareholders.
NEES will finance the acquisition in part with cash received from the sale of
its generating business in September 1998.
EUA shareholders will continue to receive dividends at the current level as
declared by the EUA Board of Trustees, until closing of the merger.
Merrill Lynch & Co., Inc. served as financial advisor and delivered a fairness
opinion to NEES, as did Salomon Smith Barney Inc. for EUA.
NEES is a public utility holding company headquartered in Westborough, Mass.
Massachusetts Electric Company serves 970,000 customers in 146 communities, and
Nantucket Electric Company serves 10,000 customers on the island of Nantucket.
Narragansett Electric Company serves 330,000 customers in 27 Rhode Island
communities, and Granite State Electric Company serves 36,000 customers in 21
New Hampshire communities. Information about NEES is available on the World Wide
Web at http://www.nees.com.
Unregulated NEES subsidiaries include AllEnergy, an energy marketing company,
and NEESCom, a telecommunications company. NEES subsidiaries employ 3,200
people.
EUA is a public utility holding company headquartered in Boston, Massachusetts
whose shares are traded on the New York and Pacific Stock Exchanges.
Subsidiaries include Eastern Edison Co., which serves 184,000 customers in 22
communities; Blackstone Valley Electric Co., which serves 85,000 customers in 7
communities; and Newport Electric Corp., which serves 33,000 customers in 4
communities. Unregulated subsidiaries include EUA Cogenex Corp. Together, the
regulated and unregulated companies are known as the EUA System. Information
about EUA is available on the World Wide Web at http://www.eua.com.
This news release may contain statements that are "forward looking statements"
under the federal securities law. Actual results could differ materially from
those discussed, and there can be no assurance that estimates of future results
can be achieved. For a list of factors that could influence results, please
refer to the earnings section of NEES' Form 10-Q for the period ended Sept. 30,
1998. The NEES/EUA merger is also subject to contingencies as discussed herein.
The NEES/National Grid merger is subject to the contingencies listed in NEES'
Form 8-K dated Dec. 11, 1998."
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PART IV STATEMENTS OF INDEBTEDNESS AND WORKING CAPITAL
1. Statement of indebtedness
Indebtedness
As at the close of business on 28 February, 1999, the consolidated loan capital,
borrowings and indebtedness of National Grid Group and NEES Group were as
follows:
<TABLE>
<CAPTION>
National NEES Total
Grid Group Group
(pound) million (pound) million (pound) million
<S> <C> <C> <C>
Indebtedness
Amounts due within one year
Bank loans, overdrafts and temporary
borrowings 158.2 -- 158.2
Current portion of long term loans 150.0 29.2 179.2
Amounts due after more than one year
Repayable wholly within five years 551.7 117.1 668.8
Repayable after five years 1,357.7 546.4 1,904.1
------- ----- -------
Total indebtedness 2,217.6 692.7 2,910.3
======= ===== =======
Contingent liabilities
Outstanding guarantees 41.8 -- 41.8
======= ===== =======
</TABLE>
Notes:
1. The total column included in the above table presents the combined
indebtedness of the two groups as if the Acquisition had taken place, but does
not include indebtedness in respect of the Acquisition.
2. There has been no material change in the indebtedness or contingent
liabilities of National Grid Group or NEES Group since 28 February, 1999.
3. Save for $670.8 million (approximately (pound) 419.2 million) of the NEES
Group total indebtedness which is secured, all of the indebtedness in the above
table is unsecured and unguaranteed.
Foreign currency amounts have been translated into sterling at exchange rates
prevailing on 28 February, 1999, including a rate of $1.60 to (pound) 1.00.
Save as disclosed above, and apart from their respective intra-group
liabilities, neither National Grid Group nor NEES Group had outstanding as at 28
February, 1999, any loan capital issued, or created but unissued, term loans,
other borrowings or indebtedness in the nature of borrowing, including bank
overdrafts and liabilities under acceptances (other than normal trade bills),
acceptance credits or hire purchase commitments, or obligations under finance
leases, mortgages, charges, guarantees or other contingent liabilities.
Cash
The consolidated cash balance of National Grid Group at the close of business on
28 February, 1999 was (pound) 1,537.6 million. The consolidated cash balance
(including marketable securities) of NEES Group at the close of business on 28
February, 1999 was $178.1 million (approximately (pound) 111.3 million).
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2. Working capital
National Grid is of the opinion that, having regard to bank and other facilities
available to National Grid Group, National Grid Group as enlarged by the
Acquisition has sufficient working capital for its present requirements, that
is, for at least the next twelve months from the date of this document.
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PART V SUMMARY OF THE PRINCIPAL TERMS AND
CONDITIONS OF THE MERGER AGREEMENT
1. Introduction
The Merger Agreement sets out the conditions to the closing of the Acquisition.
It also contains certain termination rights, mutual representations and
warranties and various covenants relating to the operation of the business of
NEES in the period prior to Completion, including certain limitations on NEES'
operations until Completion.
The Merger Agreement requires National Grid and NEES to close the Acquisition
unless any one of the conditions to Completion is not satisfied or waived by the
date nine months after the approval of the Acquisition by NEES Shareholders.
This date may be extended by six months by either party if the only remaining
conditions to the closing are the receipt of certain regulatory approvals. The
termination date may be further extended by NEES for six months if National Grid
is unable to obtain financing for the Acquisition at the time all completion
conditions have been satisfied as a result of significant material disruptions
in the financial markets. The Merger Agreement also provides for termination
fees to be paid by one party to the other in certain specified circumstances.
2. Principal Conditions
The principal conditions to Completion include the receipt by both National Grid
and NEES of approval of their respective shareholders and receipt of certain
regulatory approvals and the absence of any governmental order prohibiting
Completion. The principal regulatory approvals required include approval by or
filings with the SEC under the Public Utility Holding Company Act of 1935, the
Federal Energy Regulatory Commission under the Federal Power Act, the Nuclear
Regulatory Commission and approvals, consents or supports in the states in which
NEES operates or has non-operating interests. The Acquisition also requires
clearance under US anti-trust laws.
3. Termination Rights
National Grid and NEES can jointly agree to terminate the Merger Agreement at
any time. In addition, either party can terminate the Merger Agreement if
Completion does not take place prior to the date nine months from the date of
receipt of NEES Shareholder approval, as extended as described above, unless the
failure of Completion to take place is the result of the terminating party's
breach of its obligations under the Merger Agreement. The Merger Agreement may
also be terminated (i) by either party as a result of the material breach of the
Merger Agreement by the other party, (ii) by either party if either party fails
to obtain the approval of its shareholders, (iii) by either party if the Board
of Directors of the other party withdraws its recommendation with respect to the
Acquisition, or (iv) by either party if a court of competent jurisdiction issues
an order preventing or prohibiting the Acquisition.
In addition to these termination rights, the Merger Agreement may be terminated
by NEES if its Board of Directors determines, in certain circumstances, that its
fiduciary obligations require NEES to terminate the Merger Agreement as a result
of a more favourable acquisition proposal from a third party. NEES may also
terminate the Merger Agreement if National Grid fails to deliver the
consideration for the Acquisition when all conditions to National Grid's
obligation to close have been satisfied or waived.
If the required approval of the SEC under the Public Utility Holding Company Act
of 1935 is not received by the date twelve months after approval of the
Acquisition by NEES Shareholders, and National Grid certifies to NEES that it
reasonably believes that the SEC will not issue an order on or prior to the
extended termination date, National Grid may terminate the Merger Agreement.
4. Effect of Termination in Certain Circumstances
NEES is required to make a payment to National Grid in the amount of
$100,000,000 plus National Grid's documented out-of-pocket expenses up to
$10,000,000 as National Grid's exclusive remedy if the Merger Agreement is
terminated for any of the following reasons:
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NEES' Board of Directors terminates the Merger Agreement because it has
determined that its fiduciary obligations require it to accept an
alternative acquisition proposal;
National Grid terminates the Merger Agreement because NEES' Board of
Directors withdraws its recommendation for approval of the Acquisition
prior to obtaining NEES Shareholder approval of the Acquisition;
National Grid terminates the Merger Agreement because NEES Shareholders
fail to approve the Acquisition while an alternative acquisition proposal
from a third party is outstanding and NEES enters into a definitive
agreement for the alternative acquisition proposal within two years;
National Grid terminates the Merger Agreement because NEES has materially
breached a representation, warranty or covenant of the Merger Agreement
while an alternative proposal from a third party is outstanding and NEES
enters into a definitive agreement for the alternative acquisition proposal
within two years; and
NEES terminates the Merger Agreement because Completion has not occurred by
a date nine months after approval of the Acquisition by NEES Shareholders,
as extended as described above, and at the time of termination (i) an
alternative acquisition proposal from a third party is outstanding and (ii)
NEES enters into a definitive agreement for the alternative acquisition
proposal within two years.
National Grid is required to make a payment to NEES in the amount of
$100,000,000, plus, in the case of the withdrawal by the National Grid Board of
its recommendation for approval of the Acquisition, NEES' documented
out-of-pocket expenses up to $10,000,000 as NEES' exclusive remedy if the Merger
Agreement is terminated for any of the following reasons:
The Board of National Grid withdraws its recommendation for approval of the
Acquisition prior to obtaining National Grid Shareholder approval of the
Acquisition; and
National Grid is unable to obtain financing for the Acquisition as a result
of significant material disruptions in the financial markets.
National Grid will pay NEES a termination fee of $75,000,000 plus up to
$10,000,000 for documented out-of-pocket expenses if National Grid terminates
after the twelve month anniversary of NEES Shareholder approval because an order
from the SEC approving the Acquisition has not been issued, and National Grid
reasonably believes that the SEC will not issue an order on or before the
extended termination date.
National Grid will pay NEES for documented out-of-pocket expenses up to
$10,000,000 if NEES terminates because of National Grid's (i) material breach of
its representations and warranties, (ii) failure to perform and comply with its
convenants under the Merger Agreement or (iii) failure to obtain National Grid
Shareholder approval.
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PART VI ADDITIONAL INFORMATION
1. Responsibility
The Directors, whose names appear in paragraph 3.1 below, accept responsibility
for the information contained in this document. To the best of the knowledge and
belief of the Directors (who have taken all reasonable care to ensure that such
is the case) the information contained in this document is in accordance with
the facts and does not omit anything likely to affect the import of such
information.
2. Registered office
The registered and head office of the Company is National Grid House, Kirby
Corner Road, Coventry CV4 8JY.
3. Directors of the Company and other interests
3.1 The names and principal functions of the Directors of the Company are as
follows:
David Jefferies CBE, FEng (Chairman)
James Ross (Deputy Chairman)
David Jones (Group Chief Executive)
Stephen Box (Finance Director)
Wob Gerretsen (Business Development Director)
Dr. Roger Urwin (Managing Director, Transmission)
Bob Faircloth (Non-executive Director)
John Grant (Non-executive Director)
Richard Reynolds (Non-executive Director)
Malcolm Williamson (Non-executive Director)
all of National Grid House, Kirby Corner Road, Coventry CV4 8JY.
3.2 As at 25 March, 1999 (being the latest practicable date prior to
publication of this document), the interests of the Directors and their
immediate families and persons connected (within the meaning of Section 346
of the Act) with such persons, in the share capital of the Company (all of
which, unless otherwise stated, are beneficial) which (i) have been
notified to the Company pursuant to Sections 324 or 328 of the Act; or (ii)
are required to be entered into the register referred to in Section 325 of
the Act; or (iii) are interests of a connected person of a Director which
would, if the connected person were a Director, be required to be disclosed
under (i) or (ii) above, and the existence of which is known to, or could
with reasonable diligence be ascertained by, that person, were as follows:
<TABLE>
<CAPTION>
Number of Percentage of National Exercise
Director National Grid issued National Grid Shares Price/National
Shares Grid Shares under option Grid Share
<S> <C> <C> <C> <C>
David Jefferies 359,389 0.2444 355,457 64.6p
36,771 90.2p
26,352 118.9p
David Jones 96,221 0.0065 6,678 146.0p
230,837 280.5p
146,906 375.75p
28,166 0
Stephen Box 1,773 0.0001 160,427 280.5p
93,147 375.75p
2,955 0
3,125 312.0p
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<PAGE>
Wob Gerretsen 8,387 0.0006 10,648 162.0p
151,515 280.5p
81,820 375.75p
13,978 0
Roger Urwin 113,187 0.0077 10,648 162.0p
169,340 280.5p
91,656 375.75p
20,106 0
</TABLE>
* total exercise price for all options granted to the person set out opposite
is (pound) 1.00.
