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File No. ---
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM U-1
APPLICATION-DECLARATION
UNDER
THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
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PowerGen plc LG&E Energy Corp.
PowerGen US Holdings Limited LG&E Capital Corp.
PowerGen US Investments LG&E Energy Marketing Inc.
Limited LG&E Power Inc.
Ergon US Investments Limited 220 West Main Street
PowerGen Luxembourg SA P.O. Box 32030
PowerGen Luxembourg Holdings Louisville, Kentucky 40232
SA
PowerGen Luxembourg Louisville Gas and Electric Company
Investments SA 220 West Main Street
PowerGen US Partnership P.O. Box 32010
PowerGen US Investments Louisville, Kentucky 40232
Corp.
53 New Broad Street Kentucky Utilities Company
London EC2M 1SL One Quality Street
United Kingdom Lexington, KY 40507
(Name of company filing this statement and
address of principal executive offices)
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PowerGen plc
(Name of top registered holding company
parent of each applicant or declarant)
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David Jackson Joseph B. Frumkin
Company Secretary and Sullivan & Cromwell
General Counsel 125 Broad Street
PowerGen plc New York, NY 10004
53 New Broad Street Telephone: 212-558-4000
London EC2M 1JJ Facsimile: 212-558-3588
United Kingdom
Telephone: 011-44-171-826-2742
Facsimile: 011-44-171-826-2716
Steven J. Agresta
Richard T. Miller
Sara C. Weinberg
Swidler Berlin Shereff
Friedman, LLP
3000 K Street, NW, Suite 300
Washington, DC 20007-5116
Telephone: 202-424-7500
John R. McCall Facsimile: 202-424-7643
Executive Vice President,
General Counsel and
Secretary Peter D. Clarke
LG&E Energy Corp. Debra J. Schnebel
220 West Main Street Gardner, Carton & Douglas
Louisville, Kentucky 40232 321 North Clark Street
Telephone: 502-627-3665 Suite 3400
Facsimile: 502-627-4622 Chicago, Illinois 60610
Telephone: 312-245-8685
Facsimile: 312-644-3381
(Names and addresses of agents for service)
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Certain Defined Terms
1. "Applicants" means PowerGen, the Intermediate Companies, LG&E Energy,
Louisville Gas and Electric Company, Kentucky Utilities Company, LG&E
Capital Corp., LG&E Energy Marketing Inc., and LG&E Power Inc.
2. "PowerGen" means PowerGen plc.
3. "PowerGen System" means PowerGen and all of its direct and indirect
subsidiary companies.
4. "Intermediate Companies" means PowerGen US Holdings Limited, PowerGen US
Investments Limited, Ergon US Investments Limited, PowerGen Luxembourg SA,
PowerGen Luxembourg Holdings SA, PowerGen Luxembourg Investments SA,
PowerGen US Partnership, and PowerGen US Investments Corp.
5. "U.S. Subsidiary Companies" means the Intermediate Companies, LG&E Energy,
and the LG&E Energy Subsidiary Companies.
6. "LG&E Energy Group" means LG&E Energy and the LG&E Energy Subsidiary
Companies.
7. "LG&E Energy" means LG&E Energy Corp.
8. "LG&E Energy Subsidiary Companies" means the subsidiary companies of LG&E
Energy.
9. "U.S. Utility Subsidiaries" means Louisville Gas and Electric Company,
Kentucky Utilities Company, and Electric Energy, Inc.
10. "U.S. Non-Utility Subsidiaries" means the subsidiaries of LG&E Energy,
other than the U.S. Utility Subsidiaries.
11. "LG&E Services" means LG&E Energy Services, Inc., a company to be approved
as a service provider under Section 13 of the Act.
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TABLE OF CONTENTS
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Item 1. Description of the Proposed Merger and Financing Request.......................... 8
A. Introduction.................................................................. 8
1. General Request........................................................... 8
2. Overview of the Merger.................................................... 9
B. Description of the Parties to the Merger...................................... 11
1. PowerGen.................................................................. 11
2. LG&E Energy............................................................... 14
C. Description of the Merger..................................................... 18
1. Background................................................................ 18
2. Merger Agreement.......................................................... 20
3. Corporate Structure for the Merger........................................ 20
4. Financing the Merger...................................................... 21
D. Operations and Management of PowerGen and LG&E Energy Following the Merger.... 22
1. PowerGen.................................................................. 22
2. LG&E Energy............................................................... 22
E. Industry Restructuring Initiatives Affecting U.S. Operations.................. 23
F. Request for Authorization of Proposed Financings.............................. 25
Item 2. Fees, Commissions and Expenses.................................................... 25
Item 3. Applicable Statutory Provisions................................................... 26
A. Legal Analysis of the Merger.................................................. 27
1. Section 10(b)............................................................. 28
a. Section 10(b)(1)...................................................... 29
i. Interlocking Relationships........................................ 29
ii. Concentration of Control.......................................... 29
b. Section 10(b)(2)...................................................... 31
i. Fairness of Consideration......................................... 31
ii. Reasonableness of Fees............................................ 32
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c. Section 10(b)(3)...................................................... 33
i. The presence of debt at more than one level of the PowerGen
System does not "unduly complicate" the capital structure of
the PowerGen System for purposes of Section 10(b)(3)............. 36
ii. The Merger will not be detrimental to the public interest or
the interest of investors or consumers or the proper
functioning of the registered holding company system............. 40
2. Section 10(c)............................................................. 41
a. Section 10(c)(1)...................................................... 41
i. Section 8 Analysis............................................... 42
ii. Section 11 Analysis -- Integration............................... 42
iii. Section 11 Analysis - Retention of Gas Utility System............ 49
iv. Retention of "Other Businesses".................................. 53
v. The Merger Will Satisfy the Requirements of Section 11(b)(2), as
Incorporated by Section 10(c)(1)................................. 53
b. Section 10(c)(2)...................................................... 58
i. Benefits to customers, employees and shareholders................ 58
ii. Strategic benefits............................................... 59
3. Section 10(f)............................................................. 61
B. Proposed Financings........................................................... 62
1. Introduction and General Request.......................................... 62
2. Specifics of Proposed Financing Arrangements.............................. 66
a. PowerGen and US Holdings External Financing........................... 66
i. Ordinary Shares Issued by PowerGen............................... 67
ii. Preferred Stock Issued by US Holdings............................ 70
iii. Short-Term Financing Of PowerGen and US Holdings................. 70
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iv. Long-Term Debt Issued by US Holdings.............................. 70
v. Other Securities Issued by PowerGen and US Holdings............... 71
b. Intermediate Company Financings........................................ 72
c. LG&E Energy Group Financings........................................... 73
i. External Financings............................................... 73
(A) LG&E Energy.................................................. 73
(B) U.S. Utility Subsidiary Financing............................ 74
(C) U.S. Non-Utility Subsidiary Financings....................... 75
ii. Intra-System Financings........................................... 76
(A) Inter-Company Loans.......................................... 76
(B) Money Pools.................................................. 77
(C) Other Financings............................................. 81
d. Guarantees............................................................ 82
i. Guarantees by PowerGen............................................ 82
ii. Existing Guarantees of the LG&E Energy Group...................... 82
iii. Additional Guarantees of the LG&E Energy Group during the
Authorization Period.............................................. 83
e. Interest Rate and Currency Risk Management............................. 83
f. Acquisition, Redemption, or Retirement of Securities................... 84
g. Financing Entities .................................................... 84
h. LG&E Energy Intermediate Subsidiaries.................................. 85
i. Reorganization Authority............................................... 87
j. EWG/FUCO-Related Financings............................................ 88
C. Reporting...................................................................... 93
1. Requests for Exemption..................................................... 94
2. Form U5S................................................................... 94
3. Rule 24 Certificates of Notification....................................... 95
D. Payment of Dividends Out of Capital and Unearned Surplus....................... 97
1. PowerGen and U.S. Subsidiary Companies..................................... 97
2. U.S. Non-Utility Subsidiaries.............................................. 98
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E. Approval of New Tax Allocation Agreement....................................... 99
F. Section 13 - Intra-System Provision of Services................................ 100
1. Interaction with FERC Policy................................................ 100
2. Scope of Service............................................................ 102
3. Allocation of Service Costs Among Members of the LG&E Energy Group.......... 105
4. Calculation of Service Costs................................................ 106
5. Billing..................................................................... 107
6. Restriction on Amendments................................................... 108
7. Approval of LG&E Services................................................... 108
G. Other Statutory Provisions..................................................... 109
1. Sections 14 and 15 - Jurisdiction........................................... 109
2. Section 33 - Foreign Utility Companies...................................... 110
3. Sections 3(a)(1) and 3(a)(2) - Exemption from Registration.................. 111
Item 4. Regulatory Approvals............................................................... 111
I. Merger Approvals................................................................... 111
A. Antitrust...................................................................... 112
B. Federal Power Act.............................................................. 112
C. Exon-Florio.................................................................... 112
D. State Regulatory Approval...................................................... 113
E. U.K. Notice Requirements....................................................... 113
II. Financing Approvals................................................................ 114
Item 5. Procedure.......................................................................... 114
Item 6. Exhibits and Financial Statements.................................................. 115
A. Exhibits....................................................................... 115
B. Financial Statements........................................................... 118
Item 7. Information as to Environmental Effects............................................ 119
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ITEM 1. DESCRIPTION OF THE PROPOSED MERGER AND FINANCING REQUEST
A. Introduction
This Application-Declaration (the "Application") seeks approvals relating
to the proposed acquisition of LG&E Energy by PowerGen pursuant to which all of
the companies comprising the LG&E Energy Group will become indirect subsidiaries
of PowerGen ("the Merger"). Following consummation of the Merger, PowerGen and
each of the Intermediate Companies propose to register with the Securities and
Exchange Commission (the "Commission") as holding companies under Section 5 of
the Public Utility Holding Company Act of 1935, as amended (the "Act" or the
"1935 Act")./1/ LG&E Energy and one of LG&E Energy's utility subsidiaries,
Kentucky Utilities Company ("KU"), are currently exempt holding companies under
Sections 3(a)(1) and 3(a)(2), respectively, of the Act and intend to retain that
status following the Merger. Both LG&E Energy and KU will become part of
PowerGen's registered system.
1. General Request
Pursuant to Sections 9(a)(2) and 10 of the Act, the Applicants hereby
request authorization and approval of the Merger, whereby PowerGen will become
the indirect owner of 100% of the common stock of Louisville Gas and Electric
Company ("LG&E") and KU, 20% of the common stock of Electric Energy, Inc.
("EEI") and 7.4% of the common stock of Ohio Valley Electric Company ("OVEC"),
each of which is a public-utility company under the Act. The Applicants also
request that the Commission approve (i) using a corporate structure similar to
that approved for The National Grid Group plc ("National Grid"), the acquisition
and retention by PowerGen of LG&E Energy's non-utility activities, businesses,
and investments and the retention of PowerGen's existing non-utility activities,
businesses, and investments; (ii) certain Merger-related financing matters,
including exempt wholesale generator ("EWG")/foreign utility company ("FUCO")
treatment similar to that allowed for National Grid; (iii) certain existing
financing arrangements of the LG&E Energy
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1 The Intermediate Companies either have been or will be formed prior to the
consummation of the Merger. They have been added to this Application to enable
the Commission to issue a notice. The Intermediate Companies will require the
approval of their respective Boards of Directors to engage in the activities
contemplated by this filing.
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Group; (iv) certain financing matters relating to the PowerGen System and the
LG&E Energy Group after the Merger; (v) if necessary, permitting PowerGen and
the U.S. Subsidiary Companies to pay dividends out of paid-in capital; (vi)
permitting the U.S. Non-Utility Subsidiaries to pay dividends out of paid-in
capital as described below; (vii) permitting PowerGen to provide to the
Commission financial and other information on the bases and in the form provided
for herein; (viii) a tax allocation agreement; (ix) the establishment of a
service company subsidiary; and (x) adoption of service company agreements.
The Applicants note that this Application is based on substantially the
same pertinent facts under the Act and seeks substantially the same
authorizations under the Act recently granted by the Commission in The National
Grid Group plc, Holding Co. Act Release No. 27154 (March 15, 2000) (the
"National Grid Order").
2. Overview of the Merger
Pursuant to an Agreement and Plan of Merger, dated as of February 27, 2000
(the "Merger Agreement"), among LG&E Energy, PowerGen, a Delaware corporation to
be formed as an indirect wholly-owned subsidiary of PowerGen ("PowerGen US
Investments Corp."), and a Kentucky corporation to be formed as a direct wholly-
owned subsidiary of PowerGen US Investments Corp., LG&E Energy will become an
indirect, wholly-owned subsidiary of PowerGen. The proposed corporate structure
of PowerGen after the Merger is discussed in more detail in Item 1, Section C.3
and Item 3, Section A.2.a.v below.
As consideration for each common share, without par value, of LG&E Energy
outstanding at the time of the Merger, the LG&E Energy shareholders will receive
$24.85 per share in cash. The LG&E Energy shareholders will not receive any
stock consideration in the Merger and they will not retain any equity interest
in LG&E Energy.
In addition to providing substantial value to LG&E Energy shareholders, the
Merger will produce benefits to the public interest and to customers in Kentucky
and Virginia, as well as to the employees of LG&E Energy Group, by combining a
company with demonstrated expertise in operating coal-fired generation
facilities and in operating in an increasingly deregulating environment with a
company that has among the lowest retail electric rates in the nation and owns
substantial coal-fired generation facilities.
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For LG&E Energy Group employees, the Merger provides significant
opportunities as LG&E Energy will become the U.S. base of operations for a large
international entity. PowerGen wants to expand its operations in the United
States, which should bring additional opportunities for employees. The Merger
gives LG&E Energy Group and its employees the opportunity to remain at the
forefront of an increasingly competitive U.S. electric industry. For the
Commonwealth of Kentucky, the Merger also provides significant benefits, as the
Commonwealth of Kentucky retains its good corporate citizen, LG&E Energy, at its
Kentucky headquarters with numerous jobs in the Commonwealth of Kentucky.
After the Merger, LG&E Energy will have the financial, technical, and
managerial capabilities needed to provide efficient customer service to its
utility customers. LG&E and KU customers should benefit from the Merger through
improved service quality and operating efficiencies resulting from reciprocal
adoption of best practices by PowerGen and LG&E Energy throughout their
respective operations. For example, customers should benefit from PowerGen's
significant expertise in electric power generation, which is necessary for an
efficient power supply market. Customers also should benefit from PowerGen's
size and the size of the PowerGen System following the Merger. PowerGen's
significantly larger scale, both in financial and operational terms, should
enhance the ability of LG&E and KU to use new developments in generation,
transmission and distribution technology, information systems, and capital
markets, where these can be seen to bring economic benefit. Customers also
should benefit from the enhanced ability of the larger enterprise to attract and
retain excellent managers by offering opportunities to participate in a leading
international energy business.
The Merger is subject to approval by the shareholders of LG&E Energy and
PowerGen. The Applicants are seeking approval from the Federal Energy Regulatory
Commission (the "FERC"), the Kentucky Public Service Commission (the "Kentucky
Commission"), and the Virginia State Corporation Commission (the "Virginia
Commission"). Applicants are notifying the Tennessee Regulatory Authority
("Tennessee Commission") of the Merger. PowerGen is seeking letters from each of
the affected state commissions certifying that the state commission has the
authority and resources to protect ratepayers. In addition, Applicants are
seeking clearance for the Merger by the Committee on Foreign Investments in the
United States under the Exon-Florio provisions of the Omnibus Trade and
Competitiveness Act of
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1988 and by the Antitrust Division of the Justice Department ("DOJ") and the
Federal Trade Commission ("FTC") under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976 ("HSR Act"). Finally, the proposed acquisition
constitutes a merger that could be investigated by the U.K. Competition
Commission under the United Kingdom's Fair Trading Act of 1973, although
PowerGen does not believe that the Merger will have any impact on competition in
the United Kingdom and therefore does not anticipate that any issues will be
raised.
B. Description of the Parties to the Merger
1. PowerGen
PowerGen, through its subsidiaries, is a leading integrated gas and
electricity company in the United Kingdom with significant investments in
utility operations outside the United Kingdom and United States. PowerGen is the
parent holding company that was formed in 1998 following a corporate
reorganization, whereby PowerGen UK plc ("PowerGen UK") became a first-tier,
wholly-owned subsidiary of PowerGen. PowerGen's only business is as a holding
company and it conducts its business through two direct subsidiaries: PowerGen
UK and US Holdings./2/ A chart showing PowerGen and its subsidiaries is attached
hereto as Exhibit F-1.1.
PowerGen UK is a public limited company formed under the laws of England
and Wales. It is the principal operating company of PowerGen and was created as
a result of the privatization and restructuring of the British electricity
industry in 1990. PowerGen UK's primary businesses are generation and
distribution of electricity. It also is involved, either directly or through its
subsidiaries or investment interests, in the transportation, marketing and
delivery of natural gas, and the development and operation of combined heat and
power plants (i.e., cogeneration) and renewable energy facilities (e.g., wind
______________________________
/2/ PowerGen presently intends to establish a new unlimited liability holding
company between PowerGen plc and PowerGen UK, to be called PowerGen Group
Holdings ("PowerGen Group Holdings"). This is to permit PowerGen International
Limited (the holding company for all of PowerGen's current overseas investments)
to become a sister company, rather than a subsidiary, of PowerGen UK (which
conducts PowerGen's U.K. businesses) while at the same time creating a single
FUCO company with ownership of all FUCO businesses, except for those in the LG&E
Energy Group.
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farms)./3/ The business of PowerGen UK is described in further detail below.
US Holdings is a corporation formed under the laws of England and Wales and
will enter into financing arrangements as described herein.
PowerGen has one other direct subsidiary, PowerGen Share Scheme Trustee
Limited ("Share Trustee"). Share Trustee administers employee stock plans to
benefit the employees of PowerGen.
PowerGen UK owns and operates nine power stations located in England and
Wales, which together are capable of generating approximately 10,000 Megawatts
("MW"). It is one of the largest of over 30 generators competing in the United
Kingdom's "electricity pool" through which wholesale electric power is traded.
PowerGen UK conducts most of PowerGen's retail business in the United
Kingdom. PowerGen UK has been a significant participant in the United Kingdom's
competitive industrial and commercial gas and electricity markets for most of
the past decade. PowerGen UK has been the leading supplier in the United Kingdom
of electricity and gas to industrial and commercial customers since 1992, and
now supplies over 25,000 electricity sites and 25,000 gas sites. The acquisition
of East Midlands Electricity plc (which has now been renamed PowerGen Energy,
plc) provided access to the mass market (domestic) electricity customers and
(via PowerGen Retail Gas Limited) to the mass market (domestic) gas customers.
In total, including PowerGen Energy, plc, described further below, PowerGen UK's
retail business now supplies electricity and gas to some 2.6 million customer
accounts and has the objective of supplying 5 million customers by 2002. In
addition, PowerGen UK has secured the right to sell electricity in the newly
opened electricity market in Northern Ireland.
_____________________
/3/ Prior to consummation of the Merger, PowerGen UK (or PowerGen Group
Holdings, if applicable) will file notification of FUCO status to qualify as a
FUCO within the meaning of Section 33 of the Act. The Applicants expect that
PowerGen UK (or PowerGen Group Holdings) will retain this status following the
Merger.
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The significant subsidiaries of PowerGen UK are described below:
(a) PowerGen Energy, plc, a direct, wholly-owned subsidiary of PowerGen UK,
is an electricity distribution company which supplies some 2.3 million
residential and business customers. PowerGen Energy is the third largest
regional electricity company in England and Wales with a service territory
covering a 16,000 square kilometer area. It operates a distribution network of
over 67,000 kilometers of overhead lines and underground cables together with
utility connections and metering services.
(b) Through its wholly-owned subsidiaries PowerGen CHP Limited and PowerGen
CoGeneration Limited, PowerGen UK is the United Kingdom's leading developer and
operator of combined heat and power plants, known as cogeneration in the United
States. PowerGen CHP Limited and PowerGen CoGeneration Limited construct and
operate power plants that provide electricity and heat or steam to industrial
and commercial customers. Plant investments currently represent a capacity of
896 MW electric and 1,300 MW thermal.
(c) PowerGen Energy Trading Limited, a direct, wholly-owned subsidiary of
PowerGen UK, undertakes trading of electricity, gas and oil in seven energy
trading markets in the United Kingdom and Europe.
(d) PowerGen Energy Solutions Limited, a direct, wholly-owned subsidiary of
PowerGen UK, provides tailored energy service products and advice to customers.
(e) PowerGen UK indirectly owns a 50% interest in PowerGen Renewables
Holdings Limited, a renewable energy business developing onshore and offshore
wind farms. PowerGen Renewables has 11 operational sites and is continuing to
expand activities in the United Kingdom and Ireland. This interest is owned by
PowerGen Investments Ltd., a direct subsidiary of PowerGen UK.
(f) PowerGen Gas Limited, a direct, wholly-owned subsidiary of PowerGen UK,
operates PowerGen UK's natural gas pipelines in the United Kingdom.
(g) Through its wholly-owned subsidiary, PowerGen International Limited,
PowerGen UK is a leading independent power project developer. PowerGen
International Limited is involved in 11 power projects, either operational or
under development, in Europe, India, and Asia Pacific, totaling
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more than 8,000 MW in generating capacity of which PowerGen's equity interest
represents over 3,000 MW.
(h) PowerGen UK also directly owns 100% of a captive insurance company
(Ergon Insurance Limited) and a 50% interest in a company (Cottam Development
Centre Limited) engaged in the construction and operation of a gas fired power
station and the operation of a generator turbine testing facility, both of which
are located in Cottam, Nottinghamshire, England.
PowerGen's ordinary shares are listed on the London Stock Exchange ("LSE")
and PowerGen's American Depositary Shares ("ADSs") are listed on the New York
Stock Exchange, Inc. ("NYSE"). PowerGen, including its predecessor company, has
been since 1995 a reporting company under the Securities Exchange Act of 1934,
as amended (the "1934 Act"), and has filed reports with the Commission in
accordance with the requirements of the 1934 Act applicable to foreign private
issuers.
More detailed information concerning PowerGen and its subsidiaries is
contained in PowerGen's Annual Report on Form 20-F for the year ended January 2,
2000, which is incorporated by reference as Exhibit I-1.
2. LG&E Energy
LG&E Energy was incorporated under the laws of the Commonwealth of Kentucky
in 1989. It is a holding company exempt from regulation by the Commission under
the Act (except for Section 9(a)(2) thereof) pursuant to Section 3(a)(1) of the
Act and by order of the Commission in LG&E Energy Corp., Holding Co. Act Release
No. 26866, 67 S.E.C. 107 (April 30, 1998). LG&E Energy has five direct
subsidiaries: LG&E, KU, LG&E Energy Foundation, Inc., LG&E Energy Marketing
Inc., and LG&E Capital Corp. LG&E and KU are public utility companies under the
Act. Each of these subsidiaries is described below.
(a) LG&E is engaged primarily in the generation, transmission and
distribution of electricity to approximately 366,000 customers in Louisville and
adjacent areas in Kentucky. LG&E's service area covers approximately 700 square
miles in 17 counties in Kentucky and has an estimated population of one million.
LG&E also purchases, distributes and sells natural gas to approximately 295,000
customers within this service area and in limited additional areas. Included
within LG&E's service area is the Fort Knox Military Reservation, to which LG&E
transports gas and
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provides electric service, but which maintains its own distribution systems.
Maps of the electric and gas service areas of LG&E are filed as Exhibits E-1 and
E-2, respectively.
Retail sales rates, services and other aspects of LG&E's electric and gas
retail operations are subject to the jurisdiction of the Kentucky Commission.
The Kentucky Commission also possesses regulatory authority over aspects of
LG&E's financial activities including security issuances, property transfers
when the asset value is in excess of $100,000, and mergers with other utilities.
The FERC has jurisdiction under the FPA over certain of the electric
utility facilities and operations, transmission in interstate commerce,
wholesale sale of power and related transactions and accounting practices of
LG&E, and in certain other respects.
LG&E owns 4.9% of the common stock of OVEC, which has one wholly-owned
subsidiary, Indiana-Kentucky Electric Corp. ("IKEC"). OVEC and IKEC were
organized in 1952 by LG&E and other public utilities to supply the entire power
requirements of the U.S. Department of Energy's gaseous diffusion plant in Pike
County, Ohio. OVEC owns a 1,075 MW generating station near Cheshire, Ohio, and
IKEC owns a 1,290 MW generating station at Madison, Indiana. All of the
electricity sold by OVEC and IKEC is sold either to the U.S. Department of
Energy or to the owners of the stock of OVEC (or their subsidiaries, all of
which are utility companies). OVEC and IKEC do not sell electricity to private
consumers and do not have any securities outstanding in the hands of the public.
For each of the three years in the period ended December 31, 1999, LG&E derived
less than 0.2% of its net income from its share of the earnings of OVEC. See, In
the Matter of Ohio Valley Electric Corporation, Holding Co. Act Release No.
11578, 34 S.E.C. 323 (Nov. 7, 1952).
(b) KU is engaged in producing, transmitting, and selling electric energy
to approximately 458,000 customers in over 600 communities and adjacent suburban
and rural areas in 77 counties in central, southeastern and western Kentucky,
and to about 29,000 customers in 5 counties in southwestern Virginia. In
Virginia, KU operates under the name Old Dominion Power Company. KU also sells
electric energy at wholesale for resale to 12 municipalities in Kentucky and one
municipality in Pennsylvania. A map of the electric service area of KU is filed
as Exhibit E-1.
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The territory served by KU has an aggregate population estimated at
approximately one million. The largest city served is Lexington, Kentucky. The
population of the metropolitan Lexington area is estimated at about 225,000. The
populations of the next 10 largest cities served at retail range from about
21,000 to 9,000. The territory served includes most of the Bluegrass Region of
central Kentucky and parts of the coal mining areas in southeastern and western
Kentucky and southwestern Virginia.
KU is subject to the jurisdiction of the Kentucky Commission and the
Virginia Commission as to retail rates and service, accounts, issuance of
securities, and in other respects. The FERC has jurisdiction under the FPA over
certain of the electric utility facilities and operations, wholesale sale of
power and related transactions and accounting practices of KU, and in certain
other respects. By reason of owning and operating a small amount of electric
utility property in one county in Tennessee (having a book value of about
$251,000) which serves five customers, KU may also be subject to the
jurisdiction of the Tennessee Commission as to retail rates, accounts, issuance
of securities and in other respects.
KU owns 2.5% of the common stock of OVEC, which company is described
above. KU also owns 20% of EEI. EEI provides electric energy to a uranium
enrichment plant located near Paducah, Kentucky by the United States Enrichment
Corporation. EEI owns the Joppa Plant, a 1,015 MW coal-fired electric generating
plant located near Joppa, Illinois, and six 161 kilovolt ("Kv") transmission
lines which transmit power from the Joppa Plant to the Paducah enrichment plant.
EEI's common stock is held by KU and three other utility companies. EEI sells
its excess electricity to its sponsoring utilities for resale. The uranium
enrichment facility is EEI's only end-user customer. For each year in the three-
year period ending December 31, 1999, KU derived less than 3% of its net income
from its share of the earnings of EEI and OVEC.
(c) LG&E Energy Foundation, Inc. ("LG&E Energy Foundation"), a
charitable foundation exempt from Federal income tax under Section 501(c)(3) of
the Internal Revenue Code, makes charitable contributions to qualified entities.
It is wholly-owned by LG&E Energy. As of December 31, 1999, the market value of
the assets of LG&E Energy Foundation were $19.9 million.
(d) LG&E Energy Marketing Inc. ("LEM") is wholly-owned by LG&E Energy
and engages in energy marketing and trading
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on behalf of LG&E Energy's utility and non-utility operations. Effective June
30, 1998, LEM discontinued its merchant trading and sales business. LEM,
however, maintains the technical systems and personnel necessary to engage in
power marketing sales from assets it owns or controls, including LG&E, KU, and
Western Kentucky Energy Corp./4/
(e) LG&E Capital Corp. ("LG&E Capital"), through various subsidiaries
and joint ventures, is involved in numerous non-utility, energy-related
businesses. The activities of these subsidiaries are more fully described in
Appendix A hereto.
For the year-ended December 31, 1999, approximately 29.6% of LG&E
Energy's consolidated operating revenues and 20.3% of its consolidated operating
income were derived from the non-utility businesses. As of December 31, 1999,
approximately 22.9% of LG&E Energy's consolidated assets were invested in
non-utility businesses, including LG&E Energy, LG&E Capital and LEM.
LG&E Energy's common stock is listed on the NYSE and the Chicago Stock
Exchange. As of February 29, 2000, there were 129,677,030 shares of LG&E Energy
common stock outstanding. LG&E Energy has no preferred stock outstanding. As of
February 29, 2000, there were three series, aggregating 1,610,287 shares, of
LG&E preferred stock outstanding, and two series, aggregating 400,000 shares, of
KU preferred stock outstanding. Copies of the Articles of Incorporation of LG&E
Energy, LG&E and KU are incorporated by reference as Exhibit A-2.1, Exhibit
A-2.2, and Exhibit A-2.3, respectively.
On a consolidated basis, LG&E Energy's operating revenues and operating
income for the twelve months ended December 31, 1999, were $2.7 billion and
$494.6 million, respectively, consisting of the following (before inter-company
eliminations):
____________________________
/4/ The business of Western Kentucky Energy Corp. is described in Appendix A
attached hereto.
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($ in millions)
Operating Operating
Revenues Income
LG&E Electric $790.7 $189.9
Gas 177.6 7.9
KU 937.3 196.4
LG&E Capital 810.3 120.8
LG&E Energy Marketing 34.0 (0.3)
LG&E Energy Corp -- (20.1)
Consolidated assets of LG&E Energy and its subsidiaries as of December 31,
1999 were approximately $5.1 billion, consisting of $3.6 billion in net electric
utility property, plant and equipment; $349.6 million in net gas utility
property, plant and equipment; and $1.2 billion in other corporate assets.
More detailed information concerning LG&E Energy and its subsidiaries is
contained in: (i) LG&E Energy's Annual Report on Form 10-K for the year ended
December 31, 1999, which is incorporated by reference as Exhibit I-2.1, (ii)
LG&E's Annual Report on Form 10-K for the year ended December 31, 1999, which is
incorporated by reference as Exhibit I-2.2, and (iii) KU's Annual Report on Form
10-K for the year ended December 31, 1999, which is incorporated by reference as
Exhibit I-2.3.
C. Description of the Merger
1. Background
In recent years PowerGen has been seeking opportunities to gain a major
platform for growth in the United States, the world's largest energy market.
PowerGen's vision is to transfer its skills as a leading international
integrated electricity and gas company to the U.S. electricity and gas markets.
The Merger is a major step toward realizing those goals. From PowerGen's
perspective, the Merger:
o represents a significant investment in an efficient, focused
generation, transmission, and distribution business with a strong
operational track record as a low cost energy provider with high
standards of reliability and customer
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service, and a strong commitment to the environment, which will
benefit further from PowerGen's core skills;
o enhances PowerGen's earnings per share, before the amortization
of goodwill, and enhances PowerGen's cash flow per share
immediately following the acquisition;
o provides the right point of entry into the United States for
PowerGen, given Kentucky's favorable economic climate and its
well balanced regulatory environment;
o brings PowerGen a high-quality management team with proven
generation, distribution, and supply expertise and a shared
view of the industry's future development in the United
States; and
o provides an excellent regional platform for growth in generation,
transmission, and distribution, as the Midwest region of the
United States represents around 25% of the U.S. electricity
market and further consolidation in the region is expected.
The Applicants believe that PowerGen and LG&E Energy have skills that
can be used to benefit the public interest, as well as the interest of investors
and consumers, the "protected interests" under the Act. In the past decade, the
United Kingdom's electricity and gas markets have been restructured as the
industry has evolved from a state-owned monopoly to private ownership and
competition. PowerGen's experience and expertise as one of the successful
leaders of this transition will help inform any discussion of such a
restructuring of the Midwest energy market and will help ensure, if and when
such restructuring occurs, that consumer benefits will be realized.
PowerGen believes that this experience in competitive markets and as a
leading international integrated electric and gas company complements LG&E
Energy's proven expertise in operating efficient generation, transmission and
distribution businesses in an evolving regulatory environment. The Merger will
make LG&E Energy part of a much larger enterprise, well-positioned to meet and
benefit from the accelerating changes in the energy industry across the world,
while maintaining the historic connections between LG&E and KU and the
communities they serve. Applicants believe the Merger is important for ensuring
that both LG&E and KU remain able to continue to meet their
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commitments of providing reliable and efficient service and enhancing overall
performance standards for the benefit of customers and shareholders over the
long term.
2. Merger Agreement
Under the terms of the Merger Agreement, each outstanding LG&E Energy
common share will be converted into the right to receive $24.85 in cash, without
interest./5/ LG&E Energy Group's debt ($2.2 billion as of December 31, 1999) at
the time of closing the Merger is expected to remain outstanding. The Merger is
subject to customary closing conditions, such as receipt of all necessary
regulatory approvals, including the approval of the Commission.
3. Corporate Structure for the Merger
As stated above, the Merger is structured as the indirect acquisition of
LG&E Energy by PowerGen. The Intermediate Companies in the corporate structure
between PowerGen and LG&E Energy create a structure that is not unusual for U.K.
cross-border transactions and is not dissimilar to structures used by U.S.
registered holding companies in making FUCO investments. These entities exist
primarily for the purpose of creating an economically efficient and viable
structure for the transaction and the ongoing operations of PowerGen and the
U.S. Subsidiary Companies. The proposed structure as currently planned and the
specific function of each of the Intermediate Companies is set forth in Exhibit
F-3.2 hereto. The Applicants note that certain adjustments in the structure may
be necessary to reflect tax and accounting changes prior to consummation of the
Merger. Any material changes between the date of this Application and the
consummation of the Merger will be reflected in a pre-effective amendment
hereto. PowerGen's direct and indirect interest in each of the Intermediate
Companies will flow through loans and equity interests similar to those
indicated in Exhibit F-3.2. This structure is essentially the same as that
approved by the Commission in the National Grid Order except that PowerGen is
utilizing an additional Intermediate Company. As in National Grid, the
Intermediate Companies will not engage in any business activities except for the
acquisition and ongoing funding of LG&E Energy and its subsidiaries as described
herein. Except for financings by US Holdings as described herein,
_____________________________
/5/ Under Kentucky corporate law, dissenting shareholders are entitled to seek
the judicially determined value of their common stock in lieu of the $24.85
provided in the Merger Agreement.
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none of the Intermediate Companies will have any third-party equity or debt
holders.
4. Financing the Merger
The acquisition price for the LG&E Energy common stock, based on the number
of shares outstanding on February 27, 2000, will be approximately $3.23 billion.
PowerGen intends to finance the acquisition from borrowings under a fully
committed bank facility that PowerGen and US Holdings established on February
27, 2000, underwritten by five internationally recognized banks (the "Bank
Loans" or "Credit Facility")./6/ The Credit Facility has now been syndicated
among a wider group of internationally recognized banks. The Credit Facility
provides for up to $4.0 billion in borrowings by PowerGen, US Holdings and other
wholly-owned subsidiaries of US Holdings as approved in writing by the banks,
and guaranteed by PowerGen or US Holdings./7/ The Credit Facility, which is
filed as Exhibit B-3 hereto, has a final maturity of 5 years from the date of
signing. Each of the banks is a sophisticated commercial lender and the Credit
Facility was negotiated at arm's length. The Credit Facility was established
both to fund the acquisition and, if necessary, to provide funding and
accommodate working capital needs of the Intermediate Companies.
The Credit Facility contains provisions customary for a credit facility of
this type, including, among others, representations and warranties as to the
business and operations of the U.S. and non-U.S. companies in the PowerGen
System (see Clause 15), covenants limiting consolidated borrowings by such
companies (see Clause 16.8) and requiring prepayment of loans in the event of
certain asset disposals or capital market issues by such companies (see Clause
7.5), and events of default providing for the acceleration of loans under the
Credit Facility for specified occurrences (including defaults and bankruptcies)
________________________
/6/ Borrowings under the Credit Facility could be reduced by, among other
things, application of available cash or the proceeds of assets sales by
PowerGen UK and its subsidiaries, or by the issuance of debt securities or other
instruments by PowerGen or its subsidiaries prior to, at or after the Merger.
Applicants will file an amendment or post-effective amendment to this filing to
reflect any material change in the plan of financing of the Merger.
/7/ Although the Credit Facility permits other borrowers, Applicants intend for
US Holdings to be the only borrower under the Credit Facility, with a guarantee
from PowerGen.
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involving such companies (see Clause 17). These provisions are similar to those
contained in the credit facility of National Grid.
D. Operations and Management of PowerGen and LG&E Energy Following the
Merger
1. PowerGen
Upon consummation of the Merger, PowerGen will become the indirect parent
company of LG&E Energy. All of PowerGen's other operations will remain unchanged
in the Merger. The Merger Agreement provides that, at the effective time of the
Merger, PowerGen will appoint Roger Hale, Chairman and Chief Executive Officer
of LG&E Energy, to the PowerGen Board of Directors, increasing its size from 9
members to 10 members. As PowerGen's Board of Directors is small in number, the
addition of one member is significant. Roger Hale is a U.S. citizen and resident
of Kentucky.
PowerGen's inclusion of Mr. Hale on its Board demonstrates its commitment
to maintaining a local presence in the United States that is sensitive to local
concerns. PowerGen also is committed to maintaining LG&E Energy's strong civic
and charitable presence in the service territories of LG&E and KU as
demonstrated by PowerGen's obligation under Section 6.19(c) of the Merger
Agreement to continue to "make annual charitable and community contributions to
the communities served by . . . [LG&E Energy] and otherwise maintain a
substantial level of involvement in community activities in the State of
Kentucky that is comparable to, or greater than, the normal annual aggregate
level of charitable contributions, community development and related activities
carried on by . . . [LG&E Energy] prior to the date" of the Merger Agreement.
Upon consummation of the Merger, PowerGen and the Intermediate Companies
will register as holding companies under Section 5 of the Act. PowerGen expects
that PowerGen UK (or, if PowerGen Group Holdings is established before
consummation of the Merger, PowerGen Group Holdings) will be qualified as a FUCO
within the meaning of Section 33 of the Act, and that all operations thereunder
will claim the benefit of the FUCO exemption.
2. LG&E Energy
Following consummation of the Merger, LG&E Energy will become an indirect
wholly-owned subsidiary of PowerGen and
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its common shares will be deregistered under the 1934 Act, and delisted from the
NYSE and the Chicago Stock Exchange. The Merger Agreement provides that the
headquarters of LG&E Energy as the surviving entity will remain in Louisville,
Kentucky, with offices for utility operations of LG&E remaining in Louisville
and of KU remaining in Lexington. The post-Merger LG&E Energy Board of Directors
will be comprised of three directors, one of whom will be a current director or
officer of LG&E Energy. These directors will hold office until their successors
are duly elected or appointed and qualified. Also, those individuals serving on
the Board of Directors of LG&E Energy at the time the Merger becomes effective
will serve on a U.S. advisory board to provide advice to PowerGen with respect
to the operations of LG&E Energy and its subsidiaries, business and regulatory
developments in the United States, and such other matters as the advisory board
members, PowerGen, and LG&E Energy shall mutually agree.
E. Industry Restructuring Initiatives Affecting U.S. Operations.
LG&E Energy's public utility subsidiaries, through their recent case before
the Kentucky Commission, have agreed to the implementation of an earnings
sharing mechanism ("ESM") for electric rates, which will transition the
utilities to a more competitive structure. The ESM authorizes a threshold return
on equity of 11.5% with a "deadband" of 100 basis points above and below. If
earnings fall within the deadband range, customers are not charged an additional
rate and do not receive any rate credits. Over and under earnings outside the
band would be shared between shareholders and ratepayers of the affected company
on a 60/40 basis. The ESM provides LG&E and KU with incentives to improve
performance while, at the same time, maintaining regulatory authority and a fair
regulatory environment.
Restructuring legislation has not been passed in Kentucky. The Kentucky
legislature created a special task force on electricity restructuring in March
1998, whose mission is to assess the desirability of deregulating and
restructuring electricity service. The task force submitted a report to the
Governor and a legislative agency in December 1999 recommending that no action
be taken during the 2000 legislative session to restructure Kentucky's electric
utility industry. It is expected that the Kentucky legislature will continue to
study restructuring through the next legislative session.
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The Virginia legislature enacted an electric restructuring implementation
law in March 1999. The Virginia Commission and a legislative task force have
begun to implement the restructured framework and to resolve issues not
addressed by the law. Electric retail access under the new law is to commence
January 2002; the law provides the Virginia Commission with the option to
accelerate or delay implementation so long as it is in place by 2005. The law
caps retail electric rates from 2001 through 2007, but does not require rate
reductions. The law allows utilities to recover just and reasonable stranded
costs, if any, through the capped rates or, in the case of customers who choose
alternative generation suppliers, through a usage-based surcharge. There will be
no explicit determination of stranded costs by the Virginia Commission. The law
further provides for all incumbent utilities to join a regional transmission
entity ("RTE") and to transfer operational control of their transmission assets
to the RTE. The RTE may be an independent system operator (e.g., the Midwest
Independent System Operator, of which LG&E and KU are members). The Virginia
Commission has established a proceeding for the investigation of issues relating
to the establishment of an RTE. The restructuring law does not require
divestiture of generation assets, but utilities must functionally separate
generation from transmission and distribution by 2002. The effect of this
restructuring law on KU should be minimal, as its operations in Virginia are
relatively small in nature./8/
PowerGen has experience in both regulated and competitive markets, which
experience will be helpful to the U.S. Utility Subsidiaries. PowerGen has
participated in the transition to a competitive electric market in England and
Wales and has more than 10 years successful experience in a competitive
generation marketplace. PowerGen also has experienced the introduction of retail
and wholesale competition in Australia in the State of Victoria. Following the
Merger, PowerGen's expertise will help KU make the transition from a regulated
to a competitive electric market in Virginia. In the event Kentucky deregulates
or restructures its electric utility industry, PowerGen also will help LG&E and
KU with the transition from a regulated to a competitive marketplace in
Kentucky. The benefits of PowerGen's experience are discussed further in Item 3,
Section A.2.b below.
- --------------------------
/8/ As noted above, KU also serves five customers in Tennessee. No definitive
action has been taken to date by the Tennessee legislature on deregulation or
restructuring.
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F. Request for Authorization of Proposed Financings
In addition to authorization of the proposed acquisition of LG&E Energy by
PowerGen under Section 10, Applicants seek authority to conduct until December
31, 2005 (the "Authorization Period"), the financial and related transactions
described under Item 3, Section B.
ITEM 2. FEES, COMMISSIONS AND EXPENSES
$ Millions
Accountants' fees 3.48
Legal fees and expenses 11.04
Shareholder communication and
proxy solicitation expenses and filing fees 2.62
Investment bankers' fees and expenses 31.67
Consulting fees 1.59
-----
Total 50.40
The total fees, commissions, and expenses expected to be incurred in
connection with the Merger are estimated to be approximately $50.4 million. Fees
for investment bankers, lawyers, brokers, accountants, consultants and other
service providers are included within the Merger-related fees disclosed above.
PowerGen and US Holdings have incurred or will incur estimated fees and
expenses of approximately $33 million in connection with the Credit Facility
described in this Application. This amount includes arrangement fees,
underwriting costs and syndication fees. As explained below, PowerGen proposes
that fees, commissions or other similar remuneration paid in connection with the
non-competitive issue, sale or distribution of a security pursuant to the
Application will not exceed 5% of the principal or total amount of the security
issued.
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ITEM 3. APPLICABLE STATUTORY PROVISIONS
The following sections of the Act and the Commission's rules thereunder
are or may be directly or indirectly applicable to the proposed transaction:
Sections of Transactions to which section or rule is
the Act or may be applicable:
2(a)(7),2(a)(8) Request for declaration that the
Intermediate Companies, LG&E Energy and KU
are not holding companies or subsidiary
companies, solely for purposes of Section
11(b)(2).
3(a)(1) Exemption of LG&E Energy from registration
as a holding company under the Act.
3(a)(2) Exemption of KU from registration as a
holding company under the Act.
4, 5 Registration of PowerGen and the
Intermediate Companies as holding
companies following the consummation of
the Merger.
6(a), 7 Issuances and sales of securities.
9(a)(2), 10 Acquisition by PowerGen of common stock of
U.S. Utility Subsidiaries and OVEC.
11(b)(2) Request for declaration that the
Intermediate Companies and KU are not
subsidiary companies or holding companies,
solely with respect to the
"great-grandfather" provisions of Section
11(b)(2).
12 Extensions of credit and guarantees;
payment of dividends out of paid-in capital
and unearned surplus.
13 Approval of formation of a service company,
LG&E Services, to provide goods and
services to associate companies.
13 Approval of the Service Contract and
services provided to affiliates thereunder
by LG&E Services.
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13 Request for exemption of foreign providers
of goods and services from the provisions of
Section 13 and rules thereunder, except for
transactions with the U.S. Utility
Subsidiaries.
14, 15 Reporting, books and records.
33 Operations of PowerGen and its subsidiary
companies.
Rules
42, 45(a), 52 Financing transactions, generally.
43 Sales to Affiliates.
46 Payment of Dividends.
53 Investments in FUCOs and EWGs.
80-91 Affiliate transactions, generally.
93, 94 Accounts, records and annual reports by
subsidiary service company.
To the extent that other sections of the Act or the Commission's rules
thereunder are deemed applicable to the Merger and other authorizations
requested herein, such sections and rules should be considered to be set forth
in this Item 3.
A. Legal Analysis of the Merger
Section 9(a)(2) makes it unlawful, without approval of the Commission under
Section 10, "for any person . . . to acquire, directly or indirectly, any
security of any public utility company, if such person is an affiliate . . . of
such company and of any other public utility or holding company, or will by
virtue of such acquisition become such an affiliate." Under the definition set
forth in Section 2(a)(11)(A), an "affiliate" of a specified company means "any
person that directly or indirectly owns, controls, or holds with power to vote,
5 per centum or more of the outstanding voting securities of such specified
company."
Because PowerGen will indirectly acquire in the Merger more than five
percent of the voting securities of LG&E, KU, EEI and OVEC it will become an
"affiliate" as defined in Section 2(a)(11)(A) of the Act of each of these
companies
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and must obtain the approval of the Commission for the Merger under Sections
9(a)(2) and 10 of the Act. The statutory standards to be considered by the
Commission in evaluating the proposed transaction are set forth in Sections
10(b), 10(c) and 10(f) of the Act.
As set forth more fully below, the Merger complies with all of the
applicable provisions of Section 10 of the Act and should be approved by the
Commission because:
-the consideration to be paid in the Merger is fair and reasonable;
-the Merger will not create detrimental interlocking relations or
concentration of control;
-the Merger will not result in an unduly complicated capital structure for
the PowerGen system;
-the Merger is in the public interest and the interests of investors and
consumers;
-the Merger is consistent with Sections 8 and 11 of the Act;
-the Merger will tend towards the economical and efficient development of
an integrated public utility system; and
-the Merger will comply with all applicable state laws.
1. Section 10(b)
Section 10(b) provides that, if the requirements of Section 10(f) are
satisfied, the Commission shall approve an acquisition under Section 9(a)
unless:
(1) such acquisition will tend towards interlocking relations or the
concentration of control of public utility companies, of a kind or to an extent
detrimental to the public interest or the interests of investors or consumers;
(2) in case of the acquisition of securities or utility assets, the
consideration, including all fees, commissions, and other remuneration, to
whomsoever paid, to be given, directly or indirectly, in connection with such
acquisition is not reasonable or does not bear a fair relation to the sums
invested in or the earning capacity of the utility assets to be acquired or the
utility assets underlying the securities to be acquired; or
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(3) such acquisition will unduly complicate the capital structure of the
holding company system of the applicant or will be detrimental to the public
interest or the interests of investors or consumers or the proper functioning of
such holding company system.
a. Section 10(b)(1)
i. Interlocking Relationships
By its nature, any merger results in new links between heretofore unrelated
companies. Northeast Utilities, Holding Co. Act Release No. 25221 (Dec. 21,
1990), as modified, Holding Co. Act Release No. 25273 (March 15, 1991), aff'd
sub nom., City of Holyoke v. SEC, 972 F.2d 358 (D.C. Cir. 1992) ("interlocking
relationships are necessary to integrate [the two merging entities]"). The links
that will be established as a result of the Merger are not the types of
interlocking relationships targeted by Section 10(b)(1), which was primarily
aimed at preventing business combinations unrelated to improved operations.
Indeed, the links to be established as a result of the Merger are intended to
enhance the operations of the LG&E Energy Group. The Merger Agreement provides
that the Board of Directors of PowerGen will be enlarged to add Roger Hale,
current Chief Executive Officer of LG&E Energy. This is useful to integrate LG&E
Energy fully into the PowerGen System and will therefore be in the public
interest and the interests of investors and consumers. Forging such relations is
beneficial to the protected interests under the Act and thus is not prohibited
by Section 10(b)(1).
ii. Concentration of Control
Section 10(b)(1) is intended to avoid "an excess of concentration and
bigness" while preserving the "opportunities for economies of scale, the
elimination of duplicate facilities and activities, the sharing of production
capacity and reserves and generally more efficient operations" afforded by the
coordination of local utilities into an integrated system. American Electric
Power Co., Holding Co. Act Release No. 20633, 46 S.E.C. 1299, 1309 (July 21,
1978). In applying Section 10(b)(1) to utility acquisitions, the Commission must
further determine whether the acquisition will create "the type of structures
and combinations at which the Act was specifically directed." Vermont Yankee
Nuclear Corp., Holding Co. Act Release No. 15958, 43 S.E.C. 693, 700 (1968). As
discussed below, the Merger will not create a "huge, complex, and irrational
system," but rather will result in a new holding
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company over a previously-approved integrated public utility system and the
increased scale of the combined enterprise will actually create opportunities
for economies of scale and access to resources that would not be available
without a combination with another energy company. See WPL Holdings, Inc.,
Holding Co. Act Release No. 24590 (Feb. 26, 1988), aff'd in part and rev'd in
part sub nom., Wisconsin's Environmental Decade, Inc. v. SEC, 882 F.2d 523 (D.C.
Cir. 1989), reaffirmed, Holding Co. Act Release No. 25377 (Sept. 18, 1991).
Finally, Section 10(b)(1) also requires the Commission to consider possible
anticompetitive effects of a proposed acquisition. As noted by the Commission in
Northeast Utilities, Holding Co. Act Release No. 25221 (Dec. 21, 1990):
"antitrust ramifications of an acquisition must be considered in light of the
fact that public utilities are regulated monopolies and that federal and state
administrative agencies regulate the rates charged consumers." PowerGen and LG&E
Energy will file Notification and Report Forms with the DOJ and FTC pursuant to
the HSR Act describing the effects of the Merger on competition.
In addition, the competitive impact of the Merger will be fully considered
by the FERC pursuant to Section 203 of the Federal Power Act. Applicants have
shown in their Section 203 application that the Merger will not have an adverse
effect on competition. The Commission has found, and the courts have agreed,
that it may appropriately rely upon FERC with respect to such matters. See City
of Holyoke v. SEC, supra at 363-364, quoting Wisconsin's Environmental Decade v.
SEC, supra at 527.
LG&E Energy and its subsidiary companies, on the one hand, and PowerGen and
its related companies, on the other, do not have facilities or sell products in
any common geographic markets. With the exception of interests in three
Argentinean gas distribution companies - Centro, Cuyana and Gas Natural BAN,
S.A. and wind turbines in Tarifa, Spain, the LG&E Energy Subsidiary Companies
operate almost exclusively in the United States, selling electricity, natural
gas and related energy services and providing transmission and distribution
services. PowerGen and its subsidiary companies operate almost exclusively
outside the United States./9/
_____________________________
/9/ PowerGen's only activity in the United States is through Power Technology,
a division of PowerGen UK. Power Technology is engaged in engineering consulting
operations worldwide and in 1999 received approximately $1,000,000 from
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For these reasons, the Merger will not "tend toward interlocking relations
or the concentration of [control] of public-utility companies, of a kind or to
an extent detrimental to the public interest or the interests of investors or
[consumers]" within the meaning of Section 10(b)(1).
b. Section 10(b)(2)
i. Fairness of Consideration
Section 10(b)(2) requires the Commission to determine whether the
consideration to be given by PowerGen to the holders of LG&E Energy common stock
in connection with the Merger is reasonable and whether it bears a fair relation
to investment in and earning capacity of the utility assets underlying the
securities being acquired. Market prices at which securities are traded always
have been strong indicators as to values. As shown in the table below, the
quarterly price data, high and low, and dividends paid, for LG&E Energy common
stock, particularly in the period immediately prior to announcement of the
Merger, provide support for the consideration of $24.85 for each share of LG&E
Energy common stock.
LG&E Energy
High Low Dividends
1998
First Quarter 26-7/16 23 0.2975
Second Quarter 27-3/4 24-11/16 0.2975
Third Quarter 27-7/8 22-1/2 0.2975
Fourth Quarter 29-5/16 26-1/16 0.3075
1999
First Quarter 28-3/4 20-3/4 0.3075
Second Quarter 23 20-11/16 0.3075
Third Quarter 23-11/16 20-11/16 0.3075
Fourth Quarter 23-5/16 17-3/8 0.3175
2000 First Quarter 18-1/4 15-1/4 0.3175
(through Feb. 25)
____________________________________________________________________________
rendering consulting services in the United States.
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On February 25, 2000, the last full trading day before the public
announcement of the execution of the Merger Agreement, the closing price per
share as reported on the NYSE-Composite Transaction of LG&E Energy common stock
was $15.75. The $24.85 per share cash consideration represents a 58% premium to
this pre-announcement closing price.
In addition, the consideration is the product of extensive and
vigorous arm's length negotiations between PowerGen and LG&E Energy. As
recognized by the Commission in Ohio Power Co., Holding Co. Act Release No.
16753 (June 8, 1970), prices arrived through arm's length negotiations are
particularly persuasive evidence that Section 10(b)(2) is satisfied. See also
Southern Company, Holding Co. Act Release No.24579 (Feb. 12, 1988). These
negotiations were preceded by months of due diligence, analysis and evaluation
of the assets, liabilities and business prospects of the LG&E Energy Group. See
PowerGen Circular (Exhibit C-2 hereto); LG&E Energy Proxy Statement (Exhibit C-1
hereto).
Finally, internationally-recognized investment bankers for both
PowerGen and LG&E Energy have reviewed extensive information concerning the
companies and analyzed a variety of valuation methodologies. LG&E Energy's
financial adviser, the Blackstone Group L.P., has provided its written opinion
to LG&E Energy's Board of Directors that the consideration is fair, from a
financial point of view, to the holders of LG&E Energy common stock. The
investment banker's analysis is described in detail in the LG&E Energy Proxy
Statement (Exhibit C-1 hereto). The assistance of independent consultants in
setting consideration has been recognized by the Commission as evidence that the
requirements of Section 10(b)(2) have been met. Southern Co., supra, and SV
Ventures, Inc., Holding Co. Act Release No. 24579A (Feb. 26, 1988). See PowerGen
Circular (Exhibit C-2).
In light of these opinions and an analysis of all relevant factors,
including the benefits that may be realized as a result of the Merger,
Applicants believe that the consideration for the Merger bears a fair relation
to the sums invested in, and the earning capacity of, the utility assets of LG&E
Energy.
ii. Reasonableness of Fees
A further consideration under Section 10(b)(2) is the overall level of
fees, commissions and expenses incurred and to be incurred in connection with
the Merger. Applicants believe that these items are reasonable and fair in light
of
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the size and complexity of the Merger relative to other transactions and the
anticipated benefits of the Merger to the public, investors and consumers.
Applicants also believe that the fees are consistent with recent precedent and
that they meet the standards of Section 10(b)(2).