Each of David Jones, Stephen Box, Wob Gerretsen and Roger Urwin is, for the
purposes of the Act, deemed to have an interest in 6,993,439 National Grid
Shares held by the National Grid Qualifying Employee Share Ownership Trust
(QUEST) as a potential beneficiary under the QUEST.
3.3 Save as disclosed in paragraph 3.2 above, none of the Directors has any
interest in the share or loan capital of the Company or any of its
subsidiaries nor has the Company or any of its subsidiaries provided any
guarantees for the benefit of the Directors as at 25 March, 1999.
3.4 Save as described in this paragraph, none of the Directors has an existing
or proposed service contract with any member of National Grid Group:
(a) On 17 November, 1995, David Jones entered into a service agreement jointly
with NGC and the Company (for the purpose of this paragraph 3.4 the
"Companies") pursuant to which he is employed as Chief Executive. David
Jones receives a base salary of (pound) 300,000 (which is reviewed annually
on 1 April) and has an annual bonus opportunity under the Group Directors'
Performance-Related Bonus Scheme. Long term incentives are provided through
an executive share option scheme. David Jones is provided with a car and
receives death-in-service life cover. David Jones is entitled to personal
accident insurance, reimbursement for all expenses properly incurred and
private medical expenses. The Companies (subject to Inland Revenue limits
from time to time) make pension contributions under a defined-benefit
pension scheme.
Pension arrangements for Directors provide for them to retire at age 60,
although they may, at the Companies' request, remain as directors until the
Companies' normal retirement age (currently 63). David Jones' service
agreement is terminable by him on 12 months' written notice and by the
Companies on 12 months' written notice.
(b) On 17 November, 1995, Wob Gerretsen entered into a service agreement
jointly with the Companies pursuant to which he is employed as Business
Development Director. Wob Gerretsen receives a base salary of (pound)
183,000 (which is reviewed annually on 1 April) and has an annual bonus
opportunity under the Group Directors' Performance-Related Bonus Scheme.
Long term incentives are provided through an executive share option scheme.
Wob Gerretsen is provided with a car and receives death-in-service life
cover. Wob Gerretsen is entitled to personal accident insurance,
reimbursement for all expenses properly incurred and private medical
expenses. The Companies (subject to Inland Revenue limits from time to
time) make pension contributions under a defined-benefit pension scheme.
Because Wob Gerretsen is subject to a pensions earnings cap, the Companies
have put in place pension arrangements, which are partially funded, to
provide a pension covering the difference between base salary and the
pensions cap.
Pension arrangements for Directors provide for them to retire at age 60,
although they may, at the Companies' request, remain as directors until the
Companies' normal retirement age (currently 63). Wob Gerretsen's service
agreement is terminable by him on 12 months' written notice and by the
Companies on 12 months' written notice.
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(c) On 17 November, 1995, Roger Urwin entered into a service agreement jointly
with the Companies pursuant to which he is employed as Managing Director,
Transmission. Roger Urwin receives a base salary of (pound) 205,000 (which
is reviewed annually on 1 April) and has an annual bonus opportunity under
the Group Directors' Performance-Related Bonus Scheme. Long term incentives
are provided through an executive share option scheme. Roger Urwin is
provided with a car and receives death-in-service life cover. Roger Urwin
is entitled to personal accident insurance, reimbursement for all expenses
properly incurred and private medical expenses. The Companies (subject to
Inland Revenue limits from time to time) make pension contributions under a
defined-benefit pension scheme.
Pension arrangements for Directors provide for them to retire at age 60,
although they may, at the Companies' request, remain as directors until the
Companies' normal retirement age (currently 63). Roger Urwin's service
agreement is terminable by him on 12 months' written notice and by the
Companies on 12 months' written notice.
(d) On 4 August, 1997, Stephen Box entered into a service agreement jointly
with the Companies pursuant to which he is employed as Finance Director.
Stephen Box receives a base salary of (pound) 200,000 (which is reviewed
annually on 1 April) and has an annual bonus opportunity under the Group
Directors' Performance-Related Bonus Scheme. Long term incentives are
provided through an executive share option scheme. Stephen Box is provided
with a car and receives death-in-service life cover. Stephen Box is
entitled to personal accident insurance, reimbursement for all expenses
properly incurred and private medical expenses. The Companies (subject to
Inland Revenue limits from time to time) make pension contributions under a
defined-benefit pension scheme. Because Stephen Box is subject to a
pensions earnings cap, the Companies have put in place pension
arrangements, which are partially funded, to provide a pension covering the
difference between base salary and the pensions cap.
Pension arrangements for Directors provide for them to retire at age 60,
although they may, at the Companies' request, remain as directors until the
Companies' normal retirement age (currently 63). Stephen Box's service
agreement is terminable by him on 12 months' written notice and by the
Companies on not less than 12 months' written notice provided that notice
shall not expire earlier than 3 August, 2000.
3.5 On Completion, Rick Sergel will be appointed as an additional director of
National Grid and will enter into a service agreement with the Company
pursuant to which he will be employed as President and Chief Executive
Officer of NEES. Rick Sergel will receive no additional salary for being a
director of National Grid. His base salary as President and Chief Executive
Officer of NEES will be not less than $550,000 and he will have an annual
bonus opportunity under the NEES annual bonus arrangement. Long term
incentives will be provided under the National Grid Executive Share Option
Scheme including a grant, as soon as practicable following the entry into
the service agreement, of an option to acquire the number of National Grid
Shares such that the aggregate fair market value of such National Grid
Shares equals $1,650,000. He will continue to participate in NEES'
Executive Retirement Plan and in other welfare plans, retirement, incentive
and fringe benefit plans on the same basis as other executive officers in
NEES. The NEES Executive Retirement Plan does not mandate a retirement age.
Rick Sergel's service agreement will be for an initial fixed term of three
years, subject to a one year notice period by the Company after the initial
two year period. The contract may be terminable by him on six months'
written notice at any time.
3.6 No Director has any interest in any transaction which is or was unusual in
its nature or conditions or significant to the business of National Grid
Group and which was effected by any member of National Grid Group during
the current or immediately preceding financial year or which was effected
by any member of National Grid Group during any earlier financial year and
remains in any respect outstanding or unperformed.
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3.7 In so far as is known to the Company, as at 25 March, 1999 (being the
latest practicable date prior to publication of this document), the
following are interested in three per cent. or more of the Company's issued
ordinary share capital:
Shareholder Percentage of issued
National Grid Shares
HSBC* 11.60
Prudential Corporation plc 5.99
* National Grid has been advised that as a result of a structured transaction
with HSBC, the Olayan group has an economic exposure to the performance of
National Grid Shares.
Save as disclosed in this paragraph 3.7, the Directors are not aware of any
interest which as at 25 March, 1999, represented three per cent. or more of the
issued ordinary share capital of the Company.
4. Litigation
4.1 The Electricity Supply Pension Scheme (ESPS) is an industry-wide pension
scheme covering employees of the electricity industry in England and Wales
and is the principal pension arrangement for employees of NGC. The ESPS is
divided into sections, each of which has its own trustees and is treated
separately for the purposes of valuing its assets and liabilities. NGC is
the sole participating employer in its section of the ESPS.
In 1992, an independent actuarial valuation of the NGC section of the ESPS
showed that the NGC section was in surplus. Having received legal advice
that this course of action was lawful, NGC used part of the surplus to
suspend certain of its employer's contributions and to make up deficiencies
in the funding of pension entitlements of employees taking early
retirement. The remainder of the surplus was used to increase widows',
widowers' and dependants' benefits.
No money was removed at any time from the NGC section of the ESPS, which
has been and continues to be in substantial surplus.
On 7 February, 1997, the Pensions Ombudsman published his determination on
a complaint made by two pensioners concerning the use of the surplus in the
NGC section. The determination required NGC to pay to the NGC section with
interest the contributions unpaid during the period from late 1992 to
February 1995.
On 10 June, 1997, NGC's appeal against the Pensions Ombudsman's
determination was upheld by the High Court, whereupon the pensioners
appealed against the High Court's decision.
Judgment on the pensioners' appeals was handed down by the Court of Appeal
on 10 February, 1999. The judgment confirmed that the members of the ESPS
have no property rights in any surplus which is revealed by an actuarial
valuation and that, where such a surplus is revealed, the ESPS permits the
use of the surplus for the employer's benefit. However, the judgment
concluded that NGC had not been entitled unilaterally to cancel any accrued
liabilities.
The Court of Appeal's judgment did not determine whether or not NGC should
be required to pay any amount to the NGC section or whether a retrospective
amendment to be made now could validly cancel any accrued liabilities owed
by NGC. A further hearing will be held with a view to resolving these and
related issues, but is unlikely to take place before mid-April 1999. NGC
has received legal advice to the effect that its liability, if any, is
unlikely to exceed (pound) 7.8 million (representing its unpaid
contributions between late December 1992 and 27 May, 1993, when the Scheme
Actuary, pursuant to the relevant provisions of the ESPS, certified that
NGC's arrangements to deal with the 1992 surplus were reasonable), plus
interest at a rate which is also an issue to be determined at the further
hearing.
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In giving its judgment, the Court of Appeal indicated that, having regard
to the significance of the issues, it would be appropriate for the case to
go to the House of Lords. When the outcome of the further hearing is known,
each of the parties will be able to decide whether an appeal should be made
to the House of Lords.
4.2 Save as disclosed in paragraph 4.1, the Company is not, nor has been,
involved in, nor are there so far as the Company is aware pending or
threatened by or against it or any of its subsidiaries, any legal or
arbitration proceedings which may have, or have had during the previous 12
months, a significant effect on the financial position of the Company or
any of its subsidiaries.
4.3 In September 1998, the United States District Court for the District of
Massachusetts dismissed the lawsuit filed in April 1997 by the Town of
Norwood, Massachusetts against NEES and its subsidiary, New England Power
Company ("NEP"). NEP had been a wholesale power supplier for Norwood
pursuant to rates approved by the Federal Energy Regulatory Commission
("FERC"). In the lawsuit, Norwood alleged that NEP's divestiture of its
power generating assets would violate the terms of a 1983 power contract.
Norwood also alleged that the divestiture and recovery of stranded
investment costs contravened federal anti-trust laws. The District Court
granted NEES' and NEP's motion for dismissal. Norwood has appealed the
decision.
Norwood is also appealing three FERC rulings: (i) that NEP could assess a
contract termination charge to any of NEP's unaffiliated customers that
choose to terminate their wholesale power contracts early; (ii) approving
the divestiture of NEP's generating assets; and (iii) approving the
Massachusetts and Rhode Island industry restructuring settlement
agreements. These appeals have been consolidated and are pending before the
First Circuit Court of Appeals.
Since April 1998, Norwood has not paid NEP billings that NEP believes are
due under its power contract. NEP has filed a lawsuit against Norwood in
the Massachusetts state court to collect these charges which total $6
million up to 31 December, 1998.
4.4 Save as disclosed in paragraph 4.3, NEES is not, nor has been, involved in,
nor are there so far as NEES is aware pending or threatened by or against
it or any of its subsidiaries, any legal or arbitration proceedings which
may have, or have had during the previous 12 months, a significant effect
on the financial position of NEES or any of its subsidiaries.
5. Material contracts
5.1 Save for the contracts described below and contracts available for
inspection within the last two years, no contracts (not being contracts
entered into in the ordinary course of business) have been entered into by
any member of National Grid Group within the two years immediately
preceding the date of this document which are or may be material:
(a) the Merger Agreement, particulars of which are summarised in Part V of
this document;
(b) two agreements each dated 10 December, 1998, and made between (1)
National Grid Brazil B.V. (a subsidiary of the Company) ("NG Brazil"),
(2) Nunemasia Comercial Ltda. (a company jointly owned by France
Telecom S.A. and Sprint Corporation) ("Nunemasia") and (3) Noresko
Comercial Ltda. (a company jointly owned by NG Brazil and Nunemasia)
(together the "Consortium") whereby for a consideration of (pound) 25
million, the Consortium (of which 50 per cent. is owned by the Company
and 25 per cent. is owned by each of France Telecom S.A. and Sprint
Corporation), has been awarded a 40 year licence to provide
telecommunications services, including inter-regional and
international services, in Brazil;
(c) an agreement dated 10 December, 1998, and made between (1) the
Company, (2) France Telecom S.A. and (3) Sprint Corporation whereby in
respect of the Consortium, the Company has guaranteed
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the obligations of NG Brazil and each of France Telecom S.A. and
Sprint Corporation has severally guaranteed the obligations of
Nunemasia;
(d) a Placing Agreement dated 22 January, 1999 (the "Placing Agreement"),
and made between (1) the Company, (2) NGG Telecoms Limited ("NGGT"),
(3) HSBC as Lead Manager and (4) the other managers named therein
(together with HSBC, the "Managers") whereby:
(i) the Company, as agent for NGGT, agreed to sell 60,000,000
ordinary shares of 50p each in the capital of Energis (the "Sale
Shares") to purchasers procured by the Managers;
(ii) the Company agreed to pay the Managers a combined management,
selling and underwriting commission of 3 per cent. of the
aggregate sale price of the Sale Shares, together with the fees
and expenses of the Managers;
(iii)certain representations, undertakings and warranties were given
by the Company and NGGT in favour of the Managers and the Company
and NGGT agreed to indemnify the Managers against certain
liabilities; and
(iv) undertakings were given by the Company and NGGT that they would
not, without the prior consent of HSBC (such consent not to be
unreasonably withheld), either offer shares in Energis for a
period of six months from the date of the Placing Agreement or
authorise, or consent to, the issue or allotment of any shares in
Energis (except to vote in favour of a resolution to increase the
authorised share capital of Energis or to grant the directors of
Energis an authority to issue shares at an annual general meeting
of Energis) for a period of six months from the date of the
Placing Agreement; and
(e) an agreement dated 5 March, 1999, and made between (1) National Grid
(as guarantor and borrower), (2) NGC (as borrower) (together, the
"Borrowers"), (3) ABN Amro Bank N.V., Barclays Capital, Chase
Manhattan PLC, Deutsche Bank AG London, Dresdner Kleinwort Benson and
HSBC (as lead arrangers), (4) HSBC (as agent) and (5) certain banks
and financial institutions (the "Banks") (the "Credit Agreement")
whereby:
(i) a $850,000,000 term loan facility has been made available to
National Grid and any of its wholly-owned UK subsidiaries, other
than NGC, and any other nominated subsidiary of National Grid,
other than NGC, which is a party to, or accedes to, the Credit
Agreement and is approved by all of the Banks (each an
"Additional Borrower") ("Facility A");
(ii) a $550,000,000 multi-currency revolving credit facility has been
made available to National Grid and any Additional Borrower
("Facility B");
(iii)a $1,350,000,000 364 day dollar-denominated revolving credit
facility has been made available to National Grid and any
Additional Borrower ("Facility C"); and
(iv) a (pound) 250,000,000 multi-currency revolving credit and
acceptance credit facility has been made available to NGC
("Facility D").
Facility A is available for drawing until two years from the date of the
Credit Agreement and is to be repaid in one instalment on the date falling
five years from the date of the Credit Agreement. It is to be used in or
towards (1) financing or refinancing the proposed acquisition of EUA,
together with acquisition costs and other fees and expenses and the
refinancing of existing borrowings of the EUA group, and (2) for the
general corporate purposes of National Grid Group.
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Facility B is available for drawing on a revolving basis for approximately
five years from the date of the Credit Agreement. It is to be used to meet
the general corporate purposes of National Grid Group including the
financing of acquisitions, the refinancing of existing borrowings and for
general working capital.
Facility C is available for drawing on a revolving basis until the date
falling 364 days from the date of the Credit Agreement, unless some or all
of the Banks agree to extend the availability period for a further 364
days, in which case the availability period for the portion of Facility C
provided by such Banks shall be so extended. National Grid has a term-out
option which allows it to convert its outstanding advances under Facility C
to term loans and thereafter repay all such term-out advances by the date
falling not later than three years after the date of the Credit Agreement.
Facility C is to be used towards financing the Acquisition and for
refinancing existing borrowings of NEES Group. If the Acquisition is not
completed during the period in which Facility C is available to be drawn,
National Grid has the right to draw down the facility in full and place the
proceeds in a segregated deposit account pending Completion.
Facility D is available for drawing only by NGC on a revolving basis for
approximately five years from the date of the Credit Agreement. It is to be
used to provide working capital and to meet the general corporate purposes
of NGC and its subsidiaries.
The rate of interest payable by the Borrowers and any Additional Borrower
is LIBOR together with margins of 57.5 basis points for Facilities A, B and
C and 52.5 basis points for Facility D which margins may be reduced after
Completion upon satisfaction of certain conditions, plus any associated
regulatory costs. In addition, certain fees and expenses are payable by the
Borrowers in connection with the Credit Agreement including commitment
fees, management fees and agency fees.
5.2 Save for the contracts described below, no contracts (not being contracts
entered into in the ordinary course of business) have been entered into by
any member of NEES Group within the two years immediately preceding the
date of this document which are or may be material:
(a) an Asset Purchase Agreement dated 5 August, 1997, as amended (the
"Generating Asset Purchase Agreement"), and made between (1) NEP, (2)
The Narragansett Electric Company, a subsidiary of NEES
("Narragansett"), and (3) US Gen New England, Inc., an indirect
wholly-owned subsidiary of PG&E Corporation ("USGenNE"), whereby:
(i) USGenNE purchased, on 1 September, 1998, substantially all of the
non-nuclear generating business of NEP and Narragansett,
including NEP's interests in purchased power contracts, but
excluding NEP's interest in the Wyman 4 generating station and
certain small diesel units in three locations;
(ii) PG&E Corporation executed a guarantee, guaranteeing the
performance by USGenNE of all of USGenNE's obligations (including
the making of all required payments) under the Generating Asset
Purchase Agreement and the PPA Transfer Agreement referred to in
paragraph (b) below;
(iii)USGenNE paid $1.59 billion to NEP and Narragansett for the
assets acquired under the Generating Asset Purchase Agreement. In
addition, USGenNE reimbursed the relevant NEES subsidiaries
approximately $140 million for costs associated with early
retirements and special severance programmes for employees
affected by industry restructuring, and the value of inventories;
and
(iv) USGenNE assumed most of the sellers' obligations related to the
non-nuclear generating business, including responsibility for
environmental conditions at the stations that were sold,
long-term fuel and fuel transportation contracts, and certain
collective bargaining
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agreements. The Generating Asset Purchase Agreement contains
indemnification provisions standard to agreements of this nature
in the US;
(b) an Amended and Restated PPA Transfer Agreement dated as of 29 October,
1997, and made between NEP and (2) USGenNE (the "PPA Transfer
Agreement"); and the OSP PPA Transfer Agreement dated as of 29
October, 1997, and made between (1) NEP and (2) USGenNE (the "OSP PPA
Transfer Agreement"), whereby:
(i) pursuant to the Generating Asset Purchase Agreement summarised in
paragraph (a) above, NEP committed to try to assign power
purchase agreements covering approximately 1,100 MW of power (the
"PPAs") to USGenNE prior to the closing of that disposal. The PPA
Transfer Agreement and the OSP PPA Transfer Agreement (which was
assigned to TransCanada Power Marketing Ltd. on 1 September,
1998) set forth the obligations of the parties with respect to
those PPAs that were not able to be assigned;
(ii) PPAs representing approximately 320 MW have been assigned and are
no longer subject to the PPA Transfer Agreement, and the OSP PPA
Transfer Agreement has been terminated;
(iii)with respect to those PPAs that have not been assigned, USGenNE
is acting as NEP's agent in order that USGenNE have, to the
maximum extent possible, the full economic benefit (or burden) of
such contracts;
(iv) as NEP's agent, USGenNE administers the PPAs. USGenNE is
authorised to take all actions that NEP may lawfully take under
the PPAs without further approval by NEP; except that NEP's prior
written consent is required for certain material actions;
(v) NEP makes available to USGenNE, at the point at which a power
seller makes delivery to NEP, all energy and any other benefits
NEP receives under each PPA from such power seller. USGenNE pays
to NEP each month all amounts due from NEP to a power seller for
the preceding month less the amount of a monthly support payment
averaging $9.5 million per month up to 31 January, 2008; and
(vi) under certain conditions involving formal assignment of the
contracts to USGenNE and a release of NEP from further
obligations to the power supplier, NEP is required to make a lump
sum payment of the present value of the monthly fixed
contribution obligation attributable to the assigned contract;
(c) an Asset Purchase Agreement dated as of 27 January, 1998 (the "Oil and
Gas Property Agreement"), and made between (1) New England Energy
Inc., a subsidiary of NEES ("NEEI") and (2) Samedan Oil Corporation
("Samedan"), whereby:
(i) Samedan paid approximately $50,000,000 to NEEI for 21 oil and gas
properties, with ownership transfer effective as of 1 January,
1998. The properties consisted of oil and gas offshore interests
in the Gulf of Mexico and onshore interests located in Texas and
Wyoming;
(ii) Samedan agreed to assume all future liabilities, including those
for plugging and abandoning the properties; and
(iii)NEEI agreed to indemnify Samedan against claims related to the
properties prior to 1 January, 1998; and
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(d) an Agreement and Plan of Merger dated 1 February, 1999, and made
between (1) NEES, (2) Research Drive LLC, a Massachusetts limited
liability company which is directly and indirectly wholly owned by
NEES ("LLC") and (3) EUA, a Massachusetts business trust (the "EUA
Merger Agreement"), whereby LLC will merge with and into EUA (the "EUA
Acquisition"), with EUA being the surviving entity and becoming a
wholly owned subsidiary of NEES. Under the terms of the EUA Merger
Agreement, each outstanding share of EUA's common stock will be
converted into the right to receive $31.00 in cash, as may be adjusted
as follows: if the closing date does not occur on or prior to the date
that is the six month anniversary of the date on which EUA
shareholders approve the EUA Acquisition (the "Adjustment Date"), then
the per share amount shall be increased for each day after the
Adjustment Date up to and including the day which is one day prior to
the earlier of the closing date and 1 May, 2000 (the "Extended
Termination Date" as defined below), by an amount equal to $0.003.
NEES expects that the EUA Acquisition will be completed by early 2000.
The EUA Acquisition is subject to certain conditions, including the
approval of EUA's shareholders by an affirmative vote of two-thirds of
the outstanding EUA shares and the receipt of all necessary
governmental approvals and the making of all necessary governmental
filings, including the consent or approval of certain state utility
regulators, the approval of the Federal Energy Regulatory Commission,
the approval of the SEC under the Public Utility Holding Company Act
of 1935 and the approval of the Nuclear Regulatory Commission. The EUA
Acquisition also requires clearance under US anti-trust laws. The EUA
Acquisition is not conditional on Completion.