PowerGen and LG&E Energy together expect to incur a combined total of
approximately $50.4 million in fees, commissions and expenses in connection with
the Merger. 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 in connection with
their proposed merger, while National Grid and NEES estimated their total fees
at $54.2 million.
The Applicants believe that the estimated fees and expenses in this
matter bear a fair relation to the value of LG&E Energy 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 LG&E Energy common stock on February 25, 2000, the Merger would be
valued at approximately $3.23 billion in equity value. The total estimated fees
and expenses of $50.4 million represent approximately 1.6% of the equity value,
and are consistent with 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); National Grid Order (approximately 1.69% of the value of
the assets to be acquired).
c. Section 10(b)(3)
Section 10(b)(3) requires the Commission to determine whether a
proposed acquisition will unduly complicate the acquiror's capital structure or
will be detrimental to the public interest or the interest of investors or
consumers or the proper functioning of the resulting system. For the reasons
that follow, the capital structure of PowerGen will not be unduly complicated
nor will it be detrimental to the
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public interest, the interest of investors or consumers or the proper
functioning of the combined system.
Applicants are proposing a structure that will meet all of the
requirements of the 1935 Act, and will be virtually identical to that approved
by the Commission in the National Grid Order.
In the Merger, common shareholders of LG&E Energy will receive cash
(in the aggregate, the "Cash Consideration") in exchange for their LG&E Energy
shares. PowerGen proposes to obtain the Cash Consideration through the Bank
Loans./10/ The Bank Loans will be straightforward commercial loans from
sophisticated commercial lenders. US Holdings will be the borrower under the
Credit Facility, guaranteed by PowerGen. Such obligations will neither be
guaranteed by, nor secured by any assets of, any other subsidiary of PowerGen.
In no event will PowerGen issue any equity or debt securities to LG&E Energy
shareholders as consideration for the Merger and the acquisition of LG&E Energy.
The Merger Agreement, however, does permit holders of LG&E Energy employee stock
options to convert their options into options for PowerGen ADSs instead of
receiving cash. See the Merger Agreement, Section 6.11.
Upon consummation of the Merger, LG&E Energy will become a
wholly-owned, indirect subsidiary of PowerGen. PowerGen proposes to hold its
interest in LG&E Energy through the Intermediate Companies. Each of the
Intermediate Companies will be organized under the laws of either a member state
of the European Union with which the United States has a comprehensive Double
Taxation Treaty or a state of the United States. Other than US Holdings, which
may issue non-voting preferred stock, all of the Intermediate Companies will be
directly or indirectly wholly-owned by PowerGen and will have no public or
private institutional equity holders. The Intermediate Companies will be
capitalized with equity and/or debt all of which, other than any US Holdings
borrowings or preferred stock, will be held by either PowerGen or an
Intermediate Company. The ultimate U.S. parent of LG&E Energy will be
capitalized with both equity and debt, to be held by one or more of the
Intermediate Companies. Absent such additional approval as
_____________________
/10/ As noted above, a portion of the Cash Consideration may be paid from
available cash, proceeds of asset sales by PowerGen UK and its subsidiaries and
issuances of debt securities and other instruments by PowerGen or its
subsidiaries. See supra footnote 6.
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may be required, none of the Intermediate Companies will be engaged in any
business or trade other than the business of owning, directly or indirectly,
equity securities of LG&E Energy and the financing transactions described
herein, and none of the Intermediate Companies will be regulated by United
Kingdom or other third country regulatory authorities having jurisdiction over
electricity rates and service.
As a wholly-owned indirect subsidiary of PowerGen, LG&E Energy will
continue to be a public utility holding company, and it will retain its current
capital structure. Neither LG&E Energy nor any of the LG&E Energy Subsidiary
Companies will incur any additional indebtedness or issue any securities to
finance any part of the Cash Consideration. The acquisition of LG&E Energy by
PowerGen and the corporate and financing mechanics summarized above are not
designed or intended to alter or otherwise affect the current corporate
structure and financing obligations of the LG&E Energy Group companies as
members of a holding company system.
It is contemplated that the companies in the LG&E Energy Group will
each continue to pay dividends (and, in the case of the LG&E Energy Subsidiary
Companies, dividends on preferred stock and interest on and principal of their
debt). Dividends paid by LG&E Energy may ultimately be used by PowerGen or US
Holdings to service debt.
The following table shows the capitalization of PowerGen as of January
2, 2000, the capitalization of LG&E Energy as of December 31, 1999, and the pro
forma capitalization of PowerGen after giving effect to the Merger:/11/
______________________
/11/ See footnote 29.
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PowerGen LG&E Acquisition Combined
(U.S. $ mm) Energy (U.S. $ mm) adjustments System
Short-term
Debt 158 450 - 608
Current Portion
Long-Term
Debt - 412 - 412
Long-term
Debt 4,145 1,299 3,278 8,722
Preferred
Stock - 135 - 135
Common Stock
Equity 3,833 1,251 (1,141) 3,943
Total 8,136 3,547 2,137 13,820
This proposed capital structure is consistent with the requirements of
the Act. As explained in Item 3, Section B.1,/12/ PowerGen expects that at the
time of the Merger, its consolidated ratio of common equity to total
capitalization will meet the "traditionally acceptable 30% level." Northeast
Utilities, Holding Co. Act Release No. 25221 (Dec. 21, 1990). After the Merger,
PowerGen also is expected to maintain investment grade credit ratings. See infra
Item 3, Section B.1.
i. The presence of debt at more than one level of the
PowerGen System does not "unduly complicate" the
capital structure of the PowerGen System for
purposes of Section 10(b)(3).
A number of steps must be taken in a specified sequence in order to
achieve the economic benefits of the transaction structure. Completion of some
of the steps necessary to implement the transaction structure will occur shortly
following consummation of the Merger and thus will be subject to Commission
jurisdiction. Applicants request that the Commission view all of the steps
necessary to implement the transaction structure in their entirety as they are,
in fact, constituent elements comprising a single transaction.
In addition, Applicants recognize that, in prior matters involving the
formation of a registered holding company, the Commission has considered
preliminary financing transactions (i.e., transactions occurring prior to the
________________
/12/ Id.
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formation of a registered holding company) in view of their effects on the
capital structure of the resulting holding company. For example, in connection
with the merger of Atlantic Energy, Inc. and Delmarva Power & Light Co., the
Commission considered that the resulting registered holding company would have
two classes of common stock--notwithstanding that, at the time the letter or
"tracking stock" was issued, the issuer was not a registered holding company.
The Commission did not address the specific question of whether it had
jurisdiction to pass on the securities issuance but instead noted that, under
Section 7(c)(2)(A) of the 1935 Act, a registered holding company can issue other
than "plain vanilla" securities "solely . . . for the purpose of effecting a
merger, consolidation, or other reorganization." Conectiv, Inc., Holding Company
Act Release No. 26832 (Feb. 25, 1998). See also the National Grid Order.
Accordingly, to the extent that the Commission might choose to treat any element
of the implementation of the transaction structure, such as the borrowing of the
Bank Loans, as a jurisdictional event, there is express statutory provision for
such transactions under Section 7(c)(2)(A) of the 1935 Act.
Nor does the presence of holding company level debt to be used for
general working capital represent an undue complication of the capital structure
of the PowerGen System for purposes of Section 10(b)(1). In the first instance,
to the extent that the debt is associated with facilities that have been entered
into before PowerGen becomes a registered holding company or as replacements for
such facilities, they should be grandfathered for purposes of the Act. Second,
and more importantly, Section 7(c)(2)(D) expressly provides for the issuance of
nontraditional securities if "such security is to be issued or sold solely for
necessary or urgent corporate purposes of the declarant where the requirements
of the provisions of paragraph (1) would impose an unreasonable financial burden
upon the declarant and are not necessary or appropriate in the public interest
or for the protection of investors or consumers." Registered gas systems have
relied on this provision for years in connection with their routine financing
transactions. See, e.g., The Columbia Gas System, Inc., Holding Co. Act Release
No. 26634 (Dec. 23, 1996) (authorizing Columbia to issue external, long-term
debt which, in the aggregate with equity financing issued by Columbia, would not
exceed $5 billion at any one time outstanding through December 31, 2001). Based
on the same rationale, the Commission recently permitted a registered electric
system to have long-term debt at the parent company level. Southern Co., Holding
Co. Act Release No. 27134 (Feb. 9, 2000). Following the Southern Co.
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decision, the Commission similarly allowed investment grade long-term debt at
the parent company level in the National Grid Order.
Credit rating agencies have examined PowerGen's and LG&E Energy's
credit ratings in light of the proposed Merger and indicated that they expect
the combined system will maintain investment grade ratings. On the day the
Merger was announced, both Moody's and Standard & Poor's placed PowerGen and
LG&E Energy, LG&E, KU and LG&E Capital on credit watch/review for potential
downgrade, which will last until the Merger is completed. Standard & Poor's has
indicated that PowerGen's Corporate credit rating (essentially that of PowerGen
UK) would probably be BBB+ after the Merger, in light of the acquisition as well
as certain anticipated disposals by PowerGen UK. On the same basis Moody's
indicated a likely rating of A3 (the equivalent of A- for Standard & Poor's) for
PowerGen UK after the Merger.
The agencies indicated that the future rating for PowerGen is likely to
be one notch below that of PowerGen UK but is expected to remain investment
grade. Moody's has stated that "the operations of LG&E Energy are in many ways
complementary to PowerGen's assets." Furthermore, Moody's found LG&E Energy's
strengths to "lie in its traditional well-managed low-cost electricity
production as well as its distribution system--which is held in high regard for
its customer satisfaction oriented focus." In addition, Moody's has reviewed
PowerGen's announced corporate strategy of selling certain of its non-core
assets to generate cash to repay debt and cover interest payments. This
strategy, according to Moody's, "will enhance the business risk and cashflow
stability of the PowerGen Group . . . ." Moody's concludes that "the effect of
any potential downgrade of PowerGen's ratings [i.e., from assuming debt to pay
for the acquisition of LG&E Energy] should be no more than one notch."
Therefore, PowerGen's securities are expected to maintain investment grade
status after the Merger.
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Moody's current ratings for PowerGen UK and LG&E Energy securities are
shown below.
Company and Security Moody's Rating
PowerGen UK
Senior unsecured long-term debt A2
PowerGen East Midlands Investments
Senior unsecured long-term debt A2
PowerGen Energy plc
Senior unsecured long-term debt A1
LG&E Energy Corp.
Issuer rating A3
LG&E
Senior secured First Mortgage Bonds A1
Issuer rating and senior unsecured debt A2
Preferred Stock a2
KU
Senior secured First Mortgage Bonds A1
Issuer rating A2
Preferred Stock a2
Standard & Poor's also reviewed its ratings of the two groups and also
found that the combined systems are expected to maintain investment grade
ratings. Although Standard & Poor's, like Moody's, acknowledges that PowerGen's
acquisition debt will be relatively high, Standard & Poor's observes that the
risks from the debt "will be partially offset by the improved business profile
of the enlarged group and PowerGen's expected U.K. and international
divestments." Furthermore, Standard & Poor's notes that "PowerGen's acquisition
of LG&E group is consistent with its previously stated strategy to diversify its
income streams geographically, by acquiring a vertically integrated utility in a
highly rated country." Therefore, Standard & Poor's finds that the Merger is not
expected to have a substantial adverse effect on PowerGen's credit ratings,
which will remain investment grade.
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Standard & Poor's current ratings of PowerGen and LG&E Energy Group
securities are shown below.
Company and Security Standard & Poor's Rating
PowerGen plc
Corporate credit rating A/A-1
PowerGen US Holdings Ltd.
Corporate credit rating A/A-1
PowerGen UK plc
Corporate credit rating A/A-1
Senior unsecured debt A
PowerGen (East Midlands)
Corporate credit rating A/--
Senior unsecured debt A
PowerGen Energy plc
Corporate credit rating A/A-1
Senior unsecured debt A
LG&E Energy Corp.
Corporate credit rating A-/--
LG&E
Long-term corporate credit rating A-
Senior secured debt A
Preferred Stock BBB
KU
Long-term corporate credit rating A-
Senior secured debt A
Preferred Stock BBB
The financial strength of PowerGen is further confirmed by the
competitive terms under which it has been able to secure financing for the
proposed transaction. For these reasons and in light of the National Grid Order,
Applicants believe that the presence of more than one level of debt will not
unduly complicate PowerGen's capital structure.
ii. The Merger will not be detrimental to the public
interest or the interest of investors or consumers
or the proper functioning of the registered
holding company system.
For the reasons previously set forth, and discussed below in the
context of Section 10(c)(2), Applicants believe that the proposed Merger will,
in fact, benefit the protected interests and enhance the functioning of the
resulting holding company systems. LG&E Energy and PowerGen are requesting an
affirmation from each of the affected
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state regulators that it has the authority and resources to protect consumers
subject to its jurisdiction and that it intends to exercise that authority.
These regulatory approvals will assure that the interests of retail customers
and wholesale customers are adequately protected. In addition, PowerGen commits
that it will not seek recovery in higher rates to the U.S. Utility Subsidiaries'
ratepayers for any losses or inadequate returns that may be associated with its
non-LG&E Energy investments. Finally, the Merger is expected to have no adverse
effect on the rights of holders of the outstanding preferred stock and debt
securities of the LG&E Energy Subsidiary Companies./13/ Based on similar facts
and the same assurances, the Commission in the National Grid Order found that
the proposed merger in that case would not be detrimental to the public interest
or the interest of investors or consumers or the proper functioning of the
registered holding company system. Applicants respectfully submit that the
Commission should make the same finding with respect to the Merger.
2. Section 10(c)
Section 10(c) of the Act provides that, notwithstanding the provisions of
Section 10(b), the Commission shall not approve:
(1) an acquisition of securities or utility assets, or of any other
interest, which is unlawful under the provisions of Section 8 or is
detrimental to the carrying out of the provisions of Section 11; or
(2) the acquisition of securities or utility assets of a public utility or
holding company unless the Commission finds that such acquisition will
serve the public interest by tending towards the economical and
efficient development of an integrated public utility system.
a. Section 10(c)(1)
Section 10(c)(1) prohibits the Commission from approving an acquisition for
which Commission approval is required under Section 9(a) if such acquisition is
unlawful under the provisions of Section 8 or is detrimental to the carrying out
of the provisions of Section 11.
_______________
/13/ Aside from holders of options for common stock and common stockholders,
LG&E Energy currently has no public security holders. LG&E and KU do have, and
following the Merger will continue to have, public security holders.
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i. Section 8 Analysis
Section 8 prohibits a registered holding company from acquiring
interests in an electric utility company and a gas utility company serving
substantially the same territory in contravention of state law. The purpose of
Section 8 is to prevent holding companies, by use of separate subsidiaries, from
circumventing state restrictions on common ownership of gas and electric
operations. The Merger will not result in any new situations of common ownership
of so-called "combination" systems within any state. LG&E is presently a
combination gas and electric public utility serving substantially the same
territory in Kentucky. After the Merger, LG&E will continue to serve both gas
and electric customers in Kentucky. No state law prohibits LG&E's combined gas
and electric operations, and no state law prohibits PowerGen from indirectly
acquiring LG&E. Further, the Merger will occur only after the authorizations of
the Kentucky Commission and the Virginia Commission have been granted.
Accordingly, the Merger will not be unlawful under Section 8, and thus that
portion of Section 10(c)(1) relating to Section 8 of the Act is satisfied.
ii. Section 11 Analysis - Integration
Section 10(c)(1) also requires that an acquisition not be detrimental
to carrying out the provisions of Section 11 of the Act./14/ Section 11(b)(1),
in pertinent part, directs the Commission:
to require . . . that each registered holding company, and each
subsidiary company, thereof, take such action as the 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
__________________
/14/ The FUCO holdings of PowerGen and LG&E Energy need not be included in this
analysis as Section 33(c)(3) of the Act explicitly provides that FUCOs shall
be considered to be consistent with the operation of a single integrated public
utility system.
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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.
o Integrated Public Utility System
Because Section 2(a)(29) specifies separate definitions for gas and
electric systems, the Commission has historically taken the position that gas
and electric properties together cannot constitute a single integrated
public-utility system./15/ However, Commission authority is equally clear that
Section 10(c)(2) does not limit Commission approval to acquisitions resulting in
only one integrated system. "[W]e have indicated in the past that acquisitions
may be approved even if the combined system will not be a single integrated
system. Section 10(c)(2) requires only that the acquisition tend 'towards the
economical and the efficient development of an integrated public-utility
system.'"/16/
In this case, the Merger will tend toward the economical and efficient
development of two integrated systems: the combined electric utility system of
LG&E and KU and the stand-alone gas utility system of LG&E.
_________________
/15/ See New Century Energies, Inc., Holding Co. Act Release No. 26748, citing
SEC v. New England Electric System, 384 U.S. 176,178 n.7; In the Matter of
Columbia Gas & Electric Corporation, Holding Co. Act Release No. 2477, 8 S.E.C.
443, 462-463 (Jan. 10, 1941) (rejecting an earlier interpretation to the
contrary in American Water Works and Electric Company, Inc., 2 S.E.C. 972, 983
(Dec. 30, 1937)).
/16/ Gaz Metropolitan, Inc., quoting In the Matter of Union Electric Company,
Holding Co. Act Release No. 18368, 45 S.E.C. 489, 505 (April 10, 1974), aff'd
without op. sub nom. City of Cape Girardeau, Missouri v. S.E.C., 521 F.2d 324
(D.C. Cir. 1975). See also, New Century Energies, File No. 70-8787.
Environmental Action, Inc. v. S.E.C., 895 F.2d 1255, 1263 (9th Cir. 1990)
(citing In re Electric Energy, Inc., Holding Co. Act Release No. 35-13781, 38
S.E.C. 658, 668 (Nov. 28, 1958)).
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o Electric System
As applied to electric utility companies, the term "integrated public
utility system" is defined in Section 2(a)(29)(A) of the Act as:
a system consisting of one or more units of generating plants and/or
transmission lines and/or distributing facilities, whose utility
assets, whether owned by one or more electric utility companies, are
physically interconnected or capable of physical interconnection and
which under normal conditions may be economically operated as a single
interconnected and coordinated system confined in its operations to a
single area or region, in one or more States, not so large as to impair
(considering the state of the art and the area or region affected) the
advantages of localized management, efficient operation, and the
effectiveness of regulation.
On the basis of this statutory definition, the Commission has established four
standards that must be met before the Commission will find that an integrated
electric system will result from a proposed acquisition of securities:
(1) the utility assets of the system are physically interconnected or
capable of physical interconnection;
(2) the utility assets, under normal conditions, may be economically
operated as a single interconnected and coordinated system;
(3) the system must be confined in its operations to a single area or
region; and
(4) the system must not be so large as to impair (considering the
state of the art and the area or region affected) the advantages
of localized management, efficient operation, and the
effectiveness of regulation.
The Merger satisfies all four of these requirements.
First, LG&E and KU are already physically interconnected. LG&E and KU
are directly connected through transmission lines that they own, including two
138 Kv transmission lines and two 69 Kv transmission lines. See Exhibit E-1.
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Even if LG&E and KU were not actually interconnected, they would be
deemed capable of interconnection by virtue of their membership in the Midwest
Independent System Operator ("Midwest ISO"). In the past, the Commission has
determined that membership in a "tight" power pool satisfied the interconnection
standard for purposes of Sections 11(b)(1) and 2(a)(29)(A). UNITIL Corporation,
Holding Co. Act Release No. 25554 (April 24, 1992). This determination of
interconnection also has been interpreted to include independent system
operators. Conectiv, Inc., Holding Co. Act Release No. 26832 (Feb. 25, 1998).
LG&E and KU were among the original signatories to the Midwest ISO
Agreement. The Midwest ISO was developed in accordance with the FERC's Order No.
888, which order encouraged the formation of independent system operators. The
major reasons for establishing the Midwest ISO are: to provide access to a large
regional transmission system; to solve transmission pricing problems, including
pancaking of rates and loop flow issues; to maintain or improve system
reliability and security; and to coordinate planning of the transmission system.
On behalf of the Midwest ISO, ten transmission-owning public utilities
(including LG&E and KU) submitted an application to the FERC on January 15,
1998, for approval to transfer operational control over their transmission
facilities to the Midwest ISO. Concurrent with their application, the utilities
submitted the Midwest ISO Tariff, the Midwest ISO Agreement and related
documents for approval to establish an independent transmission system operator.
FERC issued an order on September 16, 1998,/17/ authorizing the establishment of
the Midwest ISO, conditioned upon the resolution of certain issues. It is
anticipated that the Midwest ISO will be fully operational by mid-2001.
Therefore, LG&E and KU are also interconnected through the Midwest ISO.
Second, LG&E and KU will continue to be economically operated as a
single interconnected and coordinated system. The two companies are
interconnected by a transmission system which allows the transfer of power
between LG&E and KU. LG&E and KU will continue operating as a single system,
economically dispatched.
Third, this single integrated system will operate in a single area or
region, the area delineated on Exhibit E-1, covering portions of Kentucky,
Virginia, and Tennessee. In
____________
/17/ Midwest Independent Transmission System Operator, Inc., 84 FERC (P) 61,231
(1998).
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considering size, the Commission has consistently found that utility systems
spanning multiple states satisfy the single area or region requirement of the
1935 Act. For example, the Entergy system covers portions of four states
(Entergy, Holding Co. Act Release No. 25952 (Dec. 17, 1993)); the Southern
system provides electric service to customers in portions of four states
(Southern Co., Holding Co. Act Release No. 24579 (Feb. 12, 1998)); and New
Century Energies serves customers in six states (New Century Energies, Holding
Co. Act Release No. 26748 (Aug. 1, 1997)).
Fourth, the system is not so large as to impair the advantages of
localized management, efficient operations, and the effectiveness of regulation.
The Commission's past decisions on "localized management" show that the Merger
fully preserves the advantages of localized management. In these cases, the
Commission has evaluated localized management in terms of: (i) responsiveness to
local needs, see American Electric Power Co., Holding Co. Act Release No. 20633,
46 S.E.C. 1299, 1312 (July 21, 1978)(advantages of localized management
evaluated in terms of whether an enlarged system could be "responsive to local
needs"), General Public Utilities Corp., Holding Co. Act Release No. 13116, 37
S.E.C. 28, 36 (Mar. 2, 1956) (localized management evaluated in terms of "local
problems and matters involving relations with consumers"); (ii) whether
management and directors were drawn from local utilities, see Centerior Energy
Corp., Holding Co. Act Release No. 24073, 35 S.E.C. Docket 769, 775 (Apr. 29,
1986) (advantages of localized management would not be compromised by the
affiliation of two electric utilities under a new holding company because the
new holding company's "management [would be] drawn from the present management"
of the two utilities); Northeast Utilities, Holding Co. Act Release No. 25221,
47 S.E.C. Docket 1270, 1285 (Dec. 21, 1990)(advantages of localized management
would be preserved in part because the board of New Hampshire Utility, which was
to be acquired by an out-of-state holding company, included "four New Hampshire
residents"); (iii) the preservation of corporate identities, see Id. (utilities
"will be maintained as separate New Hampshire corporations . . .[t] herefore the
advantages of localized management will be preserved"); Columbia Gas & Electric
Corporation, Holding Co. Act Release No. 2477, 8 S.E.C. 443 (Jan. 10,
1941)(benefits of local management maintained where the utility to be added
would be a separate subsidiary); and (iv) the ease of communications, see
American Electric Power Co., supra, at 1312 (distance of corporate headquarters
from local management was a "less important factor in determining what is in the
public
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interest" given the "present-day ease of communication and transportation.")
The Merger satisfies all of the factors regarding "localized
management" noted above. LG&E and KU will continue to operate through regional
offices with local service personnel and line crews available to respond to
customers' needs. The Merger Agreement does not change the existing management
of LG&E or KU. After the Merger, LG&E and KU will maintain their current offices
as subsidiary headquarters and as local operating headquarters for the areas
they presently serve, while LG&E Energy will maintain the LG&E Energy Group
headquarters. KU will maintain its Lexington headquarters and a substantial
presence throughout its service territory in order to conduct the state-wide
operations of KU. Although the location of the corporate headquarters of
PowerGen is distant from customers served by LG&E and KU, this distance is, as
noted by the Commission in the American Electric Power case supra, a relatively
unimportant factor given the present ease of transportation and communications
and the retention of the LG&E and KU headquarters at their present location. In
addition, the Commission in the National Grid Order approved a substantially
similar management arrangement. Thus, the Merger will preserve all the benefits
of localized management of LG&E and KU.
The Merger will result in the following changes to the Boards of
Directors of LG&E Energy, LG&E, and KU. The current Board of Directors of each
of LG&E Energy, LG&E and KU will be replaced by a new three-member Board of
Directors. The Merger Agreement provides that, for three years after the Merger,
one member of the LG&E Energy Board of Directors will be an individual who
immediately prior to the Merger is an officer or director of LG&E Energy.
PowerGen also expects that this individual will serve on the KU and LG&E Boards
of Directors. In addition to LG&E Energy's Board of Directors, an advisory board
comprised of members of LG&E Energy's current Board will be established to
advise PowerGen on local regulatory and management issues. Thus, the Merger
Agreement will preserve the advantages of local representation.
Finally, the Merger will not impair the effectiveness of state
regulation. LG&E and KU will continue their separate existence as before and
their utility operations will remain subject to the same regulatory authorities
by which they are presently regulated, namely the Kentucky Commission, the
Virginia Commission, the Tennessee Commission, and the FERC. This Merger will
not be
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consummated unless all required regulatory approvals are obtained.
o Gas Utility System
Section 2(a)(29)(B) defines an "integrated public utility system" as
applied to gas utility companies as:
a system consisting of one or more gas utility companies which are so
located and related that substantial economies may be effectuated by
being operated as a single coordinated system confined in its
operations to a single area or region, in one or more States, not so
large as to impair (considering the state of the art and the area or
region affected) the advantages of localized management, efficient
operation, and the effectiveness of regulation: Provided, that gas
utility companies deriving natural gas from a common source of supply
may be deemed to be included in a single area or region.
The LG&E gas utility system will meet the standard set forth in Section
2(a)(29)(B) and, therefore, will satisfy the requirements of Sections 10(c)(1)
and (2) and should be approved by the Commission.
LG&E's gas utility system will operate as a coordinated system confined
in its operation to a single area or region covering portions of Kentucky. See
Exhibit E-1. As shown by the maps in Exhibit E-1, there is substantial overlap
between the gas service territory of LG&E and the electric service territories
of LG&E and KU. The system also will not be so large as to impair the advantages
of localized management or the effectiveness of regulation. As set forth in Item
3, Section A.2.a.ii above, localized management will be preserved. The
centralized functions of LG&E's gas utility business will continue to be managed
from Louisville, Kentucky, and the local functions will continue to be handled
from several regional offices. Management will, accordingly, remain close to the
gas operations, thereby preserving the advantages of local management. As also
set forth in Item 3, Section A.2.a.ii, from a regulatory standpoint there will
be no impairment of regulatory effectiveness. The same regulators currently
overseeing the LG&E gas operations (i.e., the Kentucky Commission) will continue
to have jurisdiction after the Merger.
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For all of these reasons, the post-transaction gas operations satisfy the
integration requirements of Section 2(A)(29)(B).
iii. Section 11 Analysis - Retention of Gas Utility
System
As noted above, both the electric utility operations and gas utility
operations of LG&E Energy will continue to be separately integrated. For the
reasons set forth below, Applicants respectfully submit that LG&E's gas utility
business is retainable under the standards of Section 11 of the Act.