Either party may terminate the EUA Merger Agreement if: (i) the EUA
Acquisition has not been effected by 31 December, 1999 (the "Initial
Termination Date"), provided that if the parties are otherwise ready
to close, but certain statutory approvals are not yet obtained, the
Initial Termination Date will be extended to 30 April, 2000 (the
"Extended Termination Date"), or (ii) any law, rule or regulation is
adopted which makes the EUA Acquisition illegal. NEES may terminate
the EUA Merger Agreement if: (i) EUA fails to obtain shareholder
approval, (ii) there has been a material breach of EUA's
representations, warranties or agreements under the EUA Merger
Agreement, (iii) EUA's Board withdraws or modifies its approval of the
EUA Acquisition or its recommendation to its shareholders or (iv)
EUA's Board approves, recommends or takes no position regarding an
alternative proposal. EUA may terminate the EUA Merger Agreement: (i)
if NEES fails to deliver the merger consideration, (ii) if there has
been a material breach of NEES's representations, warranties or
agreements under the EUA Merger Agreement or (iii) under certain
circumstances in order to accept an alternative proposal if EUA's
Board determines that such termination is necessary to act in a manner
consistent with its fiduciary duties.
EUA will pay NEES a termination fee of $20 million plus up to $5
million for documented out-of-pocket expenses if: (i) EUA terminates
the EUA Merger Agreement because EUA's Board determined that
termination was necessary for EUA's Board to act consistently with its
fiduciary duties under applicable law; or (ii) the EUA Merger
Agreement is terminated by NEES at a time when an alternative business
proposal is pending because (a) EUA shareholder approval was not
obtained, (b) EUA materially breached its representations, warranties
or agreements under the EUA Merger Agreement or EUA's Board take a
position adverse to the EUA Acquisition or (c) EUA terminates the EUA
Merger Agreement because closing has not occurred by the Extended
Termination Date and then in addition to (a), (b), or (c) EUA enters
into a merger or acquisition agreement with the third party within two
years of such termination.
NEES will pay EUA a termination fee of $10 million plus up to $5
million for documented out-of-pocket expenses if either party
terminates because the closing date has not occurred by the Initial
Termination Date, or if the Initial Termination Date is extended, the
Extended Termination Date, provided, that the closing date has not
failed to occur due to a failure on the part of the terminating party
to fulfil any obligation under the EUA Merger Agreement and on the
date of such termination: (i) all conditions to closing have been
fulfilled or are capable of being fulfilled other than the
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condition requiring that certain statutory consents and approvals be
obtained; (ii) if the date of termination is any date other than the
Extended Termination Date or a date thereafter, all conditions of each
party have been fulfilled or are capable of being fulfilled other than
the conditions concerning statutory consents and approvals and the
certification of NEES and LLC's performance of obligations; and (iii)
the Acquisition has not been completed.
6. Miscellaneous
6.1 Significant changes
(a) Save as disclosed in paragraphs 1, 5, 6, 7 and 8 of the Chairman's
letter in Part I of this document, the Directors are not aware of any
significant change in the financial or trading position of National
Grid Group since 30 September, 1998, the date to which the last
interim financial statements of National Grid Group were made up.
(b) Save for the EUA Acquisition, details of which are set out in section
4 of Part III of this document and in paragraph 5.2 above, the
Directors are not aware of any significant change in the financial or
trading position of NEES Group since 31 December, 1998, the date to
which the last financial statements of NEES Group were made up.
6.2 Consents
(a) Rothschild, which is regulated by The Securities and Futures Authority
Limited, has given and has not withdrawn its written consent to the
issue of this document with the inclusion herein of references to its
name in the form and context in which it appears.
(b) Dresdner Kleinwort Benson, which is regulated by The Securities and
Futures Authority Limited, has given and has not withdrawn its written
consent to the issue of this document with the inclusion herein of
references to its name in the form and context in which it appears.
(c) PricewaterhouseCoopers have given and have not withdrawn their written
consent to the inclusion in Part III of this document of their letter
and of references to their name in the form and context in which it
appears.
7. Documents available for inspection
Copies of the following documents will be available for inspection during
normal business hours on any weekday (Saturdays, Sundays and public
holidays excepted) at the offices of Cameron McKenna, Mitre House, 160
Aldersgate Street, London EC1A 4DD up to and including 22 April, 1999:
(a) the Memorandum and Articles of Association of the Company;
(b) the material contracts referred to in paragraph 5 above;
(c) the service contracts referred to in paragraph 3.4 above;
(d) the proxy statement addressed to NEES Shareholders referred to on page
7 of this document;
(e) the letter from PricewaterhouseCoopers set out in Part III of this
document;
(f) the consolidated audited accounts of National Grid Group for the two
financial years ended 31 March, 1998 including all notes, reports or
information required by the Act and the unaudited interim financial
statements of National Grid Group for the six months ended 30
September, 1998;
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(g) the consolidated audited accounts of NEES Group for the two financial
years ended 31 December, 1998; and
(h) the letters of consent referred to in paragraph 6.2 above.
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<PAGE>
DEFINITIONS
The following definitions apply throughout this document unless the context
requires otherwise:
"Act" the Companies Act 1985, as amended
"Acquisition" the proposed acquisition of NEES by
National Grid pursuant to the Merger
Agreement
"Completion" the closing of the Acquisition following
satisfaction or waiver of the conditions
attaching to the Acquisition and the filing
of a certificate of merger with the
Secretary of State for the Commonwealth of
Massachusetts
"Directors" or "Board" the directors of National Grid listed in
paragraph 3.1 of Part VI of this document
"Dresdner Kleinwort Benson" Kleinwort Benson Limited
"Extraordinary General Meeting" the extraordinary general meeting of
National Grid convened for 10.00 a.m.
or "EGM" on 22 April, 1999, notice of which is set
out at the end of this document
"Energis" Energis plc, an associate of National Grid
involved in the provision of
telecommunications services
"EUA" Eastern Utilities Associates
"EUA Acquisition" the proposed acquisition of EUA by NEES
"Form of Proxy" the form of proxy for use at the
Extraordinary General Meeting, accompanying
this document
"GAAP" Generally Accepted Accounting Principles
"HSBC" HSBC Investment Bank plc
"Merger Agreement" the Agreement and Plan of Merger dated 11
December, 1998, entered into between
National Grid, NGG Holdings and NEES
"MW" megawatt
"National Grid" or "Company" The National Grid Group plc
"National Grid Group" National Grid and its subsidiaries and
"member of National Grid Group" shall be
construed accordingly
"National Grid Shareholders" holders of National Grid Shares
"National Grid Shares" ordinary shares of 1113/17p each in the
capital of National Grid
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<PAGE>
"NEES" New England Electric System
"NEES Group" NEES and its subsidiaries and "member of
NEES Group" shall be construed accordingly
"NEES Shareholders" holders of NEES Shares
"NEES Shares" common shares of NEES
"NGC" The National Grid Company plc, a
wholly-owned subsidiary of National Grid
"NGG Holdings" NGG Holdings LLC, an indirect wholly-owned
subsidiary of National Grid,
formerly named Iosta LLC
"OFFER" the Office of Electricity Regulation
"Rothschild" N M Rothschild & Sons Limited and
Rothschild Inc.
"SEC" the US Securities and Exchange Commission
"Share Option Schemes" the NGC Savings Related Share Option
Scheme, the NGC Executive Share Option
Scheme, the NGC Trust Scheme, the NGC
Share Matching Scheme and the PSB
Scheme
"UK" the United Kingdom of Great Britain and
Northern Ireland
"US" the United States of America, its
territories and possessions, any state of
the United States of America and the
District of Columbia, and all other
areas subject to its jurisdiction
"$" US dollar
Save for the statement of indebtedness set out in Part IV of this document,
amounts converted from US dollars to pounds sterling have been calculated at an
exchange rate of $1.63: (pound) 1.00, being the rate prevailing on 25 March,
1999 (the latest practicable date prior to publication of this document).
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<PAGE>
The National Grid Group plc
Notice of Extraordinary General Meeting
NOTICE IS HEREBY GIVEN that an Extraordinary General Meeting of the Company will
be held at the International Convention Centre, Broad Street, Birmingham B1 2EA
on 22 April, 1999 at 10.00 a.m. for the purposes of considering and, if thought
fit, passing the following resolution which will be proposed as an ordinary
resolution:
THAT the acquisition of New England Electric System by the Company (whether or
not through a subsidiary of the Company) as described in the circular to
shareholders dated 31 March, 1999 be and it is hereby approved and that the
Directors or a Committee of the Directors be and they are hereby authorised to
complete the same with such modifications, variations, amendments or revisions
as they think fit provided such modifications, variations, amendments or
revisions are not of a material nature.
On behalf of the Board Registered Office:
Fiona B Smith National Grid House
Company Secretary and General Counsel Kirby Corner Road
31 March, 1999 Coventry CV4 8JY
Registered in England
and Wales No. 2367004
Notes:
1. A member (shareholder) of the Company who is entitled to attend and vote at
the Extraordinary General Meeting ("EGM") but is unable to be present in person
is entitled to appoint a proxy or proxies to attend the EGM and, on a poll, to
vote on his or her behalf. A Form of Proxy is enclosed with this document and
instructions on how to fill in the Form of Proxy are set out at the end of this
document.
2. As permitted by Regulation 34 of the Uncertificated Securities Regulations
1995, only those shareholders who are registered on the Company's share register
at 6.00 p.m. on 20 April, 1999 shall be entitled to attend the EGM and to vote
in respect of the number of shares registered in their names at that time.
Changes to entries on the share register after 6.00 p.m. on 20 April, 1999 shall
be disregarded in determining the rights of any person to attend and/or vote at
the EGM.
How to fill in the Form of Proxy
If you cannot attend the EGM in person, you are entitled to appoint a proxy or
proxies to attend the EGM and, in the event that a poll is called, to vote on
your behalf. To appoint a proxy or proxies you must fill in the enclosed Form of
Proxy, sign it and return it to our share registrars, Lloyds TSB Registrars, so
that it is received no later than 10.00 a.m. on 20 April, 1999. If someone else
signs the Form of Proxy on your behalf, their authority to do so must be
returned with the Form of Proxy. If the appointer is a corporation, the Form of
Proxy must be executed under its common seal or signed on its behalf by a duly
appointed officer or attorney. The appropriate power of attorney or other
authority or a notarially certified copy of such power (if any), should be
returned with the Form of Proxy. In the case of joint shareholders, any one
holder may sign the Form of Proxy. If more than one holder signs, only the vote
of the first named on the Company's share register will be accepted. Any
alterations to the Form of Proxy must be initialled.
Before filling in the Form of Proxy, please read the notes set out below.
What is a poll?
Votes on most resolutions at an EGM are decided on a show of hands in which each
shareholder present is entitled to cast one vote irrespective of the number of
shares he or she owns.
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However, if a poll is called in accordance with the Company's Articles of
Association (a common situation being where the result of a show of hands is
unclear), every shareholder of the Company (whether present in person at the EGM
or represented by proxy) is entitled to cast a number of votes equal to the
number of shares in the Company he or she owns.
Who can be appointed a proxy?
You can appoint anyone you like as your proxy or proxies: a proxy does not have
to be a shareholder of the Company. If you wish, you can also appoint more than
one proxy. However, you are responsible for ensuring that the person you appoint
is able and willing to attend the EGM on your behalf. If your proxy does not
attend the EGM, your vote will not be cast in the event of a poll. Unless you
specifically nominate another person or persons to attend the EGM and vote on
your behalf, the Chairman of the Meeting will be appointed as your proxy and
will vote on your behalf according to your instructions.
If you wish to appoint as your proxy someone other than the Chairman, cross out
the words "the Chairman of the Meeting or" on the Form of Proxy and write the
full name(s) of your proxy or proxies in the space provided.
In what circumstances will a proxy be able to vote at the EGM?
Your proxy will be able to vote on your behalf on the resolution only if a poll
is called on the resolution. Proxies cannot vote on a show of hands.
How do I instruct my proxy on how my votes should be cast?
The resolution to be proposed at the EGM is set out in full in the Notice of EGM
on the preceding page. This resolution is described in abbreviated form on the
Form of Proxy.
To instruct your proxy on how to vote on the resolution in the event that a poll
is called, please tick the appropriate box against the resolution to show
whether your proxy should vote "for" or "against".
Please note that if you do not give specific voting instructions on the
resolution by placing a tick in the appropriate box, your proxy will be free to
vote or abstain on the resolution as he or she thinks fit. Unless you
specifically instruct otherwise, your proxy may also vote or abstain as he or
she thinks fit on any other business (including any amendments to the
resolution) which may properly come before the EGM.
What happens if I appoint a proxy, then decide to attend the EGM myself?
Even if you return a completed Form of Proxy, you will still be entitled to
attend the EGM instead of your proxy and to participate in voting by show of
hands or by poll if you so wish. In the event of a poll in which you vote in
person, your proxy will be disregarded.
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DE 99-035
NEW ENGLAND ELECTRIC SYSTEM
ORDER REGARDING APPLICABILITY OF RSA 369:8, II
TO PROPOSED TRANSACTION
AND SCHEDULING HEARING
O R D E R N O. 23,202
April 21, 1999
I. BACKGROUND
On March 18, 1999, New England Electric System and The National Grid Group
plc (NEES and National Grid, respectively) filed with the New Hampshire Public
Utilities Commission (Commission) certain affidavits, testimony and related
exhibits concerning their agreement to merge. Under the agreement, National Grid
would acquire all of the common shares of NEES. NEES is a registered holding
company organized under Massachusetts law and subject to the authority of the
Securities and Exchange Commission (SEC) under the Public Utility Holding
Company Act of 1935 (PUHCA), and transacts business in this state through its
wholly-owned subsidiaries Granite State Electric Company (Granite State) and New
England Power Company (NEP).
Granite State is a public utility providing retail electric service to
approximately 35,000 customers in New Hampshire. NEP is a public utility
providing transmission service to Granite State and other entities within the
State. National Grid is a holding company incorporated in England and Wales, and
either has or will register as a holding company under the PUHCA.
<PAGE>
-2- The filing raises, inter alia, issues related to: whether the proposed
transaction will not adversely affect the rates, terms, service, or operation of
Granite State; whether the approval of the Commission of this transaction is
required; and whether, as requested by Granite State, the Commission should
certify to the SEC (a) that it has the authority and resources to protect
Granite State's customers, with respect to matters such as rates, financings,
affiliate transactions and financial integrity, and (b) that the Commission
intends to continue to exercise that authority following the closing of the
transaction.
II. DISCUSSION AND ANALYSIS
Pursuant to RSA 374:33, the acquisition by a utility or public holding
company of more than 10 percent of the stocks or bonds of a public utility or
public utility holding company incorporated in or doing business in this state
requires Commission approval. RSA 369:8, II provides, however, that where the
parent company of a utility regulated by the Commission seeks to merge or be
acquired by another utility, the approval of the Commission is not required if
there will be no adverse effect on rates, terms, service or operations of the
New Hampshire utility, and a written representation to that effect is made to
the Commission.
In order to determine whether the provisions of RSA 369:8, II apply, with
the result that Commission approval of the proposed transaction is not required,
the Commission must make a determination as to whether the written
representations made by
<PAGE>
-3-
the companies - Granite State and NEP - are accurate. The mere representations
of the public utility are not sufficient to satisfy the statute; the Commission
must independently verify that no adverse effect will occur. This is consistent
with the obligation of the Commission in RSA 374:3 "to carry into effect the
provisions" of Title 38, which includes RSA 369.
In the representations and commitments made by representatives of Granite
State and NEP in their filing of March 18, 1999, it is specifically acknowledged
that both the Company and NEP may be allocated a portion of the acquisition
premium and transaction costs associated with the transaction. Granite State
claims that the acquisition premium and transaction costs will not adversely
affect its rates, terms, service and operations because they will be recorded in
below-the-line accounts and will not be reflected in rates absent express
authorization of the Commission. Granite State also claims that it will not seek
recovery in rates absent a showing of offsetting savings and benefits to its
customers. Finally, Granite State represents that should it seek rate recovery
of these costs, it agrees to waive any and all claims that the Commission's
authority to review their allocation is preempted by the SEC's review of the
allocation of these costs.
NEP similarly claims that any allocation of the acquisition premium and
transaction costs will not adversely affect the rates, terms, service, and
operations of NEP because they will be recorded in below-the-line accounts and
will not be
<PAGE>
-4-
reflected in NEP rates absent express authorization of the FERC. NEP also claims
that it will not seek (before the FERC) recovery of these costs in rates absent
a showing of offsetting savings and benefits to its customers.
Based upon the filed material provided by Granite State and NEP, the
Commission concludes that the proposed transaction may adversely affect the
rates, terms, service, or operation of either Granite State or NEP, and
therefore the requirements of RSA 369:8, II have not been satisfied. The
allocation of a portion of the acquisition premium to Granite State and NEP may
indeed have an adverse affect.1 This is because it cannot be maintained at this
time that such allocation is "just and reasonable." Moreover, the representation
that recovery in rates of the acquisition premium will not be sought "absent a
showing of offsetting savings and benefits to customers" presupposes that such
benefits may be employed as offset against these costs, as opposed to being
passed through the ratepayers.
- --------
1 We note that while the affidavits of Messrs. Reilly and Flynn, officers of
Granite State and NEP, respectively, represent that Granite State and NEP
"may" be allocated a portion of the acquisition premium, the pre-filed
testimony of Mr. Urwin, Managing Director of National Grid, the acquiring
company, states that "the acquisition premium will be 'pushed down' to NEES
and allocated to its affiliates." (Testimony of Roger Urwin at 18, emphasis
supplied.)
Granite State's further representation that it will waive any and all
claims that the Commission's authority to review the allocations are preempted
by the SEC will not prohibit another person or party - such as a customer of a
NEES affiliate
<PAGE>
-5-
in another jurisdiction - from attempting to assert the SEC's approval of the
allocation as a bar to any subsequent review and determination by this
Commission. Finally, the recovery of any allocations to NEP are subject to the
jurisdiction and review of the FERC, not this Commission, and the interests that
the FERC and this Commission weigh and consider are not conterminous.
Therefore, having determined that the conclusions in Granite State's and
NEP's written representations are incorrect, the Commission finds that it has
jurisdiction over the proposed transaction pursuant to RSA 374:2, 374:3 and
374:33, and the approval of the Commission must be obtained.
This determination is not a decision on the merits of the underlying
transaction and whether it should or should not be approved as proposed. Other
potential impacts of the transaction will also be reviewed, including, without
limitation, the impact of non-domestic corporations owning parts of the
transmission grid. Such an arrangement may implicate national security concerns,
as well as concerns about the remoteness of management.
Based upon the foregoing, it is hereby ORDERED, that a
Prehearing Conference, pursuant to N.H. Admin. Rules Puc 203.05, be held
before the Commission located at 8 Old Suncook Road, Concord, New Hampshire on
May 4, 1999 at 10:00 a.m., at which each party will provide a preliminary
statement of its position with regard to the filing and any of the issues set
forth in N.H. Admin Rule Puc 203.05(c) shall be considered; and it is
<PAGE>
-6-
FURTHER ORDERED, that the Prehearing Conference may be tape recorded unless
a party, at least 5 days in advance of the Prehearing Conference, request a
transcript, in which case the Commission shall order a stenographic record,
pursuant to N.H. Admin. Rule Puc 2203.05(d); and it is
FURTHER ORDERED, that, immediately following the Prehearing Conference,
NEES, National Grid, the Staff of the Commission and any Intervenors hold
Technical Session to review the petition and allow NEES and National Grid to
provide any amendments or updates to its filing; and it is
FURTHER ORDERED, that pursuant to N.H. Admin. Rules Puc 203.01, NESS and
National Grid shall notify all persons desiring to be heard at this hearing by
publishing a copy of this Order of Notice no later than April 27, 1999, in a
newspaper with statewide circulation or of general circulation in those portions
of the state which operations are conducted, publication to be documented by
affidavit filed with the Commission on or before May 3, 1999; and it is
FURTHER ORDERED, that pursuant to N.H. Admin. Rule 201.05, the Commission
waives, in part, the fourteen day notification requirement of N.H. Admin. Rules
Puc 203.01(a); and it is
FURTHER ORDERED, that pursuant to N.H. Admin. Rules Puc 203.02, any party
seeking to intervene in the proceeding shall submit to the Commission an
original and eight copies of a Petition to Intervene with copies sent to NEES
and National Grid
<PAGE>
-7-
and the Office of the Consumer Advocate on or before April 30, 1999, such
Petition stating the facts demonstrating how its rights, duties, privileges,
immunities or other substantial interests may be affected by the proceeding, as
required by N.H. Admin. Rule Puc 203.02 and RSA 541-A:32,I(b); and it is
FURTHER ORDERED, that any party objecting to a Petition to Intervene make
said Objection on or before May 3, 1999.
By order of the Public Utilities Commission of New Hampshire this
twenty-first day of April, 1999.
/s/ Douglas L Patch /s/ Susan S. Geiger /s/ Nancy Brockway
Douglas L. Patch Susan S. Geiger Nancy Brockway
Chairman Commissioner Commissioner
Attested by:
/s/ Kimberly Nolin Smith
Kimberly Nolin Smith
Assistant Secretary
Any individuals needing assistance or auxiliary communication aids due to
sensory impairment or other disability, should contact the American with
Disabilities Act Coordinator, NHPUC, 8 Old Suncook Road, Concord, New Hampshire
03301-7319; 603-271-2431; TDD Access: Relay N.H. 1-800-735-2964. Preferably,
notification of the need for assistance should be made one week before the
scheduled event.
STATE OF VERMONT
PUBLIC SERVICE BOARD
Joint Petition of The National Grid Group plc )
and New England Power Company for approval )
pursuant to 30 V.S.A. ss.107 of the indirect ) Docket No. ________
acquisition of a controlling interest in New )
England Power Company )
JOINT PETITION
The National Grid Group plc ("National Grid") and New England Power Company
("NEP") hereby petition the Vermont Public Service Board (the "Board"), pursuant
to 30 V.S.A. ss. 107, for approval of the indirect acquisition by National Grid
of a controlling interest in NEP.
I.
By this petition, National Grid and NEP represent that:
1. NEP is a Massachusetts corporation that owns and operates properties in
Massachusetts, New Hampshire, Connecticut, Maine and Vermont, including
transmission lines, and is a transmission subsidiary of New England Electric
System ("NEES"); NEP owns properties in several Vermont communities used
primarily for the transmission of electricity and has a twenty percent share of
the common stock of Vermont Yankee Nuclear Power Corporation;
2. NEP has qualified to transact business in Vermont as a foreign
corporation but does not engage in local distribution of electricity therein;
3. National Grid is a holding company incorporated in England and Wales and
is the world's largest privately-owned, independent transmission company.
National Grid's principal subsidiary is The National Grid Company plc, a
corporation that owns and operates the transmission system and control area in
England and Wales and has indirect interests in transmission systems in
Argentina and Zambia;
4. On December 14, 1998, National Grid and New England Electric System
entered into an Agreement and Plan of Merger, which provides for a business
combination transaction; Pursuant to the Agreement, NEES will merge with NGG
Holdings LLC, a Massachusetts limited liability company that is indirectly
wholly-owned by National Grid, with NEES being the surviving entity,
wholly-owned by National Grid (the "Merger");
5. Following the Merger, NEP will remain a separate corporation wholly
owned by NEES and will continue to own and conduct a public service business
subject to the jurisdiction of the Board. NEP will also retain its ownership
interest in Vermont Yankee;
6. The Merger also must be approved by several other regulatory bodies,
including the Securities and Exchange Commission under the Public Utility
Holding Company Act of 1935, by the Federal Energy Regulatory Commission under
Section 203 of the Federal Power Act, and the Nuclear Regulatory Commission
under the Atomic Energy Act; The Merger also requires a filing with the U.S.