Historically, the Commission had considered the question of whether a
registered electric system could retain a separate gas system under a strict
standard that required a quantification of the loss of substantial economies
before retention would be permitted. New England Electric System, 41 S.E.C. 888
(1964). In its affirmation of that decision, the U.S. Supreme Court declared
that a loss of substantial economies could be demonstrated by the inability of
the separate gas system to survive on a stand-alone basis. SEC v. New England
Electric System, 384 U.S. 176, 181 (1966). This rigid interpretation of the
requirements of Section 11(b)(1) has been explicitly eased by the Commission in
its most recent decisions under Sections 9(a) and 10 of the Act, both with
respect to exempt holding companies (TUC Holding Company, Holding Co. Act
Release No. 26749 (Aug. 1, 1997) and Houston Industries Incorporated, Holding
Co. Act Release No. 26744 (July 24, 1997)) and newly formed registered companies
(e.g., New Century Energies, Inc., Holding Co. Act Release No. 26748 (Aug. 1,
1997)and SCANA Corp., Holding Co. Act Release No. 27133 (Feb. 9, 2000)).
In these recent decisions, the Commission acknowledged the transformation
of utilities' status as franchised monopolies with captive ratepayers to
competitors and the convergence of the electric and gas industries that was then
underway (and which continues today). As a result, the historical standards of
review have become outdated as separated electric and gas companies would be
weaker competitors than they would be as combined companies in the same market.
See SCANA Corp., Holding Co. Act Release No. 27133 (Feb. 9, 2000); New Century
Energies, Inc., Holding Co. Act Release No. 26748 (Aug. 1, 1997); Houston
Industries Incorporated, Holding Co. Act Release No. 26744 (July 24, 1997).
Thus, newer transactions, such as PowerGen's proposed acquisition of LG&E Energy
and subsequent
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registration of the merged systems, should be evaluated on the basis of new
Commission precedent and policy in light of changing industry standards.
Applicants believe that the Commission should approve the Merger and allow
the retention of LG&E's gas system as a matter of policy and as a matter of
fairness, and can approve the Merger as a matter of law. First, as noted above,
the Commission has already acknowledged that the electric and gas industries are
converging and that combination companies may be more effective competitors in a
given market. The Commission has recognized and accepted the changing nature of
the energy industry and, in particular, the fact that the combination of
multiple electric and gas operations in a single company offers that company a
means to compete more effectively in the emerging energy services business in
which a few cents of cost per unit can make the difference between economic
success and economic failure. WPL Holdings, Inc., Holding Co. Act Release No.
26856 (April 14, 1998), aff'd sub nom., Madison Gas and Electric Company v. SEC,
supra. Indeed, the Commission has noted that "the utility industry is evolving
towards a broadly based energy-related business"/18/ marked by "the
interchangeability of different forms of energy, particularly gas and
electricity."/19/ In the instant situation, the lost economies that would follow
from denying the retention of LG&E's gas utility system are substantial, both
quantitatively and qualitatively.
Section 10(c)(1) does not require that the Commission apply Section
11(b)(1) without consideration of the lost economies that would result from
divestiture of additional systems in considering acquisitions under Section
9(a). As the Court of Appeals stated in Madison Gas and Electric Company v. SEC:
______________________
/18/ Consolidated Natural Gas Company, Holding Co. Act Release No. 26512 (April
30, 1996).
/19/ Id.
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By its terms . . ., Section 10(c)(1) does not require that new
acquisitions comply to the letter with Section 11. In contrast to its
strict incorporation of Section 8 . . ., with respect to Section 11
Section 10(c)(1) prohibits approval of an acquisition only if it "is
detrimental to the carrying out of [Section 11's] provisions." The
Commission has consistently read this provision to import into Section
10's regime not only the integration requirement of 11(b)(1)'s main
clause but also the exceptions to the requirement in the (A)(B)(C)
clauses./20/
The economies and benefits of a combined gas and electric system would
be lost if PowerGen were forced to divest LG&E's gas system. The electric
operations and gas operations of LG&E currently realize efficiencies from
numerous joint, or shared, services - e.g., joint billing, joint customer
service, joint meter reading, shared installation and inspection of service
lines and shared construction equipment. The stand alone gas company would have
greater operating costs per unit sold and would, therefore, realize a lesser
amount of any increased revenue
__________________
/20/ Section 11(b)(1) states that
the Commission shall permit a registered holding company to continue to
control one or more additional integrated public utility systems, if,
after notice and opportunity for hearing, it finds that -
(A) Each of such additional systems cannot be operated as
an independent system without the loss of substantial
economies which can be secured by the retention of
control by such holding company of such system;
(B) All of such additional systems are located in one
state, or in adjoining states, or in a contiguous
foreign country; and
(C) The continued combination of such systems under the
control of such holding company is not so large
(considering the state of the art and the area or
region affected) as to impair the advantages of
localized management, efficient operation, or the
effectiveness of regulation.
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on its bottom line./21/ Furthermore, PowerGen anticipates that many new electric
generating units will be gas fired, which will require expertise in gas
transportation and purchasing./22/
Divestiture of LG&E's gas operations would cause a significant,
although difficult to quantify, amount of damages to LG&E Energy's ability to
compete in the marketplace. Further, divestiture would result in higher costs
for LG&E Energy's customers and regulators. As noted above, the gas and electric
industries are converging nationwide, and separation of electric and gas
businesses would likely cause the separated entities to be weaker competitors
than they would be together. As competition has developed in the utility
industry, those companies in the retail energy delivery business have found it a
competitive advantage to be able to offer customers a range of options to meet
their energy needs. Potential non-quantifiable costs to customers which would
result from divestiture of LG&E's gas operations involve the additional expenses
of doing business with two public utility companies instead of one and the costs
associated with having multiple companies supply information to shareholders and
publish reports required by the Exchange Act. Similarly, regulatory costs would
involve additional duties for the staff of the Kentucky Commission as a result
of dealing with an additional public utility company. These additional duties
would largely be the result of duplicating existing functions such as separate
requests for approvals of financing.
For all of the foregoing reasons, the Commission should hold that the
combination of electric and gas operations under PowerGen's newly registered
holding company is lawful
____________________
/21/ The Commission has recently approved a similar lost economies analysis in
a situation where a registered holding company acquired a pure gas utility
company and the application examined the lost revenue enhancement opportunities
that would occur if the acquiror were forced to divest any of its newly acquired
gas utility operations. See Northeast Utilities, Holding Co. Act Release No.
27127 (Feb. 1, 2000).
/22/ The Commission recently approved the retention of a combined gas and
electric system under Section 11(b)(1) of the Act without requiring a study of
the lost economies that would have resulted from divestiture of the additional
system. See SCANA Corp., Holding Co. Act Release No. 27133 (Feb. 9, 2000).
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under the provisions of Section 8 and is not detrimental to the carrying out of
the provisions of Section 11.
iv. Retention of "Other Businesses"
The final question under section 11(b)(1) is whether the "other
businesses" of PowerGen and LG&E Energy are retainable under the standards of
Section 11 and the statutory amendments thereto. As previously noted, PowerGen
UK (or PowerGen Group Holdings from the time of its formation), PowerGen's
direct subsidiary, will claim an exemption as a FUCO under the Act. Section 33,
unlike Section 32, which requires EWGs to be exclusively engaged in owning and
operating exempt facilities, does not require FUCOs to be engaged exclusively in
the business of owning and operating foreign utilities. Thus, PowerGen UK and
its subsidiaries will be exempt from regulation and are retainable under the Act
in accordance with the provisions of Section 33(a)(1) of the Act. Attached as
Exhibit F-1.2 is a description of these subsidiaries and their present business
activities.
LG&E Energy's non-utility subsidiaries are retainable under the
Commission's prior precedent, and under the Commission's Rule 58. The business
of each of these subsidiaries and its basis for retention is set forth in
Exhibit F-2.2 hereto.
v. The Merger will satisfy the requirements of
Section 11(b)(2), as incorporated by Section
10(c)(1).
Section 11(b)(2) further directs the Commission:
To require . . . that each registered holding company, and each
subsidiary company thereof, shall take such steps as the Commission
shall find necessary to ensure that the corporate structure or
continued existence of any company in the holding-company system does
not unduly or unnecessarily complicate the structure, or unfairly or
inequitably distribute voting power among security holders, of such
holding-company system. In carrying out the provisions of this
paragraph the Commission shall require each registered holding company
(and any such company in the same holding company system with such
holding company) to take such action as the Commission shall find
necessary in order that such holding company shall cease to be a
holding company with respect to each of its subsidiary
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companies which itself has a subsidiary company which is a holding
company. Except for the purpose of fairly and equitably distributing
voting power among the security holders of such company, nothing in
this paragraph shall authorize the Commission to require any change in
the corporate structure or existence or any company which is not a
holding company, or of any company whose principal business is that of
a public-utility company.
Section 11(b)(2) raises two issues: first, will the corporate structure or
continued existence of any company unduly or unnecessarily complicate the
structure of the PowerGen holding company system post-Merger and, second, will
the Merger result in an unfair or inequitable distribution of voting power among
the security holders of PowerGen. As explained more fully below and as found by
the Commission in the National Grid Order, any apparent complexity in the
resulting holding company system does not create any inequitable distribution of
voting power and is necessary in order to achieve economic efficiencies.
The principal economic effect of the transaction structure will be to
permit PowerGen to maximize economic returns, given that the consideration for
the Merger will be funded by external borrowings in the United Kingdom. The only
external parties to the contemplated transactions will be the sophisticated
commercial lenders that will be advancing moneys to US Holdings under fully
negotiated lending agreements, none of which will involve any guarantees by, or
pledges of assets from, any member of the LG&E Energy Group.
It is common practice for U.K.-based multinational corporations to hold
their non-U.K. subsidiaries through one or more intermediary companies
incorporated under laws of European Union member states. These types of
transaction structures are implemented to minimize the impact of tax on the
repatriation of dividends and interest to the United Kingdom and are understood
by the U.K. tax authorities. These structures are not unusual. PowerGen has used
this type of structure in connection with its other foreign investments. U.S.
registered holding companies also employ similar structures in connection with
their, albeit out-bound, cross-border transactions into the United Kingdom. See,
e.g., Exhibit H from the Form U5S filed by The Southern Company for the year
ended December 31, 1998, detailing the ownership structure for the system's EWGs
and FUCOs. Moreover, the Commission recently approved a similar structure for
National Grid.
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o PowerGen's Corporate Structure Will Not Be "Unduly or
Unnecessarily" Complicated.
As noted above, PowerGen's proposed transaction structure is more
complicated than the traditional corporate structure commonly used by U.S.
registered holding companies with respect to their U.S. subsidiaries and
operations in that there will be more corporate layers between PowerGen and LG&E
Energy than there are, for example, between LG&E Energy and its operating
subsidiaries. The Applicants believe that the structure is nonetheless
appropriate and not unusual for cross-border transactions. PowerGen proposes to
continue the current LG&E Energy corporate and holding company system structure.
Accordingly, the Applicants seek a declaratory order requesting that the
proposed transaction structure is in compliance with Section 11 of the Act,
solely for purposes of complying with the "great grandfather" provisions of
Section 11(b)(2).
Further, the Intermediate Companies will not be a means by which
PowerGen seeks to diffuse control of LG&E Energy and the LG&E Energy Subsidiary
Companies. Rather, the Intermediate Companies (other than US Holdings) will be
created as special-purpose entities for the sole purpose of helping the parties
capture economic efficiencies that might otherwise be lost in a cross-border
transaction. Except with respect to US Holdings in connection with the financing
transactions described herein, there will be no third-party lenders or investors
in any of the Intermediate Companies. Each of the Intermediate Companies will be
wholly-owned, directly or indirectly, by PowerGen and the creation and existence
of the Intermediate Companies will not affect the operation of the LG&E Energy
Group. Indeed, the corporate structure "downstream" from LG&E Energy will remain
unaffected as a result of the proposed Merger. Accordingly, this is not the type
of situation that concerned the drafters of the Act, and, in the Applicants'
view, the Commission should thus exercise its discretion to find that any
apparent complexity of the proposed transaction structure is neither undue nor
unnecessary./23/
____________________
/23/ KU's role in the corporate structure of LG&E Energy also violates
technically the "great-grandfather" provision of Section 11(b)(2); consequently,
Applicants also request that the Commission find that KU is not a holding
company for purposes of the "great grandfather" provision for the following
reasons. First, although the Commission applies a relaxed standard of Section 11
to exempt holding company systems, the present corporate structure of LG&E
Energy has been reviewed and approved by the Commission when LG&E and
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It is again worth emphasizing that none of the economic planning
reflected in the proposed transaction structure will result in any change in the
corporate organization of the LG&E Energy Group or in the financing transactions
undertaken by LG&E Energy and its subsidiaries. Neither LG&E Energy nor any of
LG&E Energy's subsidiaries will borrow or issue any security or pledge any
assets to finance any part of the Cash Consideration. Thus, there is no
possibility that implementation and continuance of the proposed transaction
structure could result in an undue or unnecessarily complex capital structure to
the detriment of the public interest or the interest of consumers.
The foregoing structure and related facts are virtually identical to
the corporate structure and facts presented to the Commission in National Grid,
where the Commission decided "to 'look through' the Intermediate Holding
Companies (or treat the Intermediate Holding Companies as a single company) for
purposes of the analysis under Section 11(b)(2) of the Act," and found that
corporate structure in that case did "not unduly or unnecessarily complicate the
structure" of National Grid. Applicants respectfully submit that the same result
should follow in the present case.
o Voting Power Will Be Fairly and Equitably
Distributed.
As stated previously, PowerGen is a public limited company organized
under the laws of England and Wales and domiciled in the United Kingdom. Its
ordinary shares are listed and traded on the LSE and its ADSs are listed and
traded on the NYSE. The substantial majority of PowerGen's 741,094 public
shareholders are not U.S. residents. The government of the United Kingdom also
owns what is commonly referred to as a "golden share" in PowerGen. The golden
share is a governmental change-in-control regulation effected through
governmental ownership of a single, "golden" share. In the case of PowerGen, Her
Majesty's Government's golden share confers only the right to prevent certain
actions, such as a person or group of persons from acquiring more than 15% of
PowerGen's shares. This golden share does not entitle Her Majesty's Government
to vote at meetings of PowerGen shareholders or exert any positive control over
PowerGen or its business. Also, it does not
________________________________________________________________________________
KU merged. See Holding Co. Act Release No. 26866 (Apr. 30, 1998). Second, the
Commission authorized a similar structure for NEES in the National Grid Order by
allowing New England Power Company to serve as a holding company within the NEES
corporate structure.
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restrict shareholder voting rights or affect the economics of the financial
structure of PowerGen. The golden share is similar in its effect to the laws of
some states in the United States, which prohibit the acquisition of more than a
specified percentage (often 5% or 10%) of a holding company's voting power
without prior governmental approval. Thus, although a golden share takes on a
different form than normally seen in the United States, its effect is not
materially different from the effect of existing statutes in the United States.
PowerGen has ADSs in the United States which trade as American
Depositary Receipts ("ADRs") and are principally held by U.S. institutions.
PowerGen's shareholders and ADR holders will approve the Merger transaction
under applicable requirements of the LSE. The moneys necessary to pay the Cash
Consideration will be borrowed by US Holdings from sophisticated commercial
lenders and the financing has been documented in the Credit Facility./24/ None
of the Intermediate Companies, other than US Holdings, will have any third-party
equity or debt holders. LG&E Energy will not have any third-party equity holders
other than its immediate parent, although it may have third-party short-term
debt holders. LG&E and KU currently have, and will continue to have, publicly
issued preferred stock and long-term debt, but the terms of these securities
will not be altered or modified or otherwise affected by the Merger or the
proposed transaction structure. As a result, the Merger will secure for PowerGen
voting power and control over LG&E Energy and its direct and indirect
subsidiaries.
The Applicants note that, as was the case in National Grid, maintaining
an efficient post-acquisition structure will require them to respond quickly to
changes in matters such as tax and accounting rules, including making
appropriate revisions after consummation of the Merger to the Intermediate
Companies that will not have any material impact on the financial condition or
operations of LG&E Energy and its subsidiaries or of US Holdings. For the
reasons noted above, and especially considering the lack of any investors
holding voting equity securities in the Intermediate Companies, the Applicants
request authorization to make these non-material corporate structure changes
without having to seek specific authority from the Commission for each change,
subject to the conditions that no change (i) will result in the introduction of
any
________________
/24/ As discussed above, a portion of the Cash Consideration may be available
from other sources at the time of Merger.
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investors holding voting equity securities in the Intermediate Companies,
(ii) will introduce a non-European Union or non-U.S. incorporated entity into
the upper structure, or (iii) will have any material impact on the financial
condition or operations of LG&E Energy and its subsidiaries or of PowerGen.
Applicants note that the Commission granted National Grid the authority to make
such immaterial changes subject to comparable conditions.
b. Section 10(c)(2)
The standards of Section 10(c)(2) are satisfied because the Merger will
tend toward the economical and efficient development of an integrated public
utility system, thereby serving the public interest, as required by that section
of the Act. Integration is not an issue as the Merger simply will impose a new
holding company structure over an existing integrated public utility system. The
analysis under Section 10(c)(2) focuses then on the associated benefits, the
so-called "economies and efficiencies" as a result of the proposed transaction.
Such benefits can be found in two forms: (i) the benefits to customers,
employees and shareholders, arising from the transaction, and (ii) the strategic
benefits which the transaction will bring to Kentucky and Virginia.
i. Benefits to customers, employees and
shareholders
LG&E Energy shareholders will benefit from the consideration received
for their shares on closure of the transaction. The Cash Consideration of $24.85
per share is a 58% premium over the trading price for their shares as of the
last trading day before the announcement of the Merger. Shareholders will be
paid in cash. The LG&E Energy Board has received an opinion from The Blackstone
Group L.P., an investment banking firm with extensive experience in mergers,
that the consideration for the Merger is fair to LG&E Energy shareholders from a
financial point of view.
For LG&E Energy Group employees, the Merger represents an opportunity
for growth as the company becomes the U.S. base of operations for a large
international entity. PowerGen has expressed intentions to expand and
consolidate its operations in this country, which will bring expanded
opportunities for employees. The transaction will ensure that LG&E Energy Group
employees remain at the forefront of an increasingly competitive U.S. electric
industry, while PowerGen's expanding foreign operations will provide
opportunities for LG&E Energy Group employees abroad. For
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Kentucky, the Merger ensures that utility operations in Kentucky will remain
headquartered in Kentucky.
After the Merger, LG&E Energy will have the financial, technical, and
managerial capabilities that are needed to provide efficient customer service to
its utility customers. Customers will be better off as a result of this
transaction and are expected to benefit from improved service quality and
operating efficiency resulting from reciprocal adoption of best practices. The
adoption of best practices should benefit LG&E Energy's customers in two ways.
First, customers should benefit from PowerGen's significant expertise
in electric power generation, which is necessary for an efficient power supply
market. Power supply is the major cost element of electricity and is crucially
influenced by the efficient development of the market for the product.
Second, customers should benefit from PowerGen's size. PowerGen's
significantly larger scale, both in financial and operational terms, will
enhance the ability of LG&E Energy to utilize new developments in transmission
and distribution technology, information systems, and capital markets, where
these can be seen to bring economic benefit.
The Merger will enable LG&E Energy to become part of a merged entity
with the size, resources, scale, and the experience to succeed in the rapidly
evolving energy industry. The Merger thus serves the interests of LG&E Energy
Group customers, LG&E's and KU's communities, LG&E Energy Group employees and
shareholders.
ii. Strategic benefits
The purpose of the Merger is to make LG&E Energy part of a much larger
enterprise, well-positioned to serve customers given accelerating changes in the
energy industry across the world, while maintaining the historic connections
between both LG&E and KU and the communities they serve. The Merger is critical
for ensuring that both LG&E and KU remain able to continue to meet their
commitments to their customers, to their communities and to Kentucky and
Virginia.
Applicants recognize that the energy industry across the world has
entered a period of accelerating evolution, continuing deregulation and
regulatory change to encourage increased competition. In this environment, size
and scale have become critical and necessary prerequisites to success.
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The Merger will result in sharing the best practices between PowerGen and LG&E
Energy to provide the best possible service to customers at the lowest cost. By
becoming part of a larger entity with greater resources, LG&E and KU will be
better able to utilize new, economically beneficial developments in generation,
transmission and distribution technology, information systems, and capital
markets. The ESM that has been established by the Kentucky Commission for LG&E
and KU provides customers with a share of benefits or cost reductions that may
result from the sharing of best practices and economies of scope and scale.
PowerGen's experience in the United Kingdom and elsewhere should also
benefit Kentucky and Virginia consumers. PowerGen's experience is derived from
operating and managing one of the United Kingdom's leading integrated
electricity and gas companies, from trading gas, electricity, and oil in seven
different energy markets in the United Kingdom and Europe, and from developing
and operating combined heat and power plants in the United Kingdom as well as
power projects in Germany, Portugal, Hungary, Indonesia, India, South Korea, and
Australia, totaling more than 8,000 MW of output. In addition to its operational
experience and expertise, PowerGen has gained considerable experience from the
privatization of the United Kingdom's electric industry in 1990. During the past
decade, the United Kingdom's electricity and gas markets have been restructured
as the industry has evolved from a state-owned monopoly to private ownership and
competition. While the solutions reached in industry restructuring in the United
Kingdom are themselves still evolving and cannot be transplanted simplistically
into the U.S. market, PowerGen's experience and expertise will be available to
LG&E and KU both as they participate in the increasing competitive wholesale
energy markets and as they prepare to compete and serve their customers if and
when retail restructuring occurs.
Over the past 10 years, PowerGen has developed unique skills both in
the United Kingdom and overseas and gained considerable experience in
competitive energy markets. In particular, PowerGen has developed expertise in
strategic management, marketing, research and development, and information and
technology management. Following consummation of the Merger, PowerGen will bring
these skills to Kentucky and Virginia.
As Applicants have noted, the Merger comes at a time of substantial
change in the U.S. electricity industry, with reform and restructuring
proceeding nationwide. The
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intentions of PowerGen and LG&E Energy to pursue consolidation and
rationalization of transmission and distribution in the Midwest are seen as
being fully consistent with the views of the FERC on the development of strong
regional transmission organizations.
The Midwest ISO, of which LG&E and KU are members, is grappling with
many complex issues on transmission pricing, congestion management and market
price determination as it attempts to advance the development of the electric
market in the Midwest. PowerGen's experience in addressing and finding
appropriate solutions to similar problems, both in the United Kingdom and in
other countries, will be important in preparing LG&E and KU for the development
of electricity markets in the United States and in the timely achievement of the
benefits which such markets can bring.
Although some of the anticipated economies and efficiencies of the
Merger will be fully realizable only in the longer term, they are properly
considered in determining whether the standards of Section 10(c)(2) have been
met. See American Electric Power Co., 46 S.E.C. 1299, 1320-1321 (1978). Further,
the Commission has recognized that while some potential benefits cannot be
precisely estimated, nevertheless they too are entitled to be considered:
"[S]pecific dollar forecasts of future savings are not necessarily required; a
demonstrated potential for economies will suffice even when these are not
precisely quantifiable." Centerior Energy Corp., Holding Co. Act Release No.
24073 (April 29, 1986) (citation omitted). See Energy East Corporation, Holding
Co. Act Release No. 26976 (Feb. 12, 1999) (authorizing acquisition based on
strategic benefits and potential, but presently unquantifiable, savings).
3. Section 10(f)
Section 10(f) provides that:
The Commission shall not approve any acquisition as to which an
application is made under this section unless it appears to the
satisfaction of the Commission that such State laws as may apply in
respect to such acquisition have been complied with, except where the
Commission finds that compliance with such State laws would be
detrimental to the carrying out of the provisions of section 11.
As described in Item 4 of this Application, and as evidenced by the applications
and the requested certification from
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each of the affected state regulators, Applicants intend to comply with all
applicable state laws related to the proposed transaction.
B. Proposed Financings
1. Introduction and General Request
As discussed earlier, upon consummation of the Merger, PowerGen and
each of the Intermediate Companies will register as holding companies under
Section 5 of the Act. Although LG&E Energy will remain an exempt holding company
under Section 3(a)(1) of the Act, LG&E Energy and its subsidiary companies will
be regulated as members of the PowerGen registered holding company system.
Therefore, in addition to authorization of the proposed acquisition of LG&E
Energy by PowerGen under Section 10 of the Act, Applicants seek authorization to
conduct a number of financial transactions during the Authorization Period.
The proposed financing authority is intended primarily to fund
PowerGen's U.S. operations. The Commission's approval of the proposed financings
will give the Applicants flexibility that will allow them to respond quickly and
efficiently to their financing needs and to changes in market conditions
permitting them to efficiently and effectively carry on competitive business
activities designed to provide benefits to customers and shareholders. Approval
of this Application is consistent with the National Grid Order and with existing
Commission precedent, both for newly registered holding company systems (See,
e.g., Conectiv, Inc., HCAR No. 26833 (Feb. 26, 1998); and for holding company
systems that have been registered for a longer period of time (See, e.g., The
Columbia Gas System, Inc., HCAR No. 26634 (Dec. 23, 1996); Gulf States Utilities
Co., HCAR No. 26451 (Jan.16, 1996)); New Century Energies, Inc., HCAR No. 27000
(April 7, 1999)).
Applicants request authority to engage in the following transactions,
which are all described in greater detail later in this Section:
(i) financings by PowerGen through the issuance of ordinary shares,
ADSs, and short-term debt (or the alteration of the terms of any then existing
authorized securities), and guarantees of the securities and obligations of, and
other forms of credit support for, the PowerGen System;
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(ii) financings by US Holdings, including issuance of preferred stock
or debt (or the alteration of the terms of any then existing authorized
securities), and guarantees of the securities and obligations of, and other
forms of credit support for, the U.S. Subsidiary Companies;
(iii) financings by the Intermediate Companies, through issuance of
ordinary shares, common stock, preferred stock and debt to, or other borrowings
from, other Intermediate Companies or PowerGen (or the alteration of the terms
of any then existing authorized security);
(iv) financings by LG&E Energy, through issuance of short-term debt (or
the alteration of the terms of any then existing authorized security), and
guarantees of the securities and obligations of, and other forms of credit
support for, the LG&E Energy Subsidiary Companies;
(v) financings by the LG&E Energy Subsidiary Companies, including: (a)
intra-system transactions, including but not limited to, (1) authorization of
borrowings and extensions of credit made under the LG&E Energy Group's existing
money pool and the repayment of these borrowings and elimination of these
extensions of credit during a two year transition period, (2) the formation and
implementation of two new money pools -- a Utility Money Pool and a Non-Utility
Money Pool, and (3) other intra-system financings among LG&E Energy and the U.S.
Non-Utility Subsidiaries; and (b) the issuance of short and long-term debt, and
other securities (or the alteration of the terms of any then existing authorized
security);
(vi) entering into currency and interest rate hedging instruments;
(vii) acquisitions, redemptions and retirements by PowerGen and each of
the U.S. Subsidiary Companies of their respective subsidiaries' securities;
(viii) forming financing entities and issuances by such entities of
securities otherwise authorized herein or pursuant to applicable exemptions
under the Act, including intra-system guarantees of such securities;
(ix) acquiring intermediate subsidiaries for the purpose of investing
in EWGs or FUCOs, Rule 58 Subsidiaries, exempt telecommunications companies
("ETCs") or other non-exempt Non-Utility Subsidiaries;
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(x) reorganization of the Intermediate Companies and the U.S. Non-
Utility Subsidiaries; and
(xi) using the proceeds of financing transactions in an amount equal to
100% of the PowerGen System's consolidated retained earnings for additional
investment in EWGs and FUCOs.
As explained more fully herein, the specific terms and conditions of
the requested authorities are not known at this time. Accordingly, the
Applicants represent that the proposed transactions will be subject to the
following general terms and conditions of issuance:
1. PowerGen will maintain its senior unsecured long-term debt rating at
an investment grade level as established by a nationally recognized statistical
rating organization, as that term is used in paragraphs (c)(2)(vi)(E), (F) and
(H) of Rule 15c3-1 of the 1934 Act;
2. The common stock equity /25/ of each of LG&E and KU, individually,
as reflected in their most recent annual, quarterly or other periodic earnings
report, will not fall below 30% of total capitalization; /26/
3. PowerGen will maintain its common stock equity as a percentage of
total capitalization, measured on a book value U.S. GAAP basis, as reflected in
its most recent annual, semi-annual or other periodic earnings report, at 30%;
4. The underwriting fees, commissions or other similar remuneration
paid in connection with the non-competitive issue, sale or distribution of a
security pursuant to this Application will not exceed 5% of the principal or
total amount of the security being issued;
5. The aggregate amount of external debt and equity issued by PowerGen
and US Holdings pursuant to the authority requested will not exceed $6.0 billion
at any one time
____________________
/25/ Common stock equity includes common stock (i.e., amounts received equal to
the par or stated value of the common stock), additional paid-in capital,
retained earnings, and minority interests.