Department of Justice and the Federal Trade Commission under the Hart-
Scott-Rodino Antitrust Improvements Act of 1976;
7. Upon the Merger's consummation, National Grid will indirectly acquire a
controlling interest in a company that directly has a controlling interest in a
company subject to the jurisdiction of the Public Service Board, therefore
requiring a finding that the acquisition will promote the public good pursuant
to 30 V.S.A. ss.107;
8. The merger of the parent company of NEP also requires a finding pursuant
to 30 V.S.A. ss. 311 that the Merger will not result in obstructing or
preventing competition; and
<PAGE>
9. The proposed Merger will promote the public good of the State of Vermont
and will not result in obstructing or preventing competition.
II.
In support of this joint petition, National Grid and NEP prefile testimony
and supporting exhibits by the following witnesses:
Witness Subject Matter
Michael E. Jesanis Overview; description of transaction; public
good promoted by the Merger; and description
of other regulatory approvals.
Peter G. Flynn Description of benefits of the Merger including
benefits to NEPOOL, the ISO and electric
customers throughout New England.
Roger Urwin Description of The National Grid Group plc;
explanation of benefits of the Merger to
NEES companies and their customers.
III.
National Grid and NEP request that the Board:
A. Appoint a Hearing Officer to hear, schedule a prehearing conference for,
and issue notice of the opportunity for hearing on this joint petition in
accordance with 30 V.S.A. ss.ss. 107 and 311;
B. Find that the Merger will promote the public good;
C. Find that the Merger will not result in obstructing or preventing
competition in the purchase or sale of any product, service or commodity, in the
sale, purchase or manufacture of which The National Grid Group plc and New
England Electric System are engaged; and
<PAGE>
D. Approve the Merger and take such other measures as in the Board's
judgment are necessary for the full and expeditious resolution of this joint
petition.
Respectfully submitted,
THE NATIONAL GRID GROUP plc
By: LeBouef, Lamb, Greene & MacRae
Attorneys for The National Grid Group plc
By: -------------------------------------
Meabh Purcell
NEW ENGLAND POWER COMPANY
By: Downs Rachlin & Martin PLLC
Attorneys for New England Power Company
By: -------------------------------------
Nancy S. Malmquist
Date: March 29, 1999
<PAGE>
STATE OF VERMONT
PUBLIC SERVICE BOARD
Joint Petition of The National Grid Group plc )
and New England Power Company for approval )
pursuant to 30 V.S.A. ss.107 of the indirect ) Docket No. ________
acquisition of a controlling interest in New )
England Power Company )
APPEARANCE
Downs Rachlin & Martin PLLC, appears for one of the petitioners, New
England Power Company. Provide copies of all filings in this docket to:
Nancy S. Malmquist, Esq.
Downs Rachlin & Martin PLLC
90 Prospect Street
P.O. Box 99
St. Johnsbury, VT 05819-0099
and to
Carlos A. Gavilondo, Esq.
Thomas G. Robinson, Esq.
New England Power Company
25 Research Drive
Westborough, MA 01582-0099
St. Johnsbury, Vermont. March 29, 1999.
Respectfully submitted,
DOWNS RACHLIN & MARTIN PLLC
Attorneys for New England Power Company
By:------------------------------------
Nancy S. Malmquist
<PAGE>
STATE OF VERMONT
PUBLIC SERVICE BOARD
Joint Petition of The National Grid Group plc )
and New England Power Company for approval )
pursuant to 30 V.S.A. ss.107 of the indirect ) Docket No. ________
acquisition of a controlling interest in New )
England Power Company )
STATEMENT OF NOTICE REQUIRED
The petitioners, New England Power Company and The National Grid Group plc,
hereby state that notice of the above-captioned petition is required, pursuant
to Subsection 107 of Title 30, Vermont Statutes Annotated, to the Department of
Public Service, and to such other persons as the Board directs. Exhibit A is a
proposed form of notice to the public, if required.
St. Johnsbury, Vermont. March 29, 1999
DOWNS RACHLIN & MARTIN PLLC
Attorneys for New England Power Company
By: -----------------------------------
Nancy S. Malmquist
<PAGE>
STATE OF VERMONT
PUBLIC SERVICE BOARD
Take notice that, on March __, 1999, The National Grid Group plc, a company
incorporated in England and Wales, and New England Power Company, a company
qualified to transact business in Vermont as a foreign corporation, petitioned
the Vermont Public Service Board, pursuant to 30 V.S.A. ss. 107, for approval of
the acquisition by The National Grid Group plc of an indirect controlling
interest in New England Power Company. Take notice further that the Public
Service Board will hold a hearing on this petition at --------------------- in
- ------------------- on ----------, 1999, at ------------------. Any person
wishing to intervene in this proceeding should give written notice thereof to
the Board by April 15, 1999. Any questions or filings concerning this petition
should be made to:
Mrs. Susan M. Hudson, Clerk
Vermont Public Service Board
112 State Street
Drawer 20
Montpelier, VT 05620-2701
<PAGE>
STATE OF VERMONT
PUBLIC SERVICE BOARD
Joint Petition of The National Grid Group plc )
and New England Power Company for approval )
pursuant to 30 V.S.A. ss.107 of the indirect ) Docket No. ________
acquisition of a controlling interest in New )
England Power Company )
CERTIFICATE OF SERVICE
Downs Rachlin & Martin PLLC, certifies that it has provided three copies of
the above-captioned petition, including its appearance, a statement of notice
required, this certificate and related prefiled testimony and exhibits, to the
Vermont Department of Public Service, by first-class mail, postage prepaid, with
one copy provided to the Department's Director of Public Advocacy, one copy to
the Department's Director of Utility Planning, Dr. William Steinhurst, and one
copy to the Department's Chief Engineer, Thomas Dunn.
St. Johnsbury, Vermont. March 29, 1999
DOWNS RACHLIN & MARTIN PLLC
Attorneys for New England Power Company
By: -----------------------------------
Nancy S. Malmquist
March 31, 1999
Department of Public Utility Control
Ten Franklin Square
New Britain, CT 06051
Attn.: Louise Rickard
Acting Executive Secretary
Re: New England Power Company; - Acquisition of
New England Electric System by
The National Grid Group plc
Dear Ms. Rickard:
We represent New England Power Company ("NEP") in filing this letter with
the Department. All of the common stock of NEP's parent, New England Electric
System ("NEES"), a registered holding company, is being acquired by The National
Grid Group plc ("National Grid") pursuant to a Merger Agreement dated December
11, 1998. NEP is seeking the Department's confirmation that it is not required
to seek Department prior approval for the acquisition of NEES by National Grid.
NEES is a registered public utility holding company headquartered in
Massachusetts. Its subsidiaries are engaged in the transmission and distribution
of electricity and the marketing of energy commodities and services. The
electricity delivery companies serve approximately 1.3 million customers in
Massachusetts, Rhode Island and New Hampshire. NEES does not directly own any
generating or transmission assets located in the State of Connecticut.
NEP is a "foreign electric company," as that term is defined in Section
16-246a of the Connecticut General Statutes, Revision of 1958, as amended (the
"General Statutes"). By virtue of NEP's ownership of a minority interest in
Millstone Unit 3 located in Connecticut, NEP, pursuant to Section 16-246c(c) of
the General Statutes, is an "electric company" and a "public service company"
for all purposes of Title 16 of the General Statutes.
National Grid is a holding company incorporated in England and Wales. It
owns all the shares of The National Grid Company plc, a corporation that is the
world's largest privately owned independent electric transmission company. The
National Grid Company owns, operates and maintains the high voltage network in
England and Wales, which connects power stations with distribution networks. The
National Grid Company is also responsible for scheduling and dispatching
generation to meet demand second-by-second and manages and controls the software
systems to do so. Additionally, The National Grid Company owns and operates
interconnectors that enable electricity to be transferred between the England
and Wales market and Scotland and France.
Because of NEP's status as a "foreign electric company", a review of Title
16 of the Connecticut General Statutes was necessary to determine whether or not
the approval by the Department of the transaction contemplated under the Merger
Agreement is required. The following analysis suggests that such an approval is
not required.
The first statute which may be applicable is Section 16-47 of the
Connecticut General Statutes, which governs "holding companies". A "holding
company" is defined in Section 16-47(a) to mean "any corporation, association,
partnership, trust or similar organization, or person which, either alone or in
conjunction and pursuant to an arrangement or understanding with one or more
other corporations, associations, partnerships, trusts or similar organizations,
or persons, directly or indirectly, controls a gas, electric, electric
distribution, water, telephone or community antenna television company." The
regulatory oversight is provided under ss. 16-47(c) which provides that "[n]o
corporation, association, ... or person shall take any action that causes it to
become a holding company with control over a gas, electric, electric
distribution, water, telephone or community antenna television company engaged
in the business of supplying service within this state, ... or acquire, directly
or indirectly, control over such a holding company, without first making written
application to and obtaining the approval of the department." (emphasis added)
Therefore, it appears that, since neither NEES nor NEP engages in the
business of supplying service within the state, the requirements of approval
under Section 16-47 do not apply. The Department reached a similar conclusion in
the application of Central Maine Power Company in Docket No. 98-06-28 concerning
that company's creation of a holding company, finding that the Department did
not have jurisdiction over the transaction under that statutory provision.
<PAGE>
The second statute potentially applicable to the proposed merger
transaction is Section 16-43(a) of the General Statutes, which provides that
"[a] public service company shall obtain the approval of the Department of
Public Utility Control to directly or indirectly (1) merge, consolidate or make
common stock with any other company, or (2) sell, lease, assign, mortgage, ...
or otherwise dispose of any essential part of its franchise, plant equipment or
other property necessary or useful in the performance of its duty to the public,
...". Since the transaction proposed does not involve NEP, the public service
company, but NEES, a registered utility holding company parent, the provisions
of Section 16-43 also do not apply.
While it could be argued that the phrase "directly or indirectly" in the
opening section of that statute covers the acquisition of a holding company
which, in turn, owns a public service company, we doubt that the legislature
intended such essentially unlimited extension of state review of "above holding
company" level transactions. Additionally, we are unaware of any prior
Department decisions or applications which purport to cover an entirely
tangential transaction solely involving the parents, affiliates and other
corporate-related entities of a public service company such as those
contemplated by the Merger Agreement. Matters otherwise within the scope of
Section 16-43 but removed by corporate organization from the regulated public
service company occur regularly and, should the Department assert that it has
jurisdiction over such transactions, the Department could be expected to receive
numerous applications for approval of such transactions even though the
transactions would appear to involve no legitimate state issues in Connecticut.
Additionally, the proposed transaction is already being scrutinized by the
Securities and Exchange Commission ("SEC") under the Public Utility Holding
Company Act, the Federal Energy Regulatory Commission, to which a Section 203
filing has been submitted, the Nuclear Regulatory Commission under the Atomic
Energy Act, the state utility regulatory agency of the state of Vermont,1 and a
representation of no net harm to customers is required in New Hampshire. The
proposed transaction also requires a Hart Scott Rodino filing with the U.S.
Justice Department. Finally, although no formal approval is required by the
Massachusetts Department of Telecommunications and Energy ("DTE"), that state
agency is reviewing the proposed transaction as well and will be providing
comments (along with New Hampshire and Rhode Island regulators) to the SEC to
the effect that the DTE has the authority and resources to protect rate payers,
including in particular, with regard to matters such as rates, financings,
affiliate transactions and financial integrity, and that the DTE intends to
exercise its authority.