/26/ Applicants calculated the common stock equity to total capitalization
ratio as follows: common stock equity/(gross debt + preferred stock + common
stock equity).
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outstanding, which amount will include any borrowings under the $4.0 billion
Credit Facility;
6. PowerGen will not issue or guarantee any securities for purposes of
financing EWGs or FUCOs unless, at the time of each issuance or guarantee,
PowerGen's additional "aggregate investment" post-Merger in EWGs and FUCOs, as
defined in Rule 53 under the Act, will not exceed 100 percent of the
consolidated retained earnings of PowerGen; and
7. The proceeds from the sale of securities in external financing
transactions by US Holdings and the LG&E Energy Group will be used for the
general corporate purposes of the U.S. Subsidiary Companies. The proceeds from
the sale of capital stock and short-term debt by PowerGen will be used by the
PowerGen System subject to any applicable limits on such uses.
The Applicants represent that no proceeds of financing by PowerGen will
be used to acquire a new subsidiary, other than a special purpose financing
entity as described below, unless such acquisition is consummated in accordance
with an order of the Commission or an available exemption under the Act.
The table below shows the revenues, net income and total assets of
PowerGen for the fiscal year ended January 2, 2000, and LG&E Energy for the year
ended December 31, 1999, according to U.S. GAAP (except as otherwise noted).
/27/
PowerGen LG&E Energy
($ mm) ($ mm)
Revenues 6,058/28/ 2,707
Net Income 1,819 62
Total Assets 10,740 5,134
_______________
/27/ The figures for revenues and net income were translated into dollars using
a rate of U.S. $1.6172 equals one pound and for total assets using a rate of
U.S. $1.6117 equals one pound. Consistent with U.S. GAAP, PowerGen's share of
joint ventures and associate's businesses is included in net income and assets
but is omitted from revenues.
/28/ PowerGen revenues calculated in accordance with U.K. GAAP.
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The table below shows the capitalization of PowerGen, LG&E Energy, and the
combined group on a pro forma basis, for the last day of the 1999 fiscal year,
according to U.S. GAAP./29/
<TABLE>
<CAPTION>
PowerGen LG&E Acquisition Combined
(U.S.$ mm) Energy (U.S.$ mm) adjustments System
<S> <C> <C> <C> <C>
Short-term
Debt 158 450 - 608
Current Portion
Long-Term
Debt - 412 - 412
Long-term
Debt 4,145 1,299 3,278 8,722
Preferred
Stock - 135 - 135
Common Stock
Equity 3,833 1,251 (1,141) 3,943
Total 8,136 3,547 2,137 13,820
</TABLE>
2. Specifics of Proposed Financing Arrangements
a. PowerGen and US Holdings External Financing
PowerGen and US Holdings request authority to issue equity and debt
securities aggregating not more than $6.0 billion at any one time outstanding
during the Authorization Period. This overall limit will include any borrowings
of US Holdings under the $4.0 billion Credit Facility (which borrowings will be
guaranteed by PowerGen). The securities that PowerGen and/or US Holdings
anticipate issuing could include, but are not limited to, ordinary shares,
preferred shares, options, warrants, long- and short-term debt (including
commercial paper), convertible securities,
____________________
/29/ Pro forma capitalization does not include the planned application of
current PowerGen cash balances ($1.03 billion at January 2, 2000) to reduce
existing debt and borrowings that otherwise would be required to pay the Cash
Consideration, reductions in debt otherwise projected to occur in the course of
2000, or expected issuances of debt securities by the LG&E Energy Group. The net
effect of these developments will be to significantly reduce the total debt and
total capitalization of the combined system during the course of 2000 so that,
at the closing of the Merger, the common stock equity as a percentage of total
capitalization will be at or above 30%.
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subordinated debt, bank borrowings and securities with call or put options.
PowerGen and US Holdings propose that the various securities to be issued
would fall within the following limits, but would not in the aggregate exceed
the $6.0 billion limit stated above:
Security $ billions
Ordinary Shares, including options and warrants 4.0
Preferred stock 1.0
Short-term debt financing 4.0
Long-term debt financing 6.0
(i) Ordinary Shares Issued by PowerGen. PowerGen's common stock equity
consists of ordinary shares, with a par value of 50 pence each, that are listed
on the LSE. PowerGen currently has ADSs in the United States that trade as ADRs.
As of April 17, 2000, there were 9,054,617 ADRs outstanding. PowerGen has
established a sponsored ADR program in the United States and its ADRs are listed
on the NYSE and registered under the Securities Act of 1933, as amended (the
"1933 Act"). As a result, PowerGen has registered securities under Section 12 of
the 1934 Act, and currently files with the Commission the periodic disclosure
reports required of a foreign private issuer, including annual reports on Form
20-F. The request contained herein with respect to ordinary shares refers to the
issuance of ordinary shares directly or through the ADR program and, for
purposes of this request, the ADSs and ADRs are not considered separate
securities from the underlying ordinary shares.
Ordinary share financings by PowerGen covered by this Application may occur
in any one or a combination of more than one of the following ways: (i) through
a pro rata rights offering directly to existing shareholders; (ii) through
underwriters or dealers pursuant to underwriting agreements of a type standard
in the United Kingdom, the United States, or other places of sale; (iii) through
agents; (iv) directly in private placements or other non-public offerings to a
number of purchasers or a single purchaser; (v) directly to employees (or to
trusts established for their benefit) and other shareholders through PowerGen's
employee benefit schemes; (vi) through the issuance of bonus shares (i.e., a
stock split or a stock dividend) to existing shareholders; or (vii) through the
issuance of options or warrants to acquire ordinary shares. If underwriters are
used in the sale of the securities, such
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securities may be acquired by the underwriters for their own account and may be
resold from time to time in one or more transactions, including negotiated
transactions, at a fixed public offering price or at varying prices determined
at the time of sale. The securities may be offered to the public either through
underwriting syndicates (which may be represented by a managing underwriter or
underwriters designated by PowerGen) or directly by one or more underwriters
acting alone. The securities may be sold directly by PowerGen or through agents
designated by PowerGen from time to time. If dealers are utilized in the sale of
any of the securities, PowerGen may sell such securities to the dealers as
principals. Any dealer may then resell such securities to the public at varying
prices to be determined by such dealer at the time of resale. If ordinary shares
are being sold in an underwritten offering, PowerGen may grant the underwriters
thereof a "green shoe" option permitting the purchase from PowerGen at the same
price additional shares then being offered solely for the purpose of covering
over-allotments.
PowerGen seeks authority to use its ordinary shares (or associated ADSs or
ADRs) as consideration for acquisitions that are otherwise authorized under the
Act. Among other things, transactions may involve the exchange of PowerGen
equity securities for securities of the company being acquired in order to
provide the seller with certain tax advantages. These transactions will be
individually negotiated. The ability to offer stock as consideration provides
both PowerGen and the seller of the business with flexibility. The PowerGen
ordinary shares to be exchanged may, among other things, be purchased on the
open market pursuant to Rule 42 or may be original issue. From the perspective
of the Commission, the use of stock as consideration valued at market value is
no different than a sale of common stock on the open market and use of the
proceeds to acquire securities, the acquisition of which is otherwise
authorized. For purposes of the $6.0 billion external financing limit, PowerGen
ordinary shares used as consideration in an acquisition would be valued at
market value based upon the last closing price of the ordinary shares on the LSE
prior to the execution of the transaction agreement.
In addition to other general corporate purposes, the ordinary shares will
be used to fund employee benefit plans. PowerGen currently maintains three
employee benefit plans pursuant to which its employees may acquire ordinary
shares of PowerGen as part of their compensation: (i) the PowerGen ShareSave
Scheme, (ii) the PowerGen Executive Share Option
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Scheme, and (iii) the PowerGen Restricted Share Plan. The PowerGen ShareSave
Scheme is available to all eligible employees of PowerGen. It provides for the
issuance of share options that are normally exercisable on completion of a three
or five year "save-as-you-earn" contract. The exercise price of options granted
may be at a discount of no more than 20% of the market price at the date of
grant. The PowerGen Executive Share Option Scheme is available to executive
directors and other senior executives and managers selected by the Remuneration
Committee of the Board of Directors. Options are generally exercisable between
the third and tenth anniversaries of the date of grant, and are granted at the
market price of PowerGen's shares at the time of the grant or higher where
options have previously been exercised at a higher rate. The PowerGen Restricted
Share Plan involves two types of awards: (1) Medium Term Bonus Awards and (2)
Annual Bonus Enhancement Awards. The Medium Term Bonus Awards are available to
executive directors and senior managers selected by the Remuneration Committee.
Shares of equivalent value to the annual bonus received by the participant are
placed into trust. Subject to certain performance conditions being met, shares
vest into the ownership of the participant after three and four years, and may
be called for a year after that. The annual bonus Enhancement Awards are
available to executive directors and managers, who may elect to forgo some or
all of their cash Annual Bonus. Shares of equivalent value to the bonus forgone
are placed into trust, and if held in trust for a period of three years, are
enhanced by PowerGen on the basis of one extra share for every four shares so
held.
In addition, PowerGen may adopt one or more other plans which will provide
for the issuance and/or sale of PowerGen ordinary shares, share options and
share awards to a group which has not yet been determined but may include
directors, officers and employees of the companies in the PowerGen System.
PowerGen also has agreed to give holders of LG&E Energy stock options the right
to convert those options into options for PowerGen ADSs./30/ PowerGen may issue
its ordinary shares under the authorization, and within the limitations, set
forth herein in order to satisfy its obligations under such plans.
Ordinary shares for use under share plans may be newly issued shares or
shares purchased in the open market. PowerGen or the Share Trustee may make
open-market purchases
__________________
/30/ Merger Agreement, Section 6.11.
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of ordinary shares in accordance with the terms of or in connection with the
operation of the plans.
To the extent that any issuance, sale, or reacquisition of securities
pursuant to the equity based employee benefit plans are jurisdictional under the
Act, Applicants request authorization thereof. Securities issued by PowerGen
under all of the plans will be included within the $6.0 billion external
financing limit and will be valued, if ordinary shares, at market value based on
the closing price on the LSE on the day before the issuance of the shares.
Options issued by PowerGen to the plans will be valued at zero until exercised.
Any ordinary shares issued by US Holdings will be issued solely to PowerGen
absent additional authority from the Commission.
(ii) Preferred Stock Issued by US Holdings. US Holdings proposes to issue
non-voting preferred stock from time to time during the Authorization Period.
Any such preferred stock would have dividend rates or methods of determining the
same, redemption provisions, conversion or put terms and other terms and
conditions as US Holdings may determine at the time of issuance. All issuances
of preferred stock will be at rates or prices, and under conditions negotiated
pursuant to, based upon, or otherwise determined by competitive market
conditions.
(iii) Short-Term Financing of PowerGen and US Holdings. Each of PowerGen
and US Holdings may engage in such short-term financing as each may deem
appropriate in light of its needs and market conditions at the time of issuance.
Such financing could include, without limitation, commercial paper sold in
established U.S. or European commercial paper markets, lines of credit with
banks or other financial institutions, and debt securities issued under an
indenture or a note program. All transactions will be at rates or prices, and
under conditions, negotiated pursuant to, based upon or otherwise determined by
competitive market conditions.
(iv) Long-Term Debt Issued by US Holdings. US Holdings proposes to issue
long-term debt from time to time during the Authorization Period. Any long-term
debt would have the designation, aggregate principal amount, interest rate(s) or
method of determining the same, terms of payment of interest, redemption
provisions, non-refunding provisions, sinking fund terms, put terms and other
terms and conditions as are deemed appropriate at the time of
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issuance. In addition, the long-term debt may be convertible into preferred
shares of US Holdings or ordinary shares of PowerGen authorized to be issued
hereunder. The maturity of any long-term debt will not exceed 50 years.
The long-term debt may be issued and sold pursuant to standard underwriting
agreements or under negotiated bank facilities. In the case of public debt
offerings, distribution may be effected through private negotiations with
underwriters, dealers or agents, or through competitive bidding among
underwriters. In addition, the long-term debt may be issued and sold through
private placements or other non-public offerings to one or more persons. All
transactions will be at rates or prices, and under conditions negotiated
pursuant to, based upon, or otherwise determined by competitive market
conditions.
Pursuant to Section 7(c)(2)(D), the Commission permits the issuance of such
non-traditional securities where denial of such issuance would impose an
unreasonable financial burden on the applicant, and consumers and investors
would not be harmed. The Commission recently permitted a registered electric
system to have long-term debt at the holding company level in Southern Co.,
Holding Co. Act Release No. 27134 (Feb. 9, 2000). Following the Southern Co.
decision, the Commission allowed long-term debt at the holding company level in
the National Grid Order, where the debt would be investment grade. As PowerGen
has represented in Item 3, Section B.1 above, it will remain a financially
strong system on a consolidated basis following consummation of the transaction
and its senior, unsecured long-term debt rating will be investment grade.
(v) Other Securities Issued by PowerGen and US Holdings. In addition to
the specific securities for which authorization is sought in this Application,
PowerGen and US Holdings may issue other types of securities during the
Authorization Period that are not exempt from prior Commission approval.
PowerGen and US Holdings request that the Commission reserve jurisdiction over
the issuance of such additional types of securities except to the extent these
securities are exempt pursuant to Rules 45 or 52. PowerGen and US Holdings also
undertake to have a post-effective amendment filed in this proceeding that will
describe the general terms of each such security and request a supplemental
order of the Commission authorizing the issuance thereof. PowerGen and US
Holdings further request that each supplemental order be issued by the
Commission without further public notice.
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b. Intermediate Company Financings
Applicants seek Commission approval of financings by the Intermediate
Companies as described below./31/
The portion of an individual Intermediate Company's aggregate financing to
be effected through the sale of equity securities to its immediate parent
company during the Authorization Period cannot be determined at this time. It
may happen that the proposed sale of capital securities may in some cases exceed
the capital stock of a given Intermediate Company authorized at the date of the
Merger, in which case such limit will be increased. In addition, an Intermediate
Company may choose to use other forms of capital securities. Capital stock
includes common stock, ordinary shares, preferred stock, other preferred
securities, options and/or warrants convertible into common or preferred stock,
rights, and similar securities. As needed to accommodate the sale of additional
equity, Applicants request the authority to increase the amount or change the
terms of any Intermediate Company's authorized capital securities, without
additional Commission approval, except as provided below. The terms that may be
changed include dividend rates, conversion rates and dates, and expiration
dates. These changes may be made either in connection with a reorganization
described in Item 3, Section B.2.i or otherwise. Applicants note that except for
the financings of US Holdings described above in Section Item 3, B.2.a, each of
the Intermediate Companies will be wholly-owned, directly or indirectly, by
PowerGen and will not have third-party investors. The changes to capital stock
proposed above affect only the manner in which internal financing is conducted
by the Intermediate Companies and will not alter the terms or limits proposed in
this Application.
Each Intermediate Company and LG&E Energy also requests authorization to
borrow from its parent company. Such inter-company loans would be on terms and
conditions not
___________________
/31/ US Holdings and its direct subsidiary, PowerGen US Investments Limited,
will enter into parallel loans in order to effect a currency hedging
transaction. The Applicants believe that, although the transaction will be
booked as loans, they do not constitute loans or extensions of credit within the
meaning of Section 12(a) of the Act. See The Southern Company Holding Co. Act
Release No. 27134 (Feb. 9, 2000).
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materially less favorable than those obtainable by US Holdings from third
parties.
c. LG&E Energy Group Financings
Following consummation of the Merger, LG&E Energy will remain an exempt
holding company under Section 3(a)(1) of the Act. In light of its exempt status,
LG&E Energy previously has not been required to seek Commission approval of its
financing. As LG&E Energy will be a member of a registered holding company
system following the Merger, certain of its financing arrangements may be
jurisdictional. As a consequence, Applicants request approval of the existing
LG&E Energy Group financing arrangements that do not qualify for an exemption
from the Act and also request authorization for the financing transactions set
forth herein during the Authorization Period.
For purposes of the sections below entitled "U.S. Non-Utility
Subsidiaries," "Intra-System Financings" and "Guarantees", the terms "U.S. Non-
Utility Subsidiary" and "U.S. Non-Utility Subsidiaries" shall also include
direct or indirect subsidiaries, that are not public utility companies, that
LG&E Energy may form after the Merger with the approval of the Commission,
pursuant to the Rule 58 exemption or pursuant to Section 34 of the Act.
i. External Financings
(A) LG&E Energy
LG&E Energy requests authorization to obtain funds externally through sales
of short-term debt securities. The Applicants request authorization for LG&E
Energy to have outstanding at any time during the Authorization Period short-
term debt in an aggregate principal amount of up to $400 million.
LG&E Energy may engage in such short-term financing as it may deem
appropriate in light of its needs and market conditions at the time of issuance.
Such financing could include, without limitation, commercial paper sold in
established U.S. or European commercial paper markets, lines of credit with
banks or other financial institutions, and debt securities issued under an
indenture or a note program. All transactions will be at rates or prices, and
under conditions, negotiated pursuant to, based upon or otherwise determined by
competitive market conditions.
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Other Securities. In addition to the specific securities for which
authorization is sought herein, LG&E Energy may also find it necessary or
desirable in order to minimize financing costs or to obtain new capital under
then existing market conditions to issue and sell other types of securities from
time to time during the Authorization Period. The Applicants request that the
Commission reserve jurisdiction over the issuance by LG&E Energy of additional
types of securities and the amount thereof. LG&E Energy also undertakes to file
a post-effective amendment in this proceeding which will describe the general
terms of each such security and the amount thereof to be issued and request a
supplemental order of the Commission authorizing the issuance thereof by LG&E
Energy.
(B) U.S. Utility Subsidiary Financing
LG&E and KU have financing arrangements in place, which arrangements will
remain in place following the Merger. These financing arrangements are described
in more detail in Appendix B, Part I hereto.
Rule 52 provides an exemption from the prior authorization requirements of
the Act for most of the issuances and sales of securities by LG&E and KU because
they must be approved by the relevant state public utility commission. However,
certain external financings by LG&E and KU for which authorization is requested
below are outside the scope of the Rule 52 exemption. The Applicants request
authority for LG&E and KU to undertake the following external financings:
Short-Term Financing. All securities of LG&E and KU, except for securities
with maturities of two years or less, are approved by the Kentucky Commission.
Accordingly, authority is requested for LG&E and KU to maintain outstanding any
such existing debt with maturities of two years or less and to issue debt with
maturities of two years or less to one or more associate or non-associate
lenders, provided that the aggregate principal amount of such debt to be
outstanding at any one time during the Authorization Period shall not exceed
$400 million in the case of LG&E and $400 million in the case of KU.
Each of LG&E and KU may engage in such short-term financing as each may
deem appropriate in light of its needs and market conditions at the time of
issuance. Such financing could include, without limitation, commercial paper
sold in established U.S. or European commercial paper
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markets, lines of credit with banks or other financial institutions, and debt
securities issued under an indenture or a note program. All transactions will be
at rates or prices, and under conditions negotiated pursuant to, based upon or
otherwise determined by competitive market conditions.
Other Securities. In addition, LG&E and KU may find it necessary or
desirable to issue other types of securities during the Authorization Period
that are not exempt from prior Commission approval. LG&E and KU request that the
Commission reserve jurisdiction over the issuance of such additional types of
securities and the amount thereof except to the extent the same are exempt
pursuant to Rule 52. Each of LG&E and KU also undertakes to have a post-
effective amendment filed in this proceeding that will describe the general
terms of each such security and the amount thereof of such U.S. Utility
Subsidiary and request a supplemental order of the Commission authorizing the
issuance thereof.
(C) U.S. Non-Utility Subsidiary Financings
The U.S. Non-Utility Subsidiaries have financing arrangements in place,
which arrangements will remain in place following the Merger. The financing
arrangements of the U.S. Non-Utility Subsidiaries of LG&E Energy are described
in more detail in Appendix B, Part II hereto. To the extent such financing
arrangements are not exempt under Rule 52, Applicants request authorization for
such arrangements.
The U.S. Non-Utility Subsidiaries are engaged in and expect to continue to
be active in the development and expansion of their existing energy-related or
otherwise functionally-related, non-utility businesses. They will be competing
in different sectors of the energy and other industries. In order to finance
investments in such competitive arenas, it will be necessary for the U.S. Non-
Utility Subsidiaries to have the ability to engage in financing transactions
which are commonly accepted for such types of investments. It is believed that,
in almost all cases, such financings will be exempt from prior Commission
authorization pursuant to Rule 52(b). The U.S. Non-Utility Subsidiaries request
that the Commission reserve jurisdiction over the issuance of any other
securities with respect to which the exemption under Rule 52(b) would not apply.
They also undertake to cause a post-effective amendment to be filed in this
proceeding which will describe the general terms of each such non-exempt
security and the
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amounts thereof and request a supplemental order of the Commission authorizing
the issuance thereof by the subject U.S. Non-Utility Subsidiary.
ii. Intra-System Financings
(A) Inter-Company Loans
The activities of LG&E Energy and the U.S. Non-Utility Subsidiaries are
financed, in part, through inter-company loans. The sources of funds for the
operations of LG&E Energy and the U.S. Non-Utility Subsidiaries include
internally generated funds and proceeds of external financings. Outside of the
LG&E Money Pool borrowings (as described below), there were outstanding as of
December 31, 1999, inter-company loans among LG&E Energy and the U.S.
Non-Utility Subsidiaries in a net principal amount of approximately $757
million, including loans from LG&E Capital to LG&E Energy in the aggregate
amount of approximately $230 million.
The Applicants request authorization to maintain in place the existing
inter-company loans./32/ In addition, the Applicants request authorization for
additional inter-company loans among LG&E Energy and the U.S. Non-Utility
Subsidiaries in a net principal amount at any one time outstanding during the
Authorization Period not to exceed $1.0 billion. The authorization for intra-
system financing requested in this paragraph excludes (a) financing that is
exempt pursuant to Rules 45(b) and 52, as applicable, and (b) amounts
outstanding from time to time under the LG&E Money Pool and/or the Utility Money
Pool and Non-Utility Money Pool.
Such financings would generally be in the form of cash capital
contributions, open account advances, inter-company loans, and/or capital stock
purchases. The terms and conditions of inter-company
_________________
/32/ If LG&E Energy is denied its request for continuing exemption under Section
3(a)(1) of the Act, these inter-company loans would violate Section 12(a) of the
Act as of the moment LG&E Energy registers as a holding company. In such event,
LG&E Energy requests that these borrowings and extensions of credit not be
deemed illegal under the Act, pending their repayment over a reasonable period
of time. Because of the amount of the borrowings, LG&E Energy requests that it
be granted two years from the date of the order authorizing the proposals in
this Application to repay these borrowings and eliminate the extensions of
credit.
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loans available to any borrowing company will be materially no less favorable
than the terms and conditions of loans available to such borrowing company from
third-party lenders.
(B) Money Pools
LG&E Money Pool. LG&E Energy, LG&E and KU currently participate in a money
pool (the "LG&E Money Pool"). Through the LG&E Money Pool, LG&E and KU make
unsecured short-term borrowings from the money pool and contribute surplus funds
to the money pool. LG&E Energy contributes surplus funds to the LG&E Money Pool,
but does not borrow from the LG&E Money Pool. At March 31, 2000, LG&E Energy and
LG&E were contributors to the LG&E Money Pool and KU had borrowings from the
LG&E Money Pool of approximately $17.2 million.
The cost of money for all borrowings from the LG&E Money Pool and the
investment rate for all moneys deposited in the LG&E Money Pool are set at the
Money Pool Rate. The "Money Pool Rate" is determined monthly and is equal to the
greater of (i) the weighted average rate of return on short-term investments of
the participating companies outstanding on the last day of the prior month or,
if no short-term investments are outstanding, the previous month's rate of
return earned by the Financial Square Fund managed by Goldman, Sachs & Co., or
(ii) the weighted average rate of any commercial paper issued by participating
companies outstanding on the last day of the prior month or, if no commercial
paper is outstanding, the commercial paper rates of similarly rated companies
for the prior week as published in the Federal Reserve Statistical Release H.15.
LG&E Energy requests that the Commission authorize the continuation of the
LG&E Money Pool for an interim period of not to exceed two years (the
"Transition Period") to permit LG&E Energy to make a transition from the LG&E
Money Pool to the Utility Money Pool and the Non-Utility Money Pool as discussed
below.
Authorization and Operation of the Money Pools. LG&E Energy, LG&E, KU
and the U.S. Non-Utility Subsidiaries propose to replace the LG&E Money Pool
with the Utility Money Pool and Non-Utility Money Pool and request authority to
do so. Further, LG&E and KU, to the extent not exempted by Rule 52, also request
authorization to make unsecured short-term borrowings from the Utility Money
Pool and to contribute surplus funds to the Utility Money Pool and to
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lend and extend credit to (and acquire promissory notes from) one another
through the Utility Money Pool.
LG&E Energy requests authorization to contribute surplus funds and to lend
and extend credit to (a) LG&E and KU through the Utility Money Pool and (b) the
U.S. Non-Utility Subsidiaries through the Non-Utility Money Pool. No loans
through the Utility Money Pool would be made to, and no borrowings through the
Utility Money Pool would be made by, LG&E Energy.
The Applicants believe that the cost of the proposed borrowings through the
two Money Pools will generally be more favorable to the borrowing participants
than the comparable cost of external short-term borrowings, and the yield to the
participants contributing available funds to the two Money Pools will generally
be higher than the typical yield on short-term investments.
For purposes of this section, the term "U.S. Non-Utility Subsidiary" shall
only include the companies that are associates of the LG&E Energy Group as of
the date of the filing of this Application. The Commission is asked to reserve
jurisdiction over the participation in the relevant money pool of future
companies formed by LG&E Energy until a specific post-effective amendment is
filed, naming the subsidiary to be added as a participant in the relevant money
pool.
Utility Money Pool. Under the proposed terms of the Utility Money Pool,
short-term funds would be available from the following sources for short-term
loans to each of LG&E and KU from time to time: (1) surplus funds in the
treasuries of Utility Money Pool participants, (2) surplus funds in the treasury
of LG&E Energy, and (3) proceeds from bank borrowings by Utility Money Pool
participants or the sale of commercial paper by the Utility Money Pool
participants for loan to the Utility Money Pool ("External Funds"). Funds would
be made available from such sources in such order as LG&E Services, as
administrator of the Utility Money Pool, may determine would result in a lower
cost of borrowing, consistent with the individual borrowing needs and financial
standing of the companies providing funds to the pool. The determination of
whether a Utility Money Pool participant at any time has surplus funds to lend
to the Utility Money Pool or shall borrow funds from the Utility Money Pool
would be made by such participant's chief financial officer or treasurer, or by
a designee thereof, on the basis of cash flow projections and other relevant
factors, in such participant's sole discretion. See Exhibit
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N-1.1 for a copy of the Form of Utility Money Pool Agreement.
Utility Money Pool participants that borrow would borrow pro rata from each
company that lends, in the proportion that the total amount loaned by each such
lending company bears to the total amount then loaned through the Utility Money
Pool. On any day when more than one fund source (e.g., surplus treasury funds of
LG&E Energy and other Utility Money Pool participants ("Internal Funds") and
External Funds), with different rates of interest, is used to fund loans through
the Utility Money Pool, each borrower would borrow pro rata from each such fund
source in the Utility Money Pool in the same proportion that the amount of funds
provided by that fund source bears to the total amount of short-term funds
available to the Utility Money Pool.
Borrowings from the Utility Money Pool would require authorization by the
borrower's chief financial officer or treasurer, or by a designee thereof. No
party would be required to effect a borrowing through the Utility Money Pool if
it is determined that it could (and had authority to) effect a borrowing at
lower cost directly from banks or through the sale of its own commercial paper.