- -------------------
1 In contrast with the provisions of Section 16-43 of the Connecticut General
Statutes, the pertinent provision of the Vermont legislation provides that
"[n]o company shall directly or indirectly acquire a controlling interest
in any company subject to the jurisdiction of the public service board, or
in any company which, directly or indirectly has a controlling interest in
such a company, without the approval of the public service board," (30
V.S.A. Section 107); thus requiring that state's approval of the
acquisition of NEES by National Grid.
<PAGE>
In view of the importance of the proposed transaction to NEES and National
Grid, they wish to be certain that all required regulatory approvals relating to
the merger have been obtained. On behalf of NEP, therefore, we would appreciate
the Department's confirmation that it is not necessary to seek its prior
approval of the NEES-National Grid merger from the Department prior to the
merger.
If, however, the Department does not concur with our analysis in this
regard, we have enclosed with this letter copies of the testimony of Michael E.
Jesanis, Roger Urwin, and Peter G. Flynn, filed with the Massachusetts DTE. This
testimony sets forth in detail the particular elements of the transaction and
includes a copy of the Merger Agreement and its exhibits.
Because NEES and National Grid are attempting to close the merger
expeditiously, they are seeking to have all necessary regulatory approvals in
hand prior to May 31, 1999. To that end, NEP would be happy to provide any
additional documentation or information that the Department believes is
necessary to properly evaluate this request. Finally, the Department's prompt
response to this request would be greatly appreciated.
Very truly yours,
Peter G. Boucher
Attachments
Exhibit J-1
The National Grid Group
Description of Companies
The following is a description of the one direct and other indirect active
subsidiaries of The National Grid Group plc. National Grid Group has a number of
dormant subsidiaries (often formed for purposes of potential projects that are
not realized) that are not included herein. As noted in the
Application/Declaration, the discussion of the independent bases for retaining
any subsidiary other than National Grid Holdings is provided for the
Commission's information and is not required for purposes of Section 11(b)(1) of
the Act. Except as other noted, all entities listed below are organized under
the laws of England and Wales.
I. National Grid Holdings plc ("National Grid Holdings") is the intermediate
holding company for all of National Grid Group's non-NEES related
operations. On or prior to consummation of the Merger, National Grid
Holdings will be qualified as a "foreign utility company" within the
meaning of the Act. As a result, it and all of its subsidiaries may be
retained by National Grid Group pursuant to the provisions of Section 33(c)
of the Act.
1. The National Grid Company plc. ("NGC") As the electric transmission
company in England and Wales, NGC provides transmission service on a
for-profit, non- discriminatory basis and maintains and makes all
improvements to optimize access to the system, procures ancillary
services on the transmission system of England and Wales, matches
supply and demand, manages the daily system of half-hourly bids for
competing generators and makes payments due from each day's energy
trading. NGC is organized under the laws of England and Wales and is
subject to regulatory controls overseen by the Director General of
Electricity Supply. NGC has seven active subsidiaries, as follows:
a. NGC Nominees Limited serves as a shareholder for a number of
National Grid Group entities, as it is customary in the UK to
have more than one shareholder in most corporate entities. This
company is not otherwise an operating entity.
b. Datum Solutions Limited is engaged in providing metering services
in the United Kingdom at entry and exit points of the U.K.
transmission system, and more widely to customers in the
competitive market.
c. Energy Settlements and Information Services Limited operates the
computer systems needed to calculate prices and payments due as a
result of the daily trading of power across England and Wales.
d. Energy Pool Funds Administration Limited manages the transfer of
funds in payments for the energy traded.
e. NGC Employee Shares Trustee Limited serves as trustee in respect
of the National Grid Profit Sharing Scheme and Employee Benefit
Trust, which are trusts set up for employees of National Grid
Group. This company does not have any independent operations.
<PAGE>
f. NGC Leasing Limited is engaged in the leasing of motor vehicles
for use by employees of the National Grid Group system.
g. NGC Properties Limited owns and develops property that is not
used for the operation of the transmission system, usually with a
view toward eventual sale.
NGC does not directly or indirectly derive any part of its income from
the generation, transmission or distribution of electric energy for
sale or the distribution at retail of natural or manufactured gas for
heat, light or power within the U.S. None of NGC or its subsidiaries
is a public utility company operating in the U.S. On or prior to
consummation of the Merger, NGC will be qualified as a "foreign
utility company" within the meaning of the Act and it and its
subsidiaries may be retained by National Grid Group pursuant to the
provisions of Section 33(c) of the Act.
2. National Grid Insurance Limited was organized in Guernsey in
connection with the self-insured retention of NGC's transmission
assets. National Grid Group holds all of the outstanding ordinary
shares of National Grid Insurance and Barclays Bank holds its
outstanding preference shares. As noted in the Application, the
Commission has previously authorized other registered holding
companies to engage in self-insurance activities (see The Columbia Gas
System, Inc., Holding Co. Act Release No. 26596 (Oct. 25, 1996)),
thereby clarifying that such insurance is functionally related to core
utility operations and therefore retainable by National Grid Group.
3. National Grid International Limited is the holding company for a
number of the group's non-U.K. investments, including operations in
South America, India, Africa and the U.S. National Grid International
was formed has four direct and a number of indirect subsidiaries, as
follows:
a. National Grid Overseas Limited is an intermediate holding company
above most of the South American, Indian and African interests
held by the National Grid Group.
i. National Grid Holdings BV is organized in the Netherlands
and is a holding company for operations in Brazil and India.
(1) National Grid India BV, another Netherlands organized
company, organizes and controls National Grid Group's
investments in India.
<PAGE>
(2) NGC do Brasil Participacoes Ltda, a Brazilian company
and National Grid Brazil BV, a Netherlands company, serve to
organize and control National Grid Group's investments in
Brazil. They currently own three entities formed under the
laws of Brazil as follows: JVCO Participacoes Ltda (a joint
venture vehicle for National Grid Group and Sprint), Holdco
Participacoes Ltda (an intermediate joint venture vehicle
pursuant to which other investors are involved in Brazilian
telecom operations) and Bonari Holding Ltda, an operating
company engaged in telecommunications operations in Brazil).
ii. National Grid Zambia BV, is formed under the laws of the
Netherlands that organizes and controls National Grid
Group's investments in Zambia.
(1) Copperbelt Energy Corporation plc, a Zambian corporation
that is some 40% owned by National Grid and is engaged in
buying, selling and transmitting electricity to meet the
needs of the copper mining regions of Zambia. NGC Zambia and
National Grid Zambia were formed for the purpose of
facilitating National Grid's ownership and operations of
African operations. Another registered holding company,
CINergy, also owns a significant interest in Copperbelt.
iii. National Grid Finance BV. A company formed under the laws of
the Netherlands that serves as a holding company for
operations in Argentina. National Grid Overseas holds a one
third interest in National Grid Finance directly.
(1) Citelec SA (41.25% interest held by National Grid
Group),
(a) Transener, in which Citelec holds an approximately 65%
interest, is the owner of the primary transmission system
that services Argentina and acts as operator thereof.
Transener itself owns a regional transmission system owner
in Argentina (Transba) and is engaged in the construction of
a cross-country transmission line.
b. Teldata International Limited is a holding company for US billing
and energy service operations.
i. Teldata Inc. is a Delaware corporation that provides
complete, end- to-end, automated metering and billing
solutions for electric, gas and water utilities and energy
service providers.
<PAGE>
(1) FirstPoint Services Inc. is a Delaware corporation
engaged in providing billing software solutions for
electric, gas and water utilities and energy service
providers.
c. National Grid USA Inc. is a Delaware corporation formed to
investigate potential opportunities in the U.S. market for
National Grid.
d. National Grid (Isle of Man) Limited is a holding company for
operations on the Isle and is organized under the laws of the
Isle of Man.
i. Manx Cable Company (Isle of Man) is organized under the laws
of the Isle of Man for the purpose of developing an undersea
connector between England and the Isle of Man.
National Grid International does not directly or indirectly derive any
part of its income from the generation, transmission or distribution
of electric energy for sale or the distribution at retail of natural
or manufactured gas for heat, light or power within the U.S. None of
National Grid International or its subsidiaries is a public utility
company operating in the U.S. On or prior to consummation of the
Merger, National Grid International and certain of its subsidiaries
will be qualified as a "foreign utility company" within the meaning of
the Act and it and its subsidiaries may be retained by National Grid
Group pursuant to the provisions of Section 33(c) of the Act.
4. The National Grid Group Quest Trustee Company Limited serves as
trustee with respect to the National Grid Group Qualifying Share
Trust, which is a trust established for employees of National Grid
Group. This company does not have any independent operations.
Applicants note that a number of registered holding companies have
formed or been permitted to retain or invest in separate entities in
connection with employee benefit programs. See New Century Energies,
Inc., Holding Co. Act Release No. 26748 ) (Aug. 1, 1997)
(retention of subsidiary holding life insurance policies of
executives); Northeast Utilities, Holding Co. Act Release No. 24372
(April 15, 1987) (authorizing acquisition of common stock of insurer
to facilitate obtaining directors and officers insurance); In the
Matter of General Public Utilities Corporation, Holding Co. Act
Release No. 7092 (Dec. 23, 1996) (authorizing acquisition of shares of
non-utility subsidiary engaged in administering employee insurance
plans). Thus, retention of this entity is consistent with the
provisions of the Act.
5. NGC Telecoms Holding Limited is a holding company for National Grid
Group's interest in certain telecommunications operations.
a. NGG Telecoms Limited also serves to hold National Grid Group's
interest in these telecommunications operations.
<PAGE>
i. Energis plc is the publicly-traded parent company of Energis
Communications. National Grid Group holds a 48.3% interest
in Energis plc.
(1) Energis Communications Limited owns and operates an
advanced telecommunications network that is astride the NGC
transmission network. The Energis network transfers data, by
voice, picture or data-base, throughout England and Wales.
b. NGG Telecoms Investment Limited is an internal holding company
for part of National Grid Group's interest in Energis plc.
NGG Telecoms is indirectly engaged exclusively in
telecommunications services, information services and services
related or incidental thereto. On or prior to consummation of the
Merger, NGG Telecoms and its subsidiaries will qualified as an
exempt telecommunications entity within the meaning of Section 34
of the Act and, as a result, retention of NGG Telecoms and its
subsidiaries will be expressly authorized under Section 34(d) of
the Act.
6. NatGrid Finance Holdings Limited is a holding company for NatGrid
Finance Limited, NG Investment Limited and Natgrid Investments Limited
which are Jersey corporations that provide financial management
services to National Grid Group. For example, this group of companies
is currently involved in investing and managing the proceeds from the
recent public offering by National Grid Group of some of its interest
in the ordinary shares of Energis plc. A number of other registered
holding companies hold subsidiaries that perform financing
transactions for the system. See Central and Southwest Corporation,
Holding Co. Act Release No. 23767 (July 19, 1985) (authorizing
formation of subsidiary to provide factor intrasystem receivables);
Ameren Corporation, Holding Co. Act Release No. 26809 (Dec. 30, 1997)
(permitting retention of subsidiary engaged in investing in securities
for systems companies).
THE NATIONAL GRID GROUP plc
GROUP HISTORICAL COST BALANCE SHEET
At 30 September 1998
<TABLE>
<CAPTION>
At 30 September At 31 March
1998 1997 1998
(as restated) (as restated)
(pound)m (pound)m (pound)m
<S> <C> <C> <C>
Fixed assets
Tangible assets 2,784.8 3,022.0 2,711.4
Investments 313.5 42.6 326.9
------- ------- -------
3,098.3 3,064.6 3,038.3
------- ------- -------
Current assets
Stocks 14.2 12.0 12.5
Debtors 186.5 174.3 321.5
Investment 0.1 0.1 0.1
Cash and deposits 54.3 335.2 49.9
------- ------- -------
255.1 521.6 384.0
Creditors (due within one year) (955.1) (1,090.6) (1,097.2)
------- ------- -------
Net current liabilities (700.0) (569.0) (713.2)
------- ------- -------
Total assets less current liabilities 2,398.3 2,495.6 2,325.1
Creditors (due after more than one year) (1,328.0) (850.3) (1,320.5)
Provisions for liabilities and charges (56.6) (134.4) (75.2)
------- ------- -------
Net assets employed 1,013.7 1,510.9 929.4
======= ======= =======
Capital and reserves
Called up share capital 173.5 171.8 173.5
Share premium account 232.7 187.7 232.7
Profit and loss account 607.5 1,151.4 523.2
------- ------- -------
Shareholders' funds 1,013.7 1,510.9 929.4
======= ======= =======
Net debt 1,507.4 696.8 1,465.3
</TABLE>
THE NATIONAL GRID GROUP plc
GROUP HISTORICAL COST PROFIT AND LOSS ACCOUNT
Six months ended 30 September 1998
<TABLE>
<CAPTION>
Year ended
Six months ended 31 March
30 September 1998
1998 1997
(as restated) (as restated)
Notes (pound)m (pound)m (pound)m
<S> <C> <C> <C> <C>
Group turnover
- - Continuing operations 748.6 718.1 1,519.3
- - Discontinued operations - 62.0 90.1
------- ------- -------
3 748.6 780.1 1,609.4
Operating costs (463.1) (523.8) (1,069.4)
------- ------- -------
Operating profit/(loss)
- - Continuing operations 285.5 277.4 568.4
- - Discontinued operations - (21.1) (28.4)
------- ------- -------
Operating profit of Group undertakings 3 285.5 256.3 540.0
Share of operating profit in joint ventures 6.6 2.6 5.4
Share of operating loss in associate (7.8) - (4.1)
------- ------- -------
Total operating profit 284.3 258.9 541.3
Exceptional profit relating to Energis - - 107.1
Net interest 4 (63.4) (33.7) (75.8)
------- ------- -------
Profit on ordinary activities before taxation 220.9 225.2 572.6
Taxation 5 (59.6) (64.5) (133.5)
------- ------- -------
Profit on ordinary activities after taxation 161.3 160.7 439.1
Dividends
- - Ordinary (77.0) (83.0) (189.2)
- - Special - - (768.6)
------- ------- -------
6 (77.0) (83.0) (957.8)
------- ------- -------
Retained profits/(loss) 84.3 77.7 (518.7)
======= ======= =======
Earnings per ordinary share
- - Basic - On profit for the period 7 11.0p 9.4p 26.0p
- - On adjusted profit for the period* 7 11.0p 9.4p 19.7p
- - Diluted - On profit for the period 7 10.8p 9.3p 25.8p
- On adjusted profit for the period* 7 10.8p 9.3p 19.5p
* Adjusted profit excludes the exceptional profit relating
to Energis
Dividends per ordinary share (net)
- - Ordinary 6 5.25p 4.83p 12.07p
- - Special - - 44.70p
7
</TABLE>
<PAGE>
THE NATIONAL GRID GROUP plc
SUMMARIZED GROUP CASH FLOW STATEMENT
Six months ended 30 September 1998
<TABLE>
<CAPTION>
Six months ended Year ended
30 September 31 March
1998 1997 1998
Notes (pound)m (pound)m (pound)m
<S> <C> <C> <C> <C>
Net cash inflow from operating activities 8(a)(b) 261.9 297.9 627.2
Net cash (outflow)/inflow for returns on investments
and servicing of finance (59.6) 7.8 (31.3)
Corporate tax (paid)/refund (78.2) 0.4 (138.2)
(including advance corporation tax)
Net cash outflow for capital expenditure 8(b) (161.6) (126.9) (286.4)
Net cash (outflow)/inflow from acquisitions and
disposals - (29.9) 157.8
Ordinary dividends - - (197.7)
Special dividend - - (768.6)
------- ------- -------
Equity dividends paid - - (966.3)
------- ------- -------
Net cash (outflow)inflow before management of
liquid resources and financing (37.5) 149.3 (637.2)
Net cash (outflow)/inflow from the management of
liquid resources (5.3) (62.9) 217.0
Issue of ordinary shares 0.6 1.3 5.8
New borrowings 138.3 2.6 707.4
Borrowings repaid (111.2) (1.2) (209.3)
------- ------- -------
Net cash inflow from financing 27.7 2.7 503.9
------- ------- -------
Movement in cash and overdrafts (15.1) 89.1 83.7
======= ======= =======
</TABLE>
-2-
<PAGE>
THE NATIONAL GRID GROUP plc
GROUP STATEMENT OF TOTAL RECOGNIZED GAINS AND LOSSES
Six months ended 30 September 1998
<TABLE>
<CAPTION>
Six months ended Year ended
30 September 31 March
1998 1997 1998
Notes (pound)m (pound)m (pound)m
(as restated) (as restated)
<S> <C> <C> <C> <C>
Profit after taxation* 161.3 160.7 439.1
======= =======
Prior period adjustment 1 40.8
-------
Total recognized gains and losses since last annual
report 202.1
=======
</TABLE>
* There are no recognized gains and losses relating to the period other than the
profit for the period.
RECONCILIATION OF MOVEMENT IN SHAREHOLDERS' FUNDS
Six months ended 30 September 1998
<TABLE>
<CAPTION>
Six months ended Year ended
30 September 31 March
1998 1997 1998
(as restated) (as restated)
(pound)m (pound)m (pound)m
<S> <C> <C> <C>
Profit after taxation 161.3 160.7 439.1
Dividends
- - Ordinary (77.0) (83.0) (189.2)
- - Special - - (768.6)
-------- -------- --------
(77.0) (83.0) (957.8)
84.3 77.47 (518.7)
Issue of ordinary shares - 1.3 16.2
-------- -------- --------
Net increase/(decrease) in shareholders' funds 84.3 79.0 (502.5)
Shareholders' funds at start of period 929.4* 1,431.9 1,431.9
-------- -------- --------
Shareholders' funds at end of period 1,013.7 1,510.9 929.4
======== ======== ========
</TABLE>
* originally (pound)888.6m before adding prior period adjustment of (pound)40.8m
-3-
THE NATIONAL GRID GROUP plc
NOTES
1. Prior period adjustment
The adoption of Financial Reporting Standard 12 "Provisions, Contingent
Liabilities and Contingent Assets" (FRS 12) has resulted in a change in the
method of accounting for provisions. This change in accounting policy, which has
the effect of reducing operating profit of Group undertakings for the six months
ended 30 September 1998 by (pound)1.0m, has been reflected in the accounts as a
prior period adjustment in accordance with Financial Reporting Standard 3. As a
result, shareholders' funds at 30 September 1997 and 31 March 1998 have been
increased by (pound)41.9m and (pound)40.8m respectively and the comparative
amounts of operating profit of Group undertakings for the six months ended 30
September 1997 and the year ended 31 March 1998 have been reduced by (pound)1.1m
and (pound)2.2m respectively. A change in accounting estimates as a result of
implementing FRS 12 is included in note 3.
2. Basis of preparation
The financial information contained in this announcement has, with the exception
of the change in accounting policy resulting from the adoption of FRS 12 (see
note 1), been prepared on the basis of the accounting policies set out in the
Annual Report and Accounts for the year ended 31 March 1998 and does not
constitute statutory accounts as defined in Section 240 of the Companies Act
1985. The financial information in respect of the year ended 31 March 1998 has
been derived from the statutory accounts for the year ended 31 March 1998, which
have been delivered to the Registrar of Companies. The auditors' report on these
statutory accounts was unqualified and did not contain a statement under Section
237(2) or (3) of the Companies Act 1985. The financial information in respect of
the six months ended 30 September 1998 is unaudited but has been reviewed by the
auditors and their report is set out on page 14.
3. Segmental analysis
<TABLE>
<CAPTION>
Six months ended Year ended
30 September 31 March
1998 1997 1998
(pound)m (pound)m (pound)m
<S> <C> <C> <C>
a) Turnover - continuing operations
Transmission 588.0 589.3 1,225.2
Interconnectors 29.9 32.1 75.7
Ancillary Services 58.4 54.7 118.7
Other activities 90.6 68.8 153.7
Sales between businesses (18.3) (16.4) (35.6)
------- ------- --------
748.6 728.5 1,537.7
Sales to discontinued operations - (10.4) (18.4)
------- ------- --------
748.6 728.5 1,537.7
Discontinued operations:
Energis - 69.2 103.0
Sales to continuing operations - (7.2) (12.9)
------- ------- --------
- 62.0 90.1
------- ------- --------
Group turnover 748.6 780.1 1,609.4
======= ======= ========
</TABLE>
<PAGE>
THE NATIONAL GRID GROUP plc
NOTES
<TABLE>
<CAPTION>
Six months ended Year ended
30 September 31 March
1998 1997 1998
(pound)m (pound)m (pound)m
<S> <C> <C> <C>
3. Segmental Analysis (Cont.)
b) Operating profit - continuing operations
Transmission 248.8 257.1 519.7
Interconnectors 11.2 13.3 36.2
Ancillary Services 0.1 0.1 0.2
Other activities 25.4* 6.9 12.3
------- ------- --------
285.5 277.4 568.4
------- ------- --------
Discontinued operations:
Energis - (21.1) (28.4)
------- ------- --------
Operating profit of Group undertakings 285.5 256.3 540.0
======= ======= ========
</TABLE>
* Includes (pound)15.2m relating to a revision of accounting estimates of
provisions resulting from the implementation of FRS 12.
4. Net Interest
<TABLE>
<CAPTION>
Six months ended Year ended 31
30 September March
1998 1997 1998
(pound)m (pound)m (pound)m
<S> <C> <C> <C>
Interest payable and similar charges 59.8 41.9 96.8
Interest receivable and similar income (4.3) (9.5) (27.1)
------- ------- -------
55.5 32.4 69.7
Joint ventures and associate 7.9 1.3 6.1
------- ------- -------
63.4 33.7 75.8
======= ======= =======
</TABLE>
5. Taxation
The tax charge for the six months ended 30 September 1998 is based on the
estimated effective tax rate for the year ending 31 March 1999.
6. Dividends
The interim dividend of 5.25p (net of the associated tax credit) per ordinary
share (1997: 4.83p) will be paid on 15 February 1999 to shareholders on the
register on 4 December 1998.
-2-
<PAGE>
THE NATIONAL GRID GROUP plc
NOTES
7. Earnings per ordinary share
Basic earnings per ordinary share for the six months ended 30 September 1998 of
11.0p (1997: 9.4p) is calculated based on the profit after taxation of
(pound)161.3m (1997: (pound)160.7m) and 1,466.0m shares (1997 : 1,716.8m), being
the weighted average number of ordinary shares in issue during the period.
For the purposes of calculating diluted earnings per ordinary share, profit
after taxation and the weighted average number of ordinary shares in issue are
adjusted for the effects of all dilutive potential of ordinary shares.
8. Summarized Group cash flow statement
<TABLE>
<CAPTION>
Six months ended Year ended
30 September 31 March
1998 1997 1998
(as restated) (as restated)
(pound)m (pound)m (pound)m
<S> <C> <C> <C>
a) Net cash inflow from operating activities
Operating profit of Group undertakings 285.5 256.3 540.0
Depreciation charge 63.0 85.8 159.6
Profit on disposal of tangible fixed assets (3.1) (2.9) (4.1)
Increase in stocks (1.7) (2.9) (3.4)
Increase in debtors (4.2) (25.1) (35.2)
(Decrease)/increase in creditors (60.1) 3.0 20.7
Decrease in provisions (18.6) (13.6) (49.0)
Other 1.1 (2.7) (1.4)
------- ------- -------
(23.6) 41.6 87.2
------- ------- -------
261.9 297.9 627.2
======= ======= =======
</TABLE>
b) Net cash inflow from operating activities and net cash outflow for capital
expenditure include (pound)nil (1997 : cash outflow (pound)12.8m) and
(pound)nil (1997 : (pound)54.2m) respectively relating to discontinued
operations.
-3-