The cost of compensating balances, if any, and fees paid to banks to
maintain credit lines and accounts by Utility Money Pool participants lending
External Funds to the Utility Money Pool would initially be paid by the
participant maintaining such line. A portion of such costs -- or all of such
costs in the event a Utility Money Pool participant establishes a line of credit
solely for purposes of lending any External Funds obtained thereby into the
Utility Money Pool -- would be retroactively allocated every month to the
companies borrowing such External Funds through the Utility Money Pool in
proportion to their respective daily outstanding borrowings of such External
Funds.
If only Internal Funds make up the funds available in the Utility Money
Pool, the interest rate applicable and payable to or by the Utility Money Pool
participants for all loans of such Internal Funds outstanding on any day will be
the rates for high-grade unsecured 30-day commercial paper sold through dealers
by major corporations as quoted in The Wall Street Journal on the preceding
business day.
If only External Funds comprise the funds available in the Utility Money
Pool, the interest rate applicable to loans of such External Funds would be
equal to the lending company's cost for such External Funds (or, if more than
one
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Utility Money Pool participant had made available External Funds on such day,
the applicable interest rate would be a composite rate equal to the weighted
average of the cost incurred by the respective Utility Money Pool participants
for such External Funds).
In cases where both Internal Funds and External Funds are concurrently
borrowed through the Utility Money Pool, the rate applicable to all loans
comprised of such "blended" funds would be a composite rate equal to the
weighted average of (a) the cost of all Internal Funds contributed by Utility
Money Pool participants (as determined pursuant to the second-preceding
paragraph above) and (b) the cost of all such External Funds (as determined
pursuant to the immediately preceding paragraph above). In circumstances where
Internal Funds and External Funds are available for loans through the Utility
Money Pool, loans may be made exclusively from Internal Funds or External Funds,
rather than from a "blend" of such funds, to the extent it is expected that such
loans would result in a lower cost of borrowings.
Funds not required by the Utility Money Pool to make loans (with the
exception of funds required to satisfy the Utility Money Pool's liquidity
requirements) would ordinarily be invested in one or more short-term
investments, including: (i) interest-bearing accounts with banks; (ii)
obligations issued or guaranteed by the U.S. government and/or its agencies and
instrumentalities, including obligations under repurchase agreements; (iii)
obligations issued or guaranteed by any state or political subdivision thereof,
provided that such obligations are rated not less than "A" by a nationally
recognized rating agency; (iv) commercial paper rated not less than "A-1" or
"P-1" or their equivalent by a nationally recognized rating agency; (v) money
market funds; (vi) bank certificates of deposit; (vii) Eurodollar funds; and
(viii) such other investments as are permitted by Section 9(c) of the Act and
Rule 40 thereunder.
The interest income and investment income earned on loans and investments
of surplus funds would be allocated among the participants in the Utility Money
Pool in accordance with the proportion each participant's contribution of funds
bears to the total amount of funds in the Utility Money Pool.
Each Applicant receiving a loan through the Utility Money Pool would be
required to repay the principal amount of such loan, together with all interest
accrued thereon, on
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demand. All loans made through the Utility Money Pool may be prepaid by the
borrower without premium or penalty.
Non-Utility Money Pool. The Non-Utility Money Pool will be operated
substantially on the same terms and conditions as the Utility Money Pool. See
Exhibit N-1.2 for a copy of the form of Non-Utility Money Pool Agreement. All
contributions to, and borrowings from, the Non-Utility Money Pool are exempt
pursuant to the terms of Rule 52 under the Act, except contributions and
extensions of credit by LG&E Energy, authorization for which is hereby
requested.
Operation of the Money Pools and Administrative Matters. Operation of the
Utility and Non-Utility Money Pools, including record keeping and coordination
of loans, will be handled by LG&E Services under the authority of the
appropriate officers of the participating companies. LG&E Services will
administer the Utility and Non-Utility Money Pools on an "at cost" basis and
will maintain separate records for each money pool. Surplus funds of the Utility
Money Pool and the Non-Utility Money Pool may be combined in common short-term
investments, but separate records of such funds shall be maintained by LG&E
Services as administrator of the pools, and interest thereon shall be separately
allocated, on a daily basis, to each money pool in accordance with the
proportion that the amount of each money pool's surplus funds bears to the total
amount of surplus funds invested from both money pools.
Use of Proceeds. Proceeds from the money pools may be used by each such
Applicant (i) for the interim financing of its construction and capital
expenditure programs, (ii) for its working capital needs, (iii) for the
repayment, redemption or refinancing of its debt and preferred stock, (iv) to
meet unexpected contingencies, payment and timing differences and cash
requirements, and (v) to otherwise finance its own business and for other lawful
general corporate purposes. LG&E requests authority to borrow up to $200 million
at any one time outstanding from the Utility Money Pool and KU requests
authority to borrow up to $200 million at any one time outstanding from the
Utility Money Pool, which amounts are in addition to LG&E's and KU's request to
issue short-term debt as set forth herein.
(C) Other Financings
LG&E Energy and the LG&E Energy Subsidiary Companies may issue and LG&E
Energy or other LG&E Energy Subsidiary Companies may acquire other types of
securities which do not qualify for use of Rule 52 but which are considered
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appropriate during the Authorization Period. LG&E Energy and the LG&E Energy
Subsidiary Companies request that the Commission reserve jurisdiction over the
issuance of such additional types of securities and the amounts thereof. They
also undertake to cause a post-effective amendment to be filed in this
proceeding which will describe the general terms of each such security and the
amounts thereof and request a supplemental order of the Commission authorizing
the issuance thereof by the subject company.
d. Guarantees
i. Guarantees by PowerGen
PowerGen and US Holdings request authorization to enter into guarantees,
obtain letters of credit, extend credit, enter into guarantee-type expense
agreements or otherwise provide credit support with respect to the obligations
of the U.S. Subsidiary Companies as may be appropriate to enable such system
companies to carry on their respective authorized or permitted businesses./33/
Guarantees entered into pursuant to this authorization by PowerGen and US
Holdings will be subject to a $2.5 billion limit, based upon the amount at risk
outstanding at any one time, which amount is in addition to guarantees by
PowerGen of securities issued by US Holdings pursuant to the $6.0 billion
financing authorization in Item 3, Section B.2.a above.
ii. Existing Guarantees of the LG&E Energy Group
The LG&E Energy Group has in place certain guarantees and other credit
support arrangements, which arrangements will remain in place following the
Merger. These guarantees and other credit support arrangements are described in
more detail in Appendix B. The Applicants request authorization to retain
outstanding the guarantees and other credit support arrangements identified in
Part III of Appendix B hereto.
_________________
/33/ PowerGen also requests the authority to enter into guarantees and other
guarantee-type commitments for its FUCO financings, as discussed under Item 3,
Section B.2.j below.
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iii. Additional Guarantees of the LG&E Energy Group during
the Authorization Period
LG&E Energy requests authorization for LG&E Energy to enter into
guarantees, extend credit, obtain letters of credit and otherwise to provide
credit support for the obligations from time to time of the LG&E Energy
Subsidiary Companies during the Authorization Period in an aggregate principal
amount not to exceed $1.5 billion outstanding at any one time, exclusive of any
such guarantees or credit support arrangements existing on the date of the
Merger and identified in Appendix B hereto. Any securities issued by the LG&E
Energy Subsidiary Companies which LG&E Energy guarantees or for which LG&E
Energy otherwise provides credit support arrangements, will either be issued
pursuant to a Commission order or pursuant to an applicable exemption under the
Act.
In addition, the Applicants request authorization for the U.S. Non-Utility
Subsidiary Companies to enter into guarantees, extend credit, obtain letters of
credit, enter into expense agreements or otherwise provide credit support
(collectively, "LG&E Guarantees") with respect to the obligations of any of the
U.S. Non-Utility Subsidiary Companies as may be appropriate to enable such U.S.
Non-Utility Subsidiary Companies to carry on its business, in an aggregate
principal amount not to exceed $1.5 billion outstanding at any one time,
exclusive of (a) any such guarantees existing on the date of the Merger and
identified in Appendix B hereto and (b) any such guarantees that may be exempt
pursuant to Rule 45(b).
Any guarantees or other credit support arrangements outstanding at the end
of the Authorization Period shall continue until expiration or termination in
accordance with their terms. The amount of LG&E Guarantees outstanding at any
one time shall not be counted against the aggregate respective limits applicable
to external financings or the limits on intra-system financing requested
elsewhere herein.
e. Interest Rate and Currency Risk Management.
The Applicants request authority to enter into, perform, purchase and sell
financial instruments intended to manage the volatility of interest rates and
currency exchange rates, including but not limited to interest rate and currency
swaps, caps, floors, collars and forward
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agreements or any other similar agreements ("Instruments") and to maintain in
place any existing Instruments. The Applicants would employ Instruments as a
means of prudently managing the interest rate and currency risks associated with
any of its outstanding debt issued pursuant to this Application or an applicable
exemption by, in effect, synthetically (i) converting variable rate debt to
fixed rate debt, (ii) converting fixed rate debt to variable rate debt, (iii)
limiting the impact of changes in interest rates resulting from variable rate
debt and (iv) hedging currency exposures of foreign currency denominated debt.
In addition, the Applicants may utilize Instruments to manage interest rate and
currency risks in future periods for planned issuances of debt securities. In no
case will the notional amount of any Instruments exceed that of the underlying
debt instrument. Thus, the Applicants will not engage in "speculative"
transactions. Applicants agree to only enter into Instruments with
counterparties which have, or whose obligations are guaranteed by a party with,
senior debt ratings, as published by Standard & Poor's, that are greater than or
equal to "BBB+", or an equivalent rating from Moody's Investors Service, Inc.,
Fitch IBCA, Inc. or Duff & Phelps Credit Rating Co.
f. Acquisition, Redemption, or Retirement of Securities
Each of PowerGen and the U.S. Subsidiary Companies proposes from time to
time during the Authorization Period to acquire, redeem, or retire its
securities or those of its direct and indirect subsidiaries, which securities
may be either outstanding presently or issued and sold in the future (i.e., from
the date of this Application until the end of the Authorization Period).
However, not all of the possible transactions are known at this time. Therefore,
to the extent any proposed acquisition, redemption, or retirement of securities
is not exempt from Commission approval pursuant to Rule 42, PowerGen and its
direct and indirect subsidiaries request the authority to engage in these
transactions from time-to-time throughout the Authorization Period without
obtaining further Commission approval.
g. Financing Entities
Authority is sought for US Holdings and the LG&E Energy Subsidiary
Companies to organize new corporations, trusts, partnerships or other entities
created for the purpose of facilitating financings through their issuance to
third parties of trust preferred securities or other securities
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authorized hereby or issued pursuant to an applicable exemption. Request is also
made for authorization for these financing entities to issue such securities to
third parties in the event such issuances are not exempt pursuant to Rule 52.
Additionally, request is made for authorization with respect to (i) the issuance
of debentures or other evidences of indebtedness by any of US Holdings and the
LG&E Energy Subsidiary Companies to a financing entity in return for the
proceeds of the financing, (ii) the acquisition by any of PowerGen or the U.S.
Subsidiary Companies of voting interests or equity securities issued by the
financing entity to establish ownership of the financing entity, and (iii) the
guarantee by US Holdings or LG&E Energy Subsidiary Companies of such financing
entity's obligations in connection therewith.
US Holdings and the LG&E Energy Subsidiary Companies also may enter into
expense agreements with its respective financing entity, pursuant to which it
would agree to pay all expenses of such entity. All expense reimbursements would
be at cost. US Holdings and the LG&E Energy Subsidiary Companies seek
authorization for such expense reimbursement arrangements under Section 7(d)(4)
of the Act, regarding the reasonableness of fees paid in connection with the
issuance of a security, and/or under Section 13 of the Act and the rules
thereunder to the extent the financing entity is deemed to provide services to
an associate company.
Any amounts issued by such financing entities to third parties pursuant to
these authorizations will count against the external financing limit authorized
herein for US Holdings or the LG&E Subsidiary Companies, as applicable. However,
the underlying intra-system mirror debt and guarantee will not count against any
applicable inter-company financing limit or the separate US Holdings or the LG&E
Energy Subsidiary Companies guarantee limits. The authorizations sought herein
with respect to financing entities is substantially the same as that given to
The Southern Company in Holding Co. Act Release No. 27134 (Feb. 9, 2000), New
Century Energies, Inc. in Holding Co. Act Release No. 26750 (Aug. 1, 1997) and
in Holding Co. Act Release No. 27000 (April 7, 1999) and Conectiv, Inc. in
Holding Co. Act Release No. 26833 (Feb. 26, 1998).
h. LG&E Energy Intermediate Subsidiaries
LG&E Energy and its U.S. Non-Utility Subsidiaries seek a general grant of
authority to acquire the securities of one or more subsidiaries, which would be
organized exclusively for the purpose of acquiring, holding and/or
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financing the acquisition of the securities of or other interests in one or more
EWGs or FUCOs, Rule 58 Subsidiaries, or other non-exempt U.S. Non-Utility
Subsidiaries ("LG&E Energy Intermediate Subsidiaries"), provided that LG&E
Energy Intermediate Subsidiaries may also engage in development activities and
administrative activities relating to such subsidiaries. There are several legal
and business reasons for the use of special-purpose subsidiaries such as the
LG&E Energy Intermediate Subsidiaries in connection with making investments in
EWGs and FUCOs, Rule 58 Subsidiaries, and other non-exempt U.S. Non-Utility
Subsidiaries. The formation and acquisition of special-purpose subsidiaries is
often necessary or desirable to facilitate financing the acquisition and
ownership of a FUCO, an EWG or another non-utility enterprise. An LG&E Energy
Intermediate Subsidiary may be organized, among other things, (1) in order to
facilitate the making of bids or proposals to develop or acquire an interest in
any EWG or FUCO, Rule 58 Subsidiary or other non-exempt Non-Utility Subsidiary;
(2) after the award of such a bid proposal, in order to facilitate closing on
the purchase or financing of such acquired company; (3) at any time subsequent
to the consummation of an acquisition of an interest in any such company in
order, among other things, to effect an adjustment in the respective ownership
interests in such business held by LG&E Energy, either directly or indirectly,
and by non-affiliated investors; (4) to facilitate the sale of ownership
interests in one or more acquired non-utility companies; (5) to comply with
applicable laws of foreign jurisdictions limiting or otherwise relating to the
ownership of domestic companies by foreign nationals; (6) as a part of tax
planning in order to limit PowerGen's exposure to U.S. and foreign taxes; (7) to
further insulate LG&E Energy and the Utility Subsidiaries from operational or
other business risks that may be associated with investments in non-utility
companies; or (8) for other lawful business purposes.
Investments in LG&E Energy Intermediate Subsidiaries may take the form of
any combination of the following: (1) purchases of capital shares, partnership
interests, member interests in limited liability companies, trust certificates
or other forms of equity interests; (2) capital contributions; (3) open account
advances with or without interest; (4) loans; and (5) guarantees issued,
provided or arranged in respect of the securities or other obligations of any
LG&E Energy Intermediate Subsidiaries. Funds for any direct or indirect
investment by LG&E Energy in any LG&E Energy Intermediate Subsidiary will be
derived from (1) financings authorized in this proceeding; (2) any
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appropriate future debt or equity securities issuance authorization obtained by
LG&E Energy or the U.S. Non-Utility Subsidiaries from the Commission; and (3)
other available cash resources, including proceeds of securities sales by a Non-
Utility Subsidiary pursuant to Rule 52.
i. Reorganization Authority
The Intermediate Companies seek a general grant of authority to restructure
the capital structure of the Intermediate Companies from time to time, in order
to reflect tax and accounting changes after the Merger, without the need to
apply for or receive prior Commission approval, on the condition that the
reorganization will not result in (i) any Intermediate Company being organized
under any jurisdiction other than a member state of the European Union with
which the United States has a Double Taxation Treaty, or a state of the United
States, (ii) any Intermediate Companies ceasing to be wholly-owned, directly or
indirectly, by PowerGen or, other than in respect of the debt and preferred
stock of US Holdings, having third party investors, (iii) the Intermediate
Companies being engaged in any business or trade other than the business of
owning, directly or indirectly, equity securities of LG&E Energy and the
financing transactions described herein, or (iv) any of the Intermediate
Companies being regulated by United Kingdom or other third country regulatory
authorities having jurisdiction over electricity rates and service. Such
restructurings may involve the creation of new, or the elimination of existing,
Intermediate Companies or subsidiaries thereof, or the consolidation of
Intermediate Companies and/or the re-incorporation of an Intermediate Company in
a different jurisdiction. PowerGen also seeks a general grant of authority to
establish a new subsidiary to serve as a capital corporation that may borrow
funds from and loan funds to Intermediate Companies to facilitate the efficient
repatriation of funds from the non-U.K. organized Intermediate Companies or
their subsidiaries to the U.K. organized Intermediate Companies.
LG&E Energy also seeks a general grant of authority to restructure its non-
utility interests from time to time, without the need to apply for or receive
prior Commission approval, on the condition that the reorganization will not
result in the entry by the U.S. Non-Utility Subsidiaries into new lines of
business that have not previously been authorized by the Commission or that are
not permissible on an exempt basis under the Act or Commission rule. Such
restructurings may involve the creation of new, or the elimination of existing,
LG&E Energy Intermediate
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Subsidiaries, the consolidation of U.S. Non-Utility Subsidiaries, the spin-off
of a portion of an existing business of a U.S. Non-Utility Subsidiary to another
U.S. Non-Utility Subsidiary, the re-incorporation of an existing U.S. Non-
Utility Subsidiary in a different state, the transfer of authority from one U.S.
Non-Utility Subsidiary to another, the transfer or sale of one U.S. Non-Utility
Subsidiary, or its assets, to LG&E Energy or another U.S. Non-Utility
Subsidiary, or other similar type arrangements. The requested authorization
would provide LG&E Energy with the flexibility to permit any necessary or
appropriate restructuring in connection with the Merger or post-Merger to
reflect actual operating experience. Applicants also believe that such authority
will relieve burden on the Commission, since without such authority Applicants
may have to obtain Commission authorization for routine reorganizations. The
requested authorization is consistent with the authorization granted to other
applicants in recent Commission orders. See Columbia Energy Group, Holding
Company Act Release No. 27099 (November 5, 1999).
j. EWG/FUCO-Related Financings
PowerGen has adopted a corporate structure that separates its existing
foreign operations from its U.S. utility operations. The organization of foreign
activities under PowerGen UK (or PowerGen Group Holdings, if applicable), and
U.S. utility activities under LG&E Energy, reflects PowerGen's intent to develop
these two business areas in a financially independent manner. As a general
matter, PowerGen intends to fund its FUCO activities at the PowerGen UK level
(or at the PowerGen Group Holdings level, if applicable), although under certain
circumstances it may be necessary from time to time for PowerGen to provide some
investment capital or credit support for FUCO acquisitions or operations./34/ To
that end, PowerGen is seeking authority to finance additional EWG and FUCO
investments and operations in an aggregate amount of up to 100% of its
consolidated retained earnings at any one time outstanding during the
Authorization Period./35/ As of January 2, 2000,
____________________
/34/ For example, it may be desirable for reasons of economic efficiency to hold
certain FUCO interests outside PowerGen UK (or PowerGen Group Holdings, if
applicable) and its subsidiary companies.
/35/ As noted above, all of PowerGen's current operating company subsidiaries
are held through a FUCO. The PowerGen System, excluding the LG&E Energy Group,
will not own any EWGs at the closing of the Merger.
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100% of PowerGen's consolidated retained earnings on an U.S. GAAP basis was
$1.649 billion. Such financings may include the issue or sale of a security for
purposes of financing the acquisition or operations of an EWG or FUCO, or the
guarantee of a security of an EWG or FUCO.
As explained more fully below, the proposed financings will not have an
adverse effect on the financial integrity of the PowerGen System, nor will they
have an adverse impact on any U.S. Utility Subsidiary, any customers of any U.S.
Utility Subsidiary, or the ability of the affected state commissions to protect
the U.S. Utility Subsidiaries and their customers.
PowerGen differs from most (The National Grid and Scottish Power are
exceptions) of the registered holding companies with FUCO investments because it
developed first as a FUCO involved primarily in the generation, distribution and
supply of electricity in England and Wales, and only secondarily has become
involved, through the Merger, in the U.S. energy industry. PowerGen, therefore,
joins the family of registered holding companies with significant foreign
investments and operating experience in foreign markets. At the end of fiscal
year 1999 (as adjusted for investments subsequently sold), the combined LG&E
Group and PowerGen "aggregate investment" in EWGs and FUCOs was approximately
$1.270 billion./36/ This investment represents 77% of PowerGen consolidated
retained earnings at the end of fiscal year 1999, calculated in accordance with
U.S. GAAP.
PowerGen's background makes it difficult for the company to comply fully
with certain of the technical requirements of Rule 53. In particular, because
PowerGen has preexisting foreign utility operations, it cannot commit to
maintain the books and records of its FUCOs in conformity with U.S. GAAP.
Nonetheless, PowerGen satisfies the ultimate standards, as set forth in Section
32 and reflected in Rule 53(c), namely, the proposed investment will not have a
substantial adverse impact on the financial integrity of
________________
/36/ PowerGen's "aggregate investment" in FUCOs is based on PowerGen's equity
investment in PowerGen UK and the amount of indebtedness of PowerGen UK and its
subsidiaries that is recourse to PowerGen. LG&E Energy's "aggregate investment"
in EWGs and FUCOs is based on LG&E Energy's equity investment in EWGs and FUCOs
and the amount of indebtedness of such EWGs and FUCOs that is recourse to LG&E
Energy. Further, this calculation was made in accordance with the formula
provided in the National Grid Order, footnote 45.
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the PowerGen System, or an adverse impact on any of the U.S. Utility
Subsidiaries, or their customers, or on the ability of state commissions to
protect such subsidiary or customers. PowerGen makes this assertion based on an
assessment of its business activities, its capital structure, the earnings and
cash flows anticipated from its assets, and the risks that could affect the
financial stability of the PowerGen System. See PowerGen's financial statements
as included in its Annual Report (Exhibit I-1 attached hereto).
The final aspect of the Commission's inquiry into the proposed FUCO
financing should focus on whether risks associated with the foreign utility
businesses could adversely affect the financial stability of the system. In this
regard, PowerGen's successful operation of a national generation, distribution,
and supply business and its international power projects should indicate that
PowerGen has sound management skills and expertise in the utility industry,
particularly as it relates to foreign utility operations.
PowerGen utilizes a stringent review process - known as its investment
decision procedure - in order to assess the risks associated with new (including
FUCO) investments, to provide a framework for managing investment decisions and
to establish minimum requirements for the investment process, so that decisions
are made in a consistent, informed and controlled environment.
By way of background, each year the PowerGen Board of Directors approves a
one-year detailed budget and a five-year business plan. Within the framework of
the annual budget and the five year business plan, investments in new projects
proceed according to the following steps. First, generally, and unless a
proposed investment is specifically contemplated by the five-year business plan,
a "concept paper" is developed, which sets forth the general parameters of the
proposal. The concept paper stage is intended to expose potential risks before
significant resources have been applied to a project. Second, management
develops a proposal which requests authority to fund a project through its
development stage. Following development of the project, a proposal is created
that describes the specific investment opportunity. At this stage, the proposal
will request an amount of funds for the project, estimate the effect of the
project on the financial results of the PowerGen System, and evaluate the
proposal against a variety of other financial benchmarks (e.g., net present
value of the project, internal rate of return, etc.). The proposal
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requires approval by the Board or senior management according to Board approved
delegations of authority.
The Commission has found the standards of the Act satisfied in connection
with requests by a number of U.S. registered holding companies to exceed the so-
called "50 percent limit" under Rule 53. Southern Co., Holding Co. Act Release
No. 26501 (April 1, 1996); Central and South West Corporation, Holding Co. Act
Release No. 26653 (Jan. 24, 1997). See also GPU, Inc., Holding Co. Act Release
No. 26779 (Nov. 17, 1997); Cinergy Corp., Holding Co. Act Release No. 26848
(March 23, 1998); American Electric Power Company, Holding Co. Act Release No.
26864 (April 27, 1998); New Century Energies, Holding Co. Act Release No. 26982
(Feb. 26, 1999). In each of those matters, the applicant sought relief from the
safe-harbor requirements of Rule 53(a)(1) to allow investments in an amount
equal to the applicant's consolidated retained earnings. The Commission found
that the applicants in each matter had demonstrated successfully, through the
use of certain financial indicators, that investing in EWGs and FUCOs in an
amount not to exceed their consolidated retained earnings would not have a
substantial adverse impact on the financial integrity of the holding company
system.
In addition, in the National Grid Order, the Commission concluded that
National Grid, an applicant with a significant existing FUCO investment, made
the requisite showing under Rule 53(a), and authorized additional EWG and FUCO
investments in an aggregate amount of up to 50% of its consolidated retained
earnings, thus allowing aggregate investments of approximately 252%.
Applicants assert that the comparison of the financial measures and
indicators discussed above, and PowerGen's stringent project review procedures,
demonstrate that the financial integrity of the PowerGen System is substantially
similar to the financial integrity of the applicants in matters in which the
Commission has previously granted exceptions to the safe harbor requirements of
Rule 53.
It is noteworthy that none of the conditions described in Rule 53(b) is
applicable. First, there has been no bankruptcy of any PowerGen associate
company in which a plan of reorganization has not been confirmed. Second, the
average consolidated retained earnings for the two most recent semiannual
periods has not decreased by 10 percent
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from the average for the previous two semiannual periods./37/ Third, in the past
fiscal year, PowerGen has not reported, on a consolidated basis, operating
losses attributable to its direct or indirect investments in FUCOs.
The soundness of PowerGen's financial structure and the lack of risk to
U.S. utility consumers is further demonstrated by PowerGen's commitment, as set
forth above, to maintain:
o The common stock equity ratios of each of LG&E and KU, on an
individual basis, at a minimum of 30%;
o Its senior unsecured long-term debt rating at an investment grade
level; and
o Its common stock equity as a percentage of total capitalization,
measured on a book value U.S. GAAP basis, at 30% or above.
Under Rule 53(c)(2) PowerGen must demonstrate that the proposed use of
financing proceeds to invest in FUCOs will not have an "adverse impact" on any
of the U.S. Utility Subsidiaries, their respective customers, or on the ability
of the state commissions having jurisdiction over one or more such utility
subsidiaries to protect such public utility companies or such customers. The
conclusion that no such "adverse impact" will occur is supported by the
following:
(a) All of the investments by the PowerGen System in EWGs and FUCOs will
be segregated from the U.S. Utility Subsidiaries. None of the U.S. Utility
Subsidiaries will provide financing for, extend credit to, or sell or pledge its
assets directly or indirectly to any EWG or FUCO in which PowerGen owns any
interest. PowerGen further commits not to seek recovery in retail rates of the
U.S. Utility Subsidiaries for any failed investment in, or inadequate returns
from, an EWG or FUCO investment.
(b) Investments in EWGs and FUCOs will not have any negative impact on the
ability of the U.S. Utility Subsidiaries to fund operations and growth. The U.S.
Utility Subsidiaries currently have financial facilities in place that are
adequate to support their operations. These facilities will continue after the
Merger. The expectation
__________________
/37/ Although Rule 53 specifies quarterly periods, PowerGen does not prepare
accounts with this frequency.
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of continued strong credit ratings by the U.S. Utility Subsidiaries should allow
them to continue to access the capital markets to finance their operations and
growth.
(c) PowerGen will comply with the requirements of Rule 53(a)(3) regarding
limiting the use of the U.S. Utility Subsidiaries' employees to provide services
to EWGs and FUCOs. It is contemplated that project development, management and
home office support functions for the FUCOs currently held by PowerGen will be
largely performed by PowerGen UK (or PowerGen Group Holdings, if applicable) and
its subsidiary companies, and by outside consultants (e.g., engineers,
investment advisors, accountants and attorneys) engaged by PowerGen or PowerGen
UK (or PowerGen Group Holdings, if applicable). On a going-forward basis,
PowerGen also will comply with Rule 53(a)(4) regarding the provision of EWG and
FUCO related information to every federal, state and local regulator having
jurisdiction over the retail rates, as applicable, of the U.S. Utility
Subsidiaries.
(d) PowerGen believes that the state commissions are able to protect
utility customers within their respective states. In connection with the Merger,
PowerGen will request that each of the affected state commissions provide the
Commission with letters certifying that the state commission has jurisdiction
over the respective LG&E Energy system public utility companies and that the
state commission will exercise this authority to protect ratepayers.
(e) In addition, PowerGen will continue to provide the financial
information required by Form 20-F to permit the Commission to monitor the effect
of PowerGen's EWG and FUCO investments on PowerGen's financial condition.
C. Reporting
Applicants will file Form U5S annually with the Commission within 120 days
of the close of PowerGen's fiscal year. In addition, PowerGen will continue to
file a Form 20-F annually with the Commission, a semiannual report containing
earnings information, and reports on Form 6-K containing material announcements
as made.
It is proposed that, with respect to PowerGen which, as noted above, has
registered under the 1934 Act, the reporting systems of the 1934 Act and the
1933 Act be integrated with reports under the 1935 Act. This would eliminate
duplication of filings with the Commission that
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cover essentially the same subject matters, and reduce burdens on both the
Commission and PowerGen. To effect such integration, the Applicants propose to
incorporate by reference into the Rule 24 certificates of notification the
portion of the 1933 Act and 1934 Act reports containing or reflecting
disclosures of transactions occurring pursuant to the authorization granted in
this proceeding.
Applicants further propose to provide Rule 24 certificates semi-annually,
which is consistent with the financial reporting requirements in the United
Kingdom. Under U.K. rules, PowerGen must prepare and publish consolidated
financial information semi-annually. In addition, semiannual financial reporting
is consistent with PowerGen's ADR listing on the NYSE. Due to PowerGen's
extensive foreign holdings, it would entail significant additional work and
expense for PowerGen to prepare consolidated financial statements on a quarterly
basis. PowerGen will provide the Commission access to the books, records and
financial statements, or copies thereof, of any of its subsidiary companies, in
English, as the Commission may request.
1. Requests for Exemption
Applicants request an exemption from Rule 26(a)(1) under the 34 Act,
regarding the maintenance of financial statements in conformity with Regulation
S-X, for any existing subsidiary of PowerGen UK (or PowerGen Group Holdings as
of its formation) organized outside the United States. Any FUCO acquired
directly or indirectly by PowerGen subsequent to the issuance of an order in
this Application will become part of PowerGen's consolidated financial
statements, and PowerGen will reconcile such statements to U.S. GAAP in the same
manner as required by Form 20-F. The same relief was sought by National Grid and
was granted by the Commission in the National Grid Order.
2. Form U5S
Applicants propose that their Form U5S filings will include PowerGen's
consolidated financial statements in the format required by Form 20-F, i.e.,
U.K. GAAP format with reconciliations to U.S. GAAP. In addition, Applicants
propose to include in their Form U5S filings: (1) U.S. GAAP financial statements
for all the companies in the LG&E Energy Group, on a consolidated basis, and (2)
financial statements in the format required by Form 20-F for US Holdings, on a
consolidated basis. Amounts included in Form U5S filings will be stated in U.S.
dollars.
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PowerGen will also provide the following supplemental information in its
annual Form U5S filing:
(a) The amount of any income tax credit and/or income tax liability
incurred during the previous fiscal year by PowerGen US Partnership (one of the
Intermediate Companies): (i) as a result of any acquisition-related debt, and
(ii) as a result of any other income source or expense;
(b) A description of how the income tax credit and/or income tax liability
was calculated and allocated to all companies included in the consolidated tax
return, showing all of PowerGen US Partnership's interest costs and any
assumptions used in the calculation;
(c) A description of how any acquisition-related funding is effected
through all Intermediate Companies;
(d) A description of the amount and character of any payments made by each
Intermediate Company to any other PowerGen System company during the reporting
period; and
(e) A statement that the allocation of tax credits and liabilities was
conducted in accordance with the Tax Allocation Agreement in effect and filed as
an exhibit to the Form U5S.
3. Rule 24 Certificates of Notification
The Rule 24 certificates will be provided to the Commission within 90 days
after the end of PowerGen's fiscal year and within 60 days of the end of its
first semiannual reporting period and will contain the following information:
(a) The principal amount, interest rate, term, number of shares, market
price per share, sales price per share (if other than market price) and
aggregate proceeds, as applicable, of any securities issued by PowerGen during
the reporting period, including securities issued to dividend reinvestment plans
and employee benefit plans;
(b) The amount of guarantees issued during the reporting period by
PowerGen, the name of the beneficiary of the guarantee and the terms and purpose
of the guarantee;
(c) PowerGen's aggregate investment, as defined under Rule 53, in EWGs and
FUCOs, excluding investments made prior to the date of the Merger, as of the end
of the reporting period in dollars and as a percentage of PowerGen's
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consolidated retained earnings, and a description of EWG and FUCO investments
during the reporting period;
(d) The aggregate amount of securities and the aggregate amount of
guarantees issued and outstanding by PowerGen since the date of the order in
this Application, including any LG&E Energy acquisition debt;
(e) A list of the securities issued by the Intermediate Companies during
the reporting period, including principal amount, interest rate, term, number of
shares and aggregate proceeds, as applicable, with the acquiring company
identified;
(f) The amount and terms of any short-term debt issued by LG&E and KU, and
a list of the deposits and withdrawals by such companies from the system money
pool during the reporting period;
(g) The amount and terms of any nonexempt financings consummated during
the period by LG&E or KU during the reporting period;
(h) The amount and terms of any nonexempt financings consummated by any
U.S. Non-Utility Subsidiary during the reporting period;
(i) A table showing, as of the end of the reporting period, the dollar and
percentage components of the capital structures of PowerGen, LG&E Energy and
each first-tier subsidiary of LG&E Energy;
(j) Paper copies of PowerGen's filings of Form 20-F and semiannual reports
to shareholders; and
(k) As applicable, all amounts shall be expressed in U.K. Pounds and
converted to U.S. dollars and shall be presented in accordance with the U.S.
GAAP reconciliation requirements of Form 20-F. In particular, the semiannual
reports provided to the Commission in Rule 24 filings under this Application
shall be organized so that all columns showing amounts in Pounds in financial
statements or tables are accompanied by parallel columns showing dollar amounts.
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D. Payment of Dividends Out of Capital and Unearned Surplus
Section 12 of the 1935 Act, and Rule 46 thereunder, generally prohibit the
payment of dividends out of "capital or unearned surplus" except pursuant to an
order of the Commission. The legislative history explains that this provision
was intended to "prevent the milking of operating companies in the interest of
the controlling holding company groups." S. Rep. No. 621, 74th Cong., 1st Sess.
34 (1935). In determining whether to permit a registered holding company to pay
dividends out of capital surplus, the Commission considers various factors,
including: (i) the asset value of the company in relation to its capitalization,
(ii) the company's prior earnings, (iii) the company's current earnings in
relation to the proposed dividend, and (iv) the company's projected cash
position after payment of a dividend. See Eastern Utilities Associates, Holding
Co. Act Release No. 25330 (June 13, 1991), and cases cited therein. Further, the
payment of the dividend must be "appropriate in the public interest." Id.,
citing Commonwealth & Southern Corporation, 13 S.E.C. 489, 492 (1943).
1. PowerGen and U.S. Subsidiary Companies
Applicants will use the purchase method of accounting for the Merger. Under
this method of accounting, the premium to be paid to acquire LG&E Energy will
result in the accrual by the PowerGen System of a substantial amount of goodwill
that will have to be amortized, reducing future consolidated net income. Such
amortization, however, will have no effect on the cash flow of PowerGen and its
subsidiaries.
Further, Staff Accounting Bulletin No. 54 generally requires that the
premium paid in an acquisition utilizing the purchase method of accounting be
"pushed down" to the books of the acquired company, which in this case would be
the LG&E Energy Group. The effect of such a "pushdown" is to eliminate the
retained earnings of the acquired company and to increase its additional paid-in
capital. However, the Applicants have been advised that, under applicable
exceptions to the general rule, the premium paid in the acquisition will not be
"pushed down" to the LG&E Energy Group. However, changes in circumstances or
changes in accounting principles or the application thereof may result in such a
pushdown or a similar non-cash charge to retained earnings. Again, such charge
would have no effect on the cash flow of PowerGen and its subsidiaries.
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In light of the above, PowerGen and the U.S. Subsidiary Companies request
authority to pay dividends out of additional paid-in-capital up to the amount of
LG&E Energy's consolidated retained earnings just prior to the Merger and out of
earnings before the amortization of goodwill thereafter. In no case would such
dividends be paid by LG&E Energy out of paid-in capital if the common stock
equity of LG&E Energy as a percentage of total capitalization was below 30% on a
consolidated basis. This restriction is intended to protect both investors and
consumers. The relief requested will ensure the ability of US Holdings to
service the acquisition debt incurred in connection with the Merger without
impairing the financial condition of the LG&E Energy Group. It is similar to
that granted by the Commission in the National Grid Order.
2. U.S. Non-Utility Subsidiaries
LG&E Energy requests authorization, on behalf of the direct and indirect
U.S. Non-Utility Subsidiaries, that such U.S. Non-Utility Subsidiary companies
be permitted to pay dividends with respect to the securities of such companies,
from time to time through the Authorization Period, out of capital and unearned
surplus capital (including revaluation reserve), to the extent permitted under
applicable corporate law.
LG&E Energy anticipates that there will be situations in which one or more
of its direct or indirect U.S. Non-Utility Subsidiaries will have unrestricted
cash available for distribution in excess of any such company's current and
retained earnings. In such situations, the declaration and payment of a dividend
would have to be charged, in whole or in part, to capital or unearned surplus.
As an example, if an LG&E Energy Intermediate Subsidiary purchases all of the
stock of an EWG or FUCO, and following such acquisition, the EWG or FUCO incurs
non-recourse borrowings some or all of the proceeds of which are distributed to
such LG&E Energy Intermediate Subsidiary as a reduction in the amount invested
in the EWG or FUCO (i.e., return of capital), the LG&E Energy Intermediate
Subsidiary (assuming it has no earnings) could not, without the Commission's
approval, in turn distribute such cash to its parent for possible distribution
to LG&E Energy.
Similarly, using the same example, if an LG&E Energy Intermediate
Subsidiary, following its acquisition of all of the stock of an EWG or FUCO,
were to sell part of that stock to a third party for cash, the LG&E Energy
Intermediate Subsidiary would again have substantial unrestricted cash
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available for distribution, but (assuming no profit on the sale of the stock)
would not have current earnings and therefore could not, without the
Commission's approval, declare and pay a dividend to its parent out of such cash
proceeds.
Further, there may be periods during which unrestricted cash available for
distribution by a first-tier U.S. Non-Utility Subsidiary or a direct or indirect
subsidiary thereof exceeds current and retained earnings due to the difference
between accelerated depreciation allowed for tax purposes, which may generate
significant amounts of distributable cash, and depreciation methods required to
be used in determining book income.
Finally, even under circumstances in which a U.S. Non-Utility Subsidiary or
other downstream subsidiary has sufficient earnings, and therefore may declare
and pay a dividend to its immediate parent, such immediate parent may have
negative retained earnings, even after receipt of the dividend, due to losses
from other operations. In this instance, cash would be trapped at a subsidiary
level where there is no current need for it.
LG&E Energy, on behalf of each of its current and future direct and
indirect U.S. Non-Utility Subsidiaries, represents that it will not declare or
pay any dividend out of capital or unearned surplus in contravention of any law
restricting the payment of dividends. In this regard, it should be noted that
all U.S. jurisdictions limit to one extent or another the authority of
corporations to make dividend distributions to shareholders. Most state
corporations statutes contain either or both an equity insolvency test or some
type of balance sheet test. LG&E Energy also states that its U.S. Non-Utility
Subsidiaries will comply with the terms of any credit agreements and indentures
that restrict the amount and timing of distributions to shareholders.
E. Approval of New Tax Allocation Agreement
Applicants ask the Commission to approve an agreement for the allocation of
consolidated tax among PowerGen US Partnership, PowerGen US Investments Corp.
and the LG&E Energy Group post-Merger (the "Tax Allocation Agreement"). Approval
is necessary because the Tax Allocation Agreement will provide for the retention
by the PowerGen entities within the consolidated group of certain payments for
tax losses, rather than the allocation of such losses to subsidiary companies
without payment as would otherwise be
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required by Rule 45(c)(5). The proposed Tax Allocation Agreement is in the
process of being finalized and will be submitted shortly. The delay is
attributable to the need to ensure that the terms of the Tax Allocation
Agreement will enable PowerGen to obtain foreign tax credit relief within the
United Kingdom for taxes paid within the U.S. consolidated group. Proposed new
legislation has recently been published in the United Kingdom that fundamentally
changes the method of calculating U.K. relief for foreign taxes paid. This
legislation has been the subject of substantial criticism, and may therefore be
subject to deferral or further amendment prior to enactment. PowerGen needs to
fully understand the consequences of this amended legislation to ensure that the
terms of the tax allocation do not, as a result of the changing U.K.
legislation, impair PowerGen's legitimate aim of obtaining foreign tax credit
relief in the United Kingdom for U.S. taxes paid.
F. Section 13 - Intra-System Provision of Services
Applicants propose to form a service company subsidiary of LG&E Energy,
LG&E Services, to provide goods and services to members of the LG&E Energy Group
primarily and, to a lesser extent, members of the PowerGen System. LG&E Services
will be a direct and wholly-owned subsidiary of LG&E Energy on the same level of
the corporate flow chart as LG&E and KU. It is anticipated that LG&E Services
will be staffed primarily by the transfer of personnel from LG&E Energy, LG&E
and KU, and their subsidiaries. Applicants request that LG&E Services be
authorized pursuant to Section 13(b) and Rule 88 to provide goods and services
to affiliates. Applicants also propose that members of the PowerGen System may
provide goods and services to members of the LG&E Energy Group. In particular,
it is anticipated that most of the Trans-Atlantic goods and services will be
provided by PowerGen UK (or by PowerGen Group Holdings, if applicable).
Applicants, however, do not seek authorization for PowerGen UK (or by PowerGen
Group Holdings, if applicable) to be qualified as a service provider under
Section 13(b) and Rule 88, subject to the terms and conditions outlined below,
including the commitment that all goods and services and billings flow through
LG&E Services. This corporate structure for the provision of goods and services
is consistent with the arrangement authorized in the National Grid Order.
1. Interaction with FERC Policy
Unless exempt, all services provided by PowerGen System companies to other
companies within the system will be in
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accordance with the requirements of Section 13 of the Act and the rules
promulgated thereunder. PowerGen is aware that questions concerning the FERC's
policy in this area are likely to arise with respect to affiliate transactions
involving LG&E and KU, companies that are public utilities under the Federal
Power Act. In connection with the application to the FERC to approve the Merger,
the Applicants represented that, with respect to any transaction between any
member company of the LG&E Energy system and PowerGen and any of its subsidiary
or affiliated companies, the LG&E Energy Companies will abide by FERC policy
regarding intra-affiliate transactions. The FERC intra-corporate transactions
policy, with respect to non-power goods and services, generally requires that
affiliates or associates of a public utility not sell non-power goods and
services to the public utility at a price above market; and sales of non-power
goods and services by a public utility to its affiliates or associates be at the
public utility's cost for such goods and services or market value for such goods
and services, whichever is higher.
Applicants recognize that affiliate transactions among the member companies
of PowerGen will be subject to the jurisdiction of the Commission under Section
13(b) of the Act and the rules and regulations thereunder. That section
generally requires that affiliate transactions involving system utilities be "at
cost, fairly or equitably allocated among such companies." See also Rule 90.
Nonetheless, PowerGen believes that, as a practical matter, there should not be
any irreconcilable inconsistency between the application of the Commission's "at
cost" standard and the FERC's policies with respect to intra-system transactions
as applied to PowerGen.
On this basis, Applicants believe that PowerGen will be able to comply with
the requirements of both the FERC and the "at cost" and fair and equitable
allocation of cost requirements of Section 13, including Rules 87, 90, and 91
thereunder, for all services, sale and construction contracts between associate
companies and with the holding company parent unless otherwise permitted by the
Commission by rule or order./38/
________________
38/ Under circumstances of divergent cost and market prices such that the FERC
and SEC pricing standards could not be reconciled if the transaction was
performed, PowerGen will comply by refraining from performing the affected
service, sales or construction contract.
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2. Scope of Service
After consummation of the Merger, LG&E Services will provide a variety of
administrative, management and support services to LG&E and KU pursuant to the
Utility Service Contract, and to the U.S. Non-Utility Subsidiaries pursuant to
the Non-Utility Service Contract. Although the full scope of services is not
known at this time, the services may include:
1. Information Systems Services - Provides electronic data processing
services.
2. Customer Services - Provides billing, mailing, remittance processing,
call center and customer communication services for customers.
3. Marketing and Sales - Establishes strategies, provides oversight for
marketing, sales and branding of utility and related services, conducts
marketing and sales programs, and economic development.
4. Employee Services - Includes Human Resources, which establishes and
administers policies and oversees compliance with regulations in the areas of
employment, compensation, and benefits, processes payroll and administers
corporate training. Also includes employee communications, facilities management
and mail services.
5. Corporate Compliance - Oversees compliance with all laws, regulations
and policies applicable to all of LG&E Energy's businesses and directs
compliance training.
6. Purchasing - Provides procurement services.
7. Financial Services - Provides treasury, accounting, tax, financial
planning, regulatory and auditing services.
8. Risk Management - Provides insurance, claims, security and safety
services.
9. Public Affairs - Maintains relationship with government policy makers,
conducts lobbying activities and provides community relations functions.
10. Legal Services - Provides various legal services and general legal
oversight; handles claims.
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11. Investor Relations - Maintains relationship with the financial
community and provides shareholder services.
12. Telecommunications - Provides telecommunications services, primarily
the use of telephone equipment.
13. Gas Supply and Capacity Management - Provides gas supply and capacity
management services.
14. Transmission, Substation Construction, Maintenance & Operations -
Provides management services for transmission and substation construction,
maintenance and operations areas.
15. Meter Reading, Repair and Maintenance - Provides services related to
meter reading and the repair and maintenance of meters.
16. Design Engineering - Designs and monitors construction of electric
transmission and distribution lines and substations.
17. Substation Engineering and Support - Provides management support
services to the Substation Engineering and Support organizations of the
operating companies.
18. Resource Acquisition and Analysis - Procures coal, natural gas and oil
for the generation facilities of client entities. Also ensures compliance with
price and quality provisions of fuel contracts and arranges for transportation
of fuel to the desired location, and completes analyses as required on all fuel
used for generation.
19. Purchased Power and Electric Trading - Purchases power and provides
electric trading services to the operating companies electric generation systems
and all other trading functions.
20. Strategic Planning - Develops corporate strategies and business plans.
21. Executive - Provides executive and general administrative services.
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22. Environmental Affairs - Performs analyses and advocacy of regulatory
and legislative issues in the areas of environment. Communicates final
regulatory requirements to operating groups. Provides assistance, support and
compliance review in meeting those requirements. Oversees hazardous substance
site investigations and remediation activities.
23. Energy Supply - Coordinates the use of the generating, transmission
and interconnection facilities to provide economical and reliable energy.
24. Transportation - Operates transportation fleet for the operating
companies and affiliates. Provides engineering, support, mechanical servicing of
vehicles, and procurement of vehicles.
25. Media Relations - Performs all media relations with local and national
media organizations according to established policies and procedures.
Members of the PowerGen System may provide services to the LG&E Energy
Group and, to a lesser extent, LG&E Energy Group companies may provide services
to PowerGen System companies. The full range of services to be provided by
members of the PowerGen System to LG&E Energy Group companies is not presently
known. Although some Trans-Atlantic services may be performed by LG&E Energy
Group companies for PowerGen System companies, Applicants contemplate that the
majority of Trans-Atlantic services will flow from the PowerGen System companies
to the LG&E Energy Group.
It is anticipated presently that PowerGen UK (or PowerGen Group Holdings,
if applicable) will be the principal entity providing services from the PowerGen
System, and LG&E Services will be the principal recipient of services for the
LG&E Energy Group. It is also anticipated presently that the charges to the LG&E
Energy Group will be primarily from PowerGen UK (or PowerGen Group Holdings, if
applicable) to LG&E Services, and LG&E Services will reallocate the charges as
appropriate to members of the LG&E Energy Group.
Some services are solely concerned with events outside of the normal
operations of the LG&E Energy Group. The LG&E Energy Group will not be charged
with any costs relating to these departments, unless their services are
specifically requested. In addition, charges for costs associated with future
mergers and acquisitions may be allocated to LG&E
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Energy and/or to PowerGen System companies, but not to the LG&E Energy
Subsidiary Companies.
The attached Form of Service Contract ("Service Contract"), Exhibit B-2,
will govern the charges between LG&E Services and the U.S. Utility Subsidiaries.
The Non-Utility Service Contract will be substantially similar to the Service
Contract, except as described herein. It is contemplated that the Service
Contract will be amended to provide for services to entities that will become
associate companies of LG&E Energy as a result of future mergers and
acquisitions.
3. Allocation of Service Costs Among Members of the LG&E Energy
Group
The costs of services provided by LG&E Services and members of the PowerGen
System will be directly assigned, distributed or allocated by activity, project,
program, work order or other appropriate basis. Applicants expect that the
majority of costs billed by members of the PowerGen System to the LG&E Energy
Group will be paid initially by LG&E Services which will then charge the
appropriate service recipient. Applicants envision two types of charges.
First, for services rendered specifically for the LG&E Energy Group or
individual members, costs will be directly attributed to specific subsidiaries
when it is possible to do so accurately.
Second, members of the LG&E Energy Group will pay a share of services that
benefit them as members of the PowerGen System. Their share will be determined
by a two-step process. The LG&E Energy Group's portion of these costs will be
determined using measures that reflect the relevant contribution and size of the
individual businesses. Allocation of group costs will follow the methodology
adopted by the U.K. regulator, the Office of Gas and Electricity Markets
("OFGEM"). The OFGEM approach uses four measures (revenues, operating profit,
employee numbers and net assets) and allocates the group costs equally across
the four. Revenues are adjusted to exclude the income resulting from sales of
purchased power within LG&E Energy. Each PowerGen service provider will use
figures from the latest published accounts to calculate the percentage of
revenues, operating profit, employee numbers and net assets on an annualized
basis, and these four percentages will be averaged to calculate the group
allocation.
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LG&E Services will allocate the costs of service among the LG&E Energy
Group using one of several methods. LG&E Services will choose the method that
most accurately distributes the costs. The method of cost allocation varies
based on the department rendering the service. Exhibit B-2 provides an
illustration of allocation of group costs among the LG&E Energy Group.
4. Calculation of Service Costs
LG&E Services' accounting and cost allocation methods and procedures will
be structured so as to comply with the Commission's standards for service
companies in registered holding-company systems. LG&E Services' billing system
will use the "Uniform System of Accounts for Mutual Service Companies and
Subsidiary Service Companies" established by the Commission for service
companies of registered holding-company systems, as may be adjusted to use the
FERC uniform system of accounts. Further, since costs will be equitably
allocated, charges for all services provided by LG&E Services to public utility
affiliates under the Utility Service Contract will be on an "at cost" basis as
determined under Rules 90 and 91 of the Act.
The Non-Utility Service Contract contains provisions similar to those of
the Service Contract, except that the Non-Utility Service Contract permits
charges for certain services to be at fair market value to the extent authorized
by the Commission. To this end, Applicants request that LG&E Services and any
other non-utility subsidiary be authorized to provide goods and services at
other than cost to any associate company that is not a public-utility company as
defined under the Act. Specifically, Applicants request that the Commission
grant an exemption from the provisions of Rules 90 and 91 and the at-cost
requirement for any non-utility subsidiary of PowerGen (including LG&E Services)
for the following transactions, among others: services provided to associate
FUCOs and EWGs that derive no part of their income, directly or indirectly, from
the generation, transmission or distribution of electric energy for sale or the
distribution of natural gas at retail in the United States; and services
provided to an associated EWG, qualifying facility ("QF"), or independent power
project ("IPP"), provided that the purchaser of the electricity sold by such
entity is not an associate company of LG&E Energy. No services will be provided
at market-based rates to a QF, IPP, or EWG selling electricity to the U.S.
Utility Subsidiaries unless authorized by the Act or the Commission. The
Commission has granted comparable relief in numerous prior orders. See, e.g.,
New Century Energies, Inc.,
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Holding Co. Act Release No. 27000 (April 7, 1999). Applicants also request that
the Commission grant an exemption from the provisions of Rules 90 and 91 and the
at costs requirements for any non-utility subsidiary of PowerGen (including LG&E
Services) for services to any subsidiary meeting the requirements of Rule 58,
any exempt telecommunications company under Section 34 of the Act and any other
non-utility subsidiaries that do not derive any part of their income from the
sales of goods, services or other property to a public-utility company that is
an associate of PowerGen.
With regard to services provided by any U.K. company in the PowerGen System
to the LG&E Energy Group, the PowerGen service provider will use appropriate
policies and procedures to assure that all costs are identified and attributed
to particular projects, programs or work orders for purposes of direct cost
allocation. Records related to services provided by any PowerGen service
provider to LG&E Energy companies will be made available to the Commission staff
for review.
As required by Rule 91 under the 1935 Act, the costs allocated across the
businesses served by any PowerGen service provider will as far as possible
represent the total true cost of providing the corporate service. The costs
considered in the allocation will include: (1) total payroll and associated
costs; (2) materials and consumable costs; (3) building and facilities costs;
(4) IS infrastructure costs; and (5) other departmental costs.
Rates for the charges from any PowerGen service provider to LG&E Services
will be calculated by taking total cost over total time worked. This method of
calculation will ensure total recovery of departmental costs on a monthly basis,
with minimal fluctuation of hourly rates. Budgeted rates will be available for
forecasting purposes.
5. Billing
Each PowerGen service provider will bill LG&E Services monthly in arrears.
The billing format will list charges by corporate department, detailing total
time applicable to LG&E Energy companies, multiplied by the current rate, to
give the total charge for the month.
If a PowerGen service provider provides services for the benefit of a
specific LG&E Energy company, the charge applicable to that company will be
specifically identified in the invoice. Otherwise, the PowerGen service
provider's
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charges will be allocated to individual LG&E Energy companies through LG&E
Services' allocation cycle.
6. Restriction on Amendments
No change in the organization of LG&E Services, the type and character of
the companies to be serviced (other than the amendment discussed above to
include services for the PowerGen associate companies), the methods of
allocating costs to associate companies, or in the scope or character of the
services to be rendered subject to Section 13 of the Act, or any rule,
regulation or order thereunder, shall be made unless and until LG&E Services
shall first have given the Commission written notice of the proposed change not
less than 60 days prior to the proposed effectiveness of any such change. If,
upon the receipt of any such notice, the Commission shall notify LG&E Services
within the 60-day period that a question exists as to whether the proposed
change is consistent with the provisions of Section 13 of the Act, or of any
rule, regulation or order thereunder, then the proposed change shall not become
effective unless and until the LG&E Services shall have filed with the
Commission an appropriate declaration regarding such proposed change and the
Commission shall have permitted such declaration to become effective.
7. Approval of LG&E Services
Applicants believe that the Service Contract and the Non-Utility Service
Contract are structured so as to comply with Section 13 of the Act and the
Commission's rules and regulations thereunder.
Rule 88: Rule 88 provides that "[a] finding by the Commission that a
subsidiary company of a registered holding company . . . is so organized and
conducted, or to be conducted, as to meet the requirements of Section 13(b) of
the Act with respect to reasonable assurance of efficient and economical
performance of services or construction or sale of goods for the benefit of
associate companies, at cost fairly and equitably allocated among them (or as
permitted by Rule 90), will be made only pursuant to a declaration filed with
the Commission on Form U-13-1, as specified" in the instructions for that form,
by such company or the persons proposing to organize it. Notwithstanding the
foregoing language, the Commission has on at least three recent occasions made
findings under Section 13(b) based on information set forth in an Application-
Declaration on Form U-1, without requiring the formal filing of a Form U-13-1.
See SCANA Corp., Holding
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Co. Act Release No. 27133 (Feb. 9, 2000); New Century Energies, Holding Co. Act
Release No. 26748 (Aug. 1, 1997); CINergy Corp., Holding Co. Act Release No.
26146 (Oct. 21, 1994); UNITIL Corp., Holding Co. Act Release No. 25524 (April
24, 1992). In this Application, Applicants have submitted substantially the same
applicable information for the LG&E Services as would have been submitted in a
Form U-13-1.
Accordingly, it is submitted that it is appropriate to find that LG&E
Services is so organized and its business will be so conducted as to meet the
requirements of Section 13(b), and that the filing of a Form U-13-1 is
unnecessary, or, alternatively, that this Application should be deemed to
constitute a filing on Form U-13-1 for purposes of Rule 88.
G. Other Statutory Provisions
1. Sections 14 and 15 -- Jurisdiction
Pursuant to these sections, the Commission has broad authority over, and
access to, the books and records and reporting of companies in a registered
holding company system. As noted previously, PowerGen ADSs are listed on the
NYSE. In connection with the ADS listing, PowerGen has provided financial
statements for the fiscal year ended January 2, 2000, and will provide financial
statements semiannually thereafter that include a reconciliation of net income
and shareholders' equity in accordance with U.S. GAAP.
It should be further noted that the utility assets of PowerGen are
accounted for on the basis required by the U.K. regulator, rather than that used
for purposes of U.S. ratemaking proceedings, and rates for U.K. regulated
utilities are also determined in a different manner than those for U.S.
regulated companies.
In addition, PowerGen undertakes and agrees to file, and will cause each of
its present and future directors and officers, who is not a resident of the
United States, to file with the Commission irrevocable designation of the
party's custodian as an agent in the United States to accept service of process
in any suit, action or proceeding before the Commission or any appropriate court
to enforce the provisions of the acts administered by the Commission./39/
___________________
/39/ See Exhibit L-1, Appointment of Agent for Service of Process.
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2. Section 33 -- Foreign Utility Companies
Applicants make numerous commitments to ensure that the proposed financing
of the PowerGen System, including financing for purposes of acquiring interests
in EWGs and FUCOs, is consistent with the protected interests. These commitments
are described above in Item 3, Section B.2.j.
Prior to the closing of the proposed transactions, PowerGen UK (or PowerGen
Group Holdings, if applicable) will file a Form U-57 to perfect its exemption as
a FUCO. Thereafter, Applicants believe that PowerGen UK (or PowerGen Group
Holdings, if applicable) will be exempt from all provisions of the Act -- except
with respect to transactions with PowerGen and its non-FUCO subsidiary
companies. This latter set of transactions will continue to be fully regulated
under the Act./40/ See Section 33(a)(1) of the Act ("A foreign utility company
shall be exempt from all provisions of the Act, except as otherwise provided
under this section").
As explained more fully in Exhibit F-1.2 and Item 3, Section A.2.a.iv to
this Application, while FUCO interests will form the largest part of PowerGen
UK's interests, PowerGen UK will have certain non-FUCO subsidiaries.
Accordingly, Applicants seek to rely on the fact that Section 33 (unlike
Sections 32 and 34) does not require that the exempt entity be engaged
"exclusively" in the subject activity. Although there is no discussion of this
point in the legislative history, it does not seem unreasonable that Congress
was attempting to accommodate the nature of the entities exempt under Section
33. Unlike EWGs and ETCs, which are likely to be special purpose entities, FUCOs
may comprise vertically-integrated utility systems and businesses that are
reasonably incidental or economically necessary or appropriate thereto. Indeed,
a review of the Forms U-57 suggests that U.S. holding companies have indirectly
acquired certain nonexempt interests in connection with their FUCO holdings.
The Commission should not find these "other businesses" to be inconsistent
with the policies and provisions of the Act, so long as: (i) all direct or
indirect investments in
___________________
/40/ The Commission's residual jurisdiction is generally limited to parent-level
financings, affiliate transactions and "the creation or maintenance of any other
relationship between a foreign utility company and a registered holding
company." See Section 33(c)(2).
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these businesses for which there is recourse, directly or indirectly, to the
registered holding company will be counted toward "aggregate investment" for
purposes of Rule 53; and (ii) there are appropriate safeguards, such as those
described above, to protect the interests of U.S. ratepayers from the adverse
effects, if any, that may be associated with the foreign operations.
3. Sections 3(a)(1) and 3(a)(2) - Exemption from Registration
LG&E Energy and KU currently enjoy exemption from registration under the
Act pursuant to Sections 3(a)(1) and 3(a)(2) of the Act, respectively. Section
3(a)(1) exempts holding companies which derive a material part of their income
from public utility companies that are predominantly intrastate in character,
where such holding companies and public utility companies conduct their
businesses substantially in a single state. Section 3(a)(2) exempts those
entities which are predominantly public utility companies whose operations do
not extend beyond the state in which they are organized and states contiguous.
The Commission initially authorized KU's exemption by order in KU Energy
Corporation, HCAR No. 25409 (Nov. 13, 1991). The Commission reaffirmed KU's
exemption under Section 3(a)(2) and granted LG&E Energy's exemption under
Section 3(a)(1) in its order authorizing the merger of LG&E Energy and KU Energy
Corporation. See LG&E Energy Corp., HCAR No. 26866, 67 S.E.C. 107 (April 30,
1998). Applicants seek a declaration from the Commission that LG&E Energy and KU
may remain exempt holding companies under Sections 3(a)(1) and 3(a)(2),
respectively, although following consummation of the Merger, the Intermediate
Companies and PowerGen plan to register under Section 5 of the Act. Other
registered holding companies have exempt holding companies within their
registered systems, e.g., American Electric Power Company. Applicants seek the
same relief. In the event the Commission does not grant the relief requested,
LG&E Energy or KU, as applicable, would register under Section 5 of the Act.
ITEM 4. REGULATORY APPROVALS
I. Merger Approvals
Set forth below is a summary of the regulatory approvals that PowerGen and
LG&E Energy expect to obtain in connection with the Merger.
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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 DOJ and
the FTC and until certain waiting periods have been terminated or have expired.
LG&E Energy and PowerGen plan to file their respective premerger notifications
in May 2000, after which the waiting period will commence. If the Merger is not
consummated within 12 months after the expiration or earlier termination of the
initial HSR Act waiting period, LG&E Energy and PowerGen would be required to
submit new information to the DOJ 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 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 an indirect change in ownership and control of LG&E Energy's public
utility subsidiaries, Applicants have sought the prior approval of the FERC
under FPA Section 203 prior to consummation of the Merger.
Under Section 203 of the FPA, the FERC shall 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. LG&E Energy and PowerGen
believe the proposed Merger satisfies these standards.
Applicants filed their Section 203 application with the FERC on March 24,
2000.
C. 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
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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 suspend or prohibit any acquisition, merger, or takeover by a
foreign person if that acquisition, merger, or takeover threatens 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. Applicants plan to file the Exon-Florio application in
connection with the Merger on during the second quarter of 2000.
D. State Regulatory Approval
The Merger requires the approval of the Kentucky Commission and the
Virginia Commission.
The Kentucky Commission has jurisdiction over the transaction due to LG&E's
and KU's status as public utility companies in Kentucky. LG&E Energy and
PowerGen filed a merger application with the Kentucky Commission on March 15,
2000.
The Virginia Commission has jurisdiction over the transaction because of
KU's operations in Virginia under the name Old Dominion Power Company. LG&E
Energy and PowerGen filed a merger application with the Virginia Commission on
March 24, 2000.
While the Tennessee Commission does not have jurisdiction over the Merger,
KU and PowerGen plan to make an informational filing with the Tennessee
Commission describing the Merger and the benefits of the Merger to ratepayers
after orders from the Kentucky Commission and the Virginia Commission have been
received. As part of the filing, the companies will advise the Tennessee
Commission that the SEC would be seeking a certification from the Tennessee
Commission that it has the authority and resources to protect ratepayers in
matters 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.
E. U.K. Notice Requirements
The Merger constitutes a merger qualifying for investigation under the
United Kingdom's Fair Trading Act of 1973 ("FTA"). The FTA provides that the
Secretary of State
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may refer a qualifying merger to the Competition Commission. It is the
responsibility of the Director General of Fair Trading ("DGFT") to advise the
Secretary of State whether to refer a merger to the Competition Commission. In
reviewing the acquisition, the Office of Fair Trading ("OFF") may also consult
with the Director General of the Office of Gas and Electricity Markets ("OFGEM")
in accordance with a concordat between the OFT and OFGEM on regulatory issues.
The U.K. merger regime is a voluntary regime. The OFT has made a standard
request of PowerGen to provide it with information concerning the acquisition.
PowerGen has provided this information and will respond to any further requests
from the OFT. PowerGen does not believe that the Merger will have any impact on
competition in the United Kingdom and therefore does not anticipate any issues
will be raised by the OFT.
II. Financing Approvals
The Kentucky Commission has jurisdiction over the issuance of equity and
long-term debt securities of LG&E and KU. In addition, the Virginia Commission
has jurisdiction over the issuance of short-term debt of KU. Applicants are
seeking authorization of such transactions through December 31, 2005. Applicants
have requested that the Commission authorize various financing arrangements by
the LG&E Energy Group during the Authorization Period. To the extent that LG&E
or KU requires further authorization from the Kentucky Commission or the
Virginia Commission subsequent to December 31, 2005, the Applicants will seek
such authorization. Except as discussed above, no state or federal regulatory
agency other than the Commission under the Act has jurisdiction over the
proposed transactions.
* * * * *
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 Application no
later than December 31, 2005.
ITEM 5. PROCEDURE
The Commission is respectfully requested to issue and publish not later
than June 15, 2000, the requisite notice under Rule 23 with respect to the
filing of this Application, such notice to specify a date not later than July
17, 2000, by which comments may be entered, and a date
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not later than November 15, 2000, as the date after which an order of the
Commission granting and permitting this Application to become effective may be
entered by the Commission.
It is submitted that a recommended decision by a hearing or other
responsible officer of the Commission is not needed for approval of the proposed
Merger and related financing. The Division of Investment Management may assist
in the preparation of the Commission's decision. There should be no waiting
period between the issuance of the Commission's order and the date on which it
is to become effective.
ITEM 6. EXHIBITS AND FINANCIAL STATEMENTS
A. Exhibits
A-1 Memorandum and Articles of Association of PowerGen plc.
A-2.1 Amended and Restated Articles of Incorporation of LG&E Energy,
filed as Exhibit 4.1 to Form 8-K of LG&E Energy dated May4,
1998, File No. 1-10568, and incorporated herein by reference.
A-2.2 Restated Articles of Incorporation of LG&E, filed as Exhibit
3.06 to Form 10-Q of LG&E for the quarter ended September 30,
1996, File No. 2-26720, and incorporated herein by reference.
A-2.3 Amended and Restated Articles of Incorporation of KU, filed as
Exhibit 4.03 and 4.04 to Form 8-K of Kentucky Utilities, dated
December 10, 1993, File No. 1-3463, and incorporated herein by
reference.
B-1 Agreement and Plan of Merger, dated as of February 27, 2000,
among PowerGen plc, LG&E Energy Corp., US Subholdco 2
(PowerGen US Investments Corp.) and Merger Sub, included as
Appendix A to Exhibit C-1 hereto.
B-2 Standard Form of Service Contract for U.S. Utility
Subsidiaries.
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B-3 Term and Revolving Credit Facility for PowerGen US Holdings
Limited and PowerGen plc, dated February 27, 2000.
C-1 Proxy Statement of LG&E Energy for the shareholders meeting to
be held in connection with the Merger, filed with the
Commission on March 13, 2000, File No. 1-10568, and
incorporated by reference herein.
C-2 Circular of PowerGen Group for the extraordinary general
meeting of shareholders to be held in connection with the
Merger (to be filed by amendment).
C-3.1 Tax Allocation Agreement (to be filed by amendment).
C-3.2 Legal Analysis of Rule 45(c) and the Proposed Tax Allocation
Agreement (to be filed by amendment).
C-4 Intercompany Debt and Funds Flow.
D-1.1 Joint Application of Louisville Gas and Electric Company,
Kentucky Utilities Company, and Merger Sub before the FERC
(filed in paper format on Form SE).
D-1.2 Order of the FERC Approving the Merger (to be filed by
amendment).
D-2.1 Joint Application of PowerGen plc, LG&E Energy Corp.,
Louisville Gas and Electric Company, and Kentucky Utilities
Company, before the Kentucky Public Service Commission (filed
in paper format on Form SE).
D-2.2 Order of the Kentucky Public Service Commission Approving the
Merger (to be filed by amendment).
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D-3.1 Joint Application of PowerGen plc, LG&E Energy Corp., and
Kentucky Utilities Company before the Virginia Corporation
Commission (filed in paper format on Form SE).
D-3.2 Order of the Virginia Corporation Commission Approving the
Merger (to be filed by amendment).
D-4.1 Submission to the Tennessee Regulatory Authority (to be filed
by amendment).
D-4.2 Response of Tennessee Regulatory Authority (to be filed by
amendment).
E-1 Map of electric service territories and transmission lines of
Louisville Gas and Electric Company and Kentucky Utilities
Company (filed in paper format on Form SE).
E-2 Map of gas service territory of Louisville Gas and Electric
Company (filed in paper format on Form SE).
F-1.1 PowerGen plc Corporate Chart (filed in paper format on Form
SE).
F-1.2 Description of the Companies in the PowerGen System.
F-2.1 LG&E Energy Corp. Corporate Chart (filed in paper format on
Form SE).
F-2.2 Description of LG&E Energy Corp. non-utility subsidiaries and
basis for retention of each.
F-3.1 Combined PowerGen/LG&E Energy Corporate Chart (filed in paper
format on Form SE).
F-3.2 Merger Structure and Description of Intermediate Companies.
G-1.1 Opinion of Counsel - PowerGen Group (to be filed by
amendment).
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G-1.2 Opinion of Counsel - LG&E Energy (to be filed by amendment).
G-1.3 Past tense opinion of counsel (to be filed by amendment).
H-1 [Intentionally left available.]
I-1 Annual Report of PowerGen Group dated March 28, 2000 (filed in
paper format on Form SE).
I-2.1 Annual Report on Form 10-K of LG&E Energy for the year ended
December 31, 1999, File No. 1-10568, and incorporated by
reference herein.
I-2.2 Louisville Gas and Electric Company's Annual Report on Form
10-K for the year ended December 31, 1999, File No. 2-26720
and incorporated by reference herein.
I-2.3 Kentucky Utilities Annual Report on Form 10-K for the year
ended December 31, 1999, File No. 1-3464, and incorporated by
reference herein.
J-1 Proposed Form of Notice.
K [Intentionally left available.]
L-1 Appointment of Agent for Service of Process (to be filed by
amendment).
M-1 [Intentionally left available.]
N-1.1 Form of Utility Money Pool Agreement.
N-1.2 Form of Non-Utility Money Pool Agreement.
B. Financial Statements
FS-1 PowerGen System Consolidated Balance Sheet as of January 2,
2000 (included in Exhibit I-1).
FS-2 PowerGen Consolidated Profit and Loss Account as of January 2,
2000 (included in Exhibit I-1).
FS-3 Notes to PowerGen System Consolidated Financial Statements
(included in Exhibit I-1).
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FS-4 LG&E Energy Corp. Consolidated Balance Sheet as of December
31, 1999 (included in Exhibit I-2.1).
FS-5 LG&E Energy Corp. Consolidated Statement of Income for the
twelve months ended December 31, 1999 (included in Exhibit I-
2.1).
FS-6 Notes to LG&E Energy Corp. Consolidated Financial Statements
(included in Exhibit I-2.1).
ITEM 7. INFORMATION AS TO ENVIRONMENTAL EFFECTS
The Merger neither involves a "major federal action" nor "significantly
affects the quality of the human environment" as those terms are used in Section
102(2)(C) of the National Environmental Policy Act, 42 U.S.C. Sec. 4321 et seq.
Consummation of the Merger will not result in changes in the operations of LG&E
Energy and its subsidiaries that would have any impact on the environment. No
federal agency is preparing an environmental impact statement with respect to
this matter.
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SIGNATURE
Pursuant to the requirements of the Public Utility Holding Company Act of
1935, the Applicants have duly caused this Application, File No. ---, to be
signed on their behalf by the undersigned thereunto duly authorized.
The signature of the Applicants and of the persons on their behalf are
restricted to the information contained in this Application which is pertinent
to the Application of the respective companies.
Date: April 26, 2000
_____________________________________
/s/ David Jackson
Secretary and General Counsel
PowerGen plc
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SIGNATURE
Pursuant to the requirements of the Public Utility Holding Company Act of
1935, the Applicants have duly caused this Application, File No. ---, to be
signed on their behalf by the undersigned thereunto duly authorized.
The signature of the Applicants and of the persons on their behalf are
restricted to the information contained in this Application which is pertinent
to the Application of the respective companies.
Date: April 26, 2000
_____________________________________
/s/ John R. McCall
Executive Vice President,
General Counsel and Secretary
LG&E Energy Corp.
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APPENDIX A
Operations of LG&E Capital Corp.
. LG&E Credit Corp. is wholly-owned by LG&E Capital and offers consumer
lending programs and services in the Louisville metropolitan area.
. LG&E International, Inc. ("LG&E International") is wholly-owned by
LG&E Capital, and is a management and holding company for
international energy project investments and operations. LG&E
International's wholly-owned subsidiaries hold interests in overseas
projects and conduct other related businesses.
Through its subsidiaries, LG&E International holds interests in three
Argentine natural gas distribution companies, all of which have
obtained FUCO status under Section 33 of the Act. LG&E International
has a controlling interest in Distribuidora de Gas del Centro
("Centro"), and minority interests in Distribuidora de Gas Cuyana
("Cuyana"), and Gas Natural BAN, S.A. ("Gas BAN"). Together, Centro,
Cuyana, and Gas BAN serve approximately 1.8 million customers in seven
provinces in Argentina.
Through its subsidiaries, LG&E International also owns an interest in
a windpower generating facility in Tarifa, Spain, which has obtained
FUCO status under Section 33 of the Act.
. LG&E Power Inc. ("LG&E Power") is wholly-owned by LG&E Capital and is
a management and holding company for non-regulated subsidiaries. LG&E
Power develops, operates, maintains, and owns domestic power
generation facilities. LG&E Power currently has interests in 8
projects capable of generating approximately 500 MW of power in North
Carolina, Virginia, California, Texas, and Minnesota, and small
interests in three additional facilities in Texas and Washington. Each
of these domestic facilities is either a qualifying cogeneration
facility ("QF") under the Public Utility Regulatory Policies Act of
1978, or an exempt wholesale generator ("EWG") under Section 32 of the
Act.
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In 1998, LG&E Power, through a subsidiary, entered into a partnership
with Columbia Energy Corporation for the development of a natural gas-
fired cogeneration project in Gregory, Texas, which will be capable of
generating 550 MW equivalent of power and steam. Construction on the
project has commenced and completion is projected for the summer of
2000.
In 1999, a subsidiary of LG&E Power entered into a lease wherein it
agreed to lease a facility under construction in Georgia, which will
be capable of generating 450 MW of power. The facility is scheduled to
be completed in June 2001. LG&E Power's wholly-owned subsidiaries also
engage in natural gas storage, transmission, and processing.
In 1999, a subsidiary of LG&E Power entered into a contract to
purchase eight turbines, capable of generating 1,600MW of power. The
facility is scheduled to be completed in June 2003.
. WKE Corp., a holding company, and its subsidiaries are wholly-owned by
LG&E Capital. WKE Corp.'s wholly-owned subsidiary, WKE Station Two
Inc. ("Station Two"), operates and maintains the Station Two
generating facility of the City of Henderson. WKE Corp.'s wholly-owned
subsidiary, Western Kentucky Energy Corp. ("WKEC"), currently enjoys
EWG status under Section 32 of the Act, and leases and operates the
generating facilities owned by Big Rivers Electric Corporation/41/
(three coal-fired plants and one combustion turbine), and sells the
output of those facilities to LG&E Energy Marketing and, potentially,
other affiliates and third-parties.
______________________
/41/ It was determined by the Commission that none of WKE Corp.'s subsidiaries
were public utility companies under the Act by virtue of their operation and
maintenance of the Big Rivers Electric Corporation's generating facilities. See
SEC No-Action Letter (July 13, 1998).
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LG&E Energy is considering reorganization of WKEC, which could change
WKEC's current status as an EWG. The FERC has authorized the
consolidation of WKEC with its subsidiaries and related companies./42/
. CRC -- Evans International, Inc. ("CRC -- Evans") is wholly-owned by
LG&E Capital. CRC - Evans and its related companies provide
specialized equipment and services used in the construction and
rehabilitation of gas and oil transmission pipelines.
_________________
/42/ Western Kentucky Energy Corp., et al., 87 FERC (P) 62,016 (1999).
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APPENDIX B
PART I - EXISTING FINANCING ARRANGEMENTS OF U.S. UTILITY SUBSIDIARIES
LG&E
- ----
Bond Financing:
At 12/31/99
-----------
First Mortgage Bonds (x 000's)
Series due July 1, 2000, 7.5%*.... ................ 20,000
Series due August 15, 2003, 6%..................... 42,600
Pollution control series
P due June 15, 2015, 7.45%......................... 25,000
Q due November 1, 2020, 7.625%..................... 83,335
R due November 1, 2020, 6.55%...................... 41,665
S due September 1, 2017, variable.................. 31,000
T due September 1, 2017, variable.................. 60,000
U due August 15, 2013, variable.................... 35,200
V due August 15, 2019, 5.625%...................... 102,000
W due October 15, 2020, 5.45%...................... 26,000
X due April 15, 2023, 5.90%........................ 40,000
-------
Total first mortgage bonds............................... 506,800
=======
Pollution control bonds (unsecured):
Jefferson County Series due September 1, 2026,
variable......................................... 22,500
Trimble County Series due September 1, 2026,
variable......................................... 27,500
Jefferson County Series due November 1, 2027,
variable......................................... 35,000
Trimble County Series due November 1, 2027,
variable......................................... 35,000
-------
Total unsecured pollution control bonds.................. 120,000
-------
Total LG&E bonds outstanding............................. 626,800
=======
* Redeemed
Capital Stock:
Common Stock, without par value - Authorized: 75,000,000 shares
Outstanding: 21,294,233 shares
Cumulative Preferred Stock:
<TABLE>
<CAPTION>
Shares Current
Outstanding Redemption
----------- ----------
Price
----------------------------------------------------------------------------------------------------
<S> <C> <C>
$25 par value, 1,720,000 shares authorized,
5% series 860,287 $ 28.00
----------------------------------------------------------------------------------------------------
Without par value, 6,750,000 shares authorized
----------------------------------------------------------------------------------------------------
Auction rate 500,000 100.00
----------------------------------------------------------------------------------------------------
5.875% series 250,000 104.70
</TABLE>
Short-Term Financing:
$200 million revolving credit line, expiring November 2001.
Commercial paper program, up to $200 million authorized
-125-
<PAGE>
KU
- --
Bond Financing:
At 12/31/99
-----------
First Mortgage Bonds (x 000's)
Series Q, due June 15, 2000, 5.95%................. 61,500
Series Q, due June 15, 2003, 6.32%................. 62,000
Series S, due January 15, 2006, 5.99%.............. 36,000
Series P, due May 15, 2007, 7.92%.................. 53,000
Series R, due June 1, 2025, 7.55%.................. 50,000
Series P, due May 15, 2027, 8.55%.................. 33,000
Pollution Control Series:
Series 7, due May 1, 2010, 7.375%.................. 4,000
Series 8, due September 15, 2016, 7.45%............ 96,000
Series 1B, due February 1, 2018, 6.25%............. 20,930
Series 2B, due February 1, 2018, 6.25%............. 2,400
Series 3B, due February 1, 2018, 6.25%............. 7,200
Series 4B, due February 1, 2018, 6.25%............. 7,400
Series 7, due May 1, 2020, 7.60%................... 8,900
Series 9, due December 1, 2023, 5.75%.............. 50,000
Series 10, due November 1, 2024, variable.......... 54,000
-------
Total KU bonds outstanding............................... 546,330
=======
Capital Stock:
Common Stock, without par value - Authorized: 80,000,000 shares
Outstanding: 37,817,878 shares
<TABLE>
<CAPTION>
Cumulative Preferred Stock:
------------------------------------------------------------------------------------------------------------
Shares Current
Outstanding Redemption
----------- ----------
Price
------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Without par value, 5,300,000 shares authorized
------------------------------------------------------------------------------------------------------------
4.75% series, $100 stated value 200,000 101.00
------------------------------------------------------------------------------------------------------------
6.53% series, $100 stated value 200,000 Not redeemable
------------------------------------------------------------------------------------------------------------
</TABLE>
Short-Term Financing:
Commercial paper program, inactive.
Uncommitted credit line with Centric Corporation ("Centric"), up to $60
million.
-126-
<PAGE>
PART II - EXISTING FINANCING ARRANGEMENTS OF U.S.
NON-UTILITY SUBSIDIARIES
LG&E Capital Corp.
- ------------------
Long-Term Debt: At 12/31/99
-----------
(x 000's)
Medium term notes, due September 7, 2000, variable............. 50,000
Medium term notes, due May 1, 2004, 6.205%..................... 150,000
Medium term notes, due January 15, 2008, 6.46%................. 150,000
Medium term notes, due November 1, 2011, 5.75%................. 150,000
-------
Total Capital Corp. bonds outstanding.......................... 500,000
=======
Credit Facilities:
$200 million revolving lines of credit, expiring September 2000
$500 million revolving line of credit, expiring September 2002.
$20 million uncommitted letter of credit facility
Commercial paper program, up to $600 million authorized.
CRC-Evans Pipeline International Inc.
- -------------------------------------
At 12/31/99
-----------
(x 000's)
Note payable, due May 2003, 6.75%............................ $ 281
Distribuidora de Gas del Centro
At 12/31/99
-----------
(x 000's)
Argentine negotiable obligations, due August 2001, 10.5%..... $37,782
-127-
<PAGE>
Part III - GUARANTEES
Obligations of LG&E Capital Supported by LG&E Energy under the Support
- ----------------------------------------------------------------------
Agreement:
- ----------
1. Obligations of LG&E Capital on each of its credit facilities, in an
aggregate principal amount of $720 million.
2. Obligations of LG&E Capital in respect of its commercial paper program, in
an authorized principal amount of $600 million.
3. Obligations of LG&E Capital in respect of its medium-term notes
outstanding, in an aggregate principal amount as of March 31, 2000 of $500
million.
4. Obligations of LG&E Capital in respect of a guarantee of lease obligations
of LG&E Power Monroe, LLC. See "Guarantees issued by LG&E Energy and the U.S.
Non-Utility Subsidiaries" below.
5. Obligations of LG&E Capital under various master agreements with certain
counterparties, relating to transactions executed under said master agreements.
No limit is stated.
6. Obligations of LG&E Capital under a guarantee of certain obligations of
LG&E Energy Marketing Inc. under several Purchased Power Agreements relating to
the purchase of 560 MW of power. No limit is stated.
Guarantees issued by LG&E Energy and the U.S. Non-Utility Subsidiaries:
- -----------------------------------------------------------------------
1. LG&E Power and LG&E Capital guarantee certain obligations of LG&E Energy
Marketing. These guarantees are provided in lieu of letters of credit or other
credit enhancements required by counterparties and are provided in order to
minimize the cost of providing the commodity required under the contract. The
guarantees typically have a stated maximum amount, but the actual exposure is
typically only a small percentage of the aggregate maximum stated amount of the
guarantee. The maximum stated amount on such guarantees as of March 31, 2000 was
$461 million. In other cases, no maximum amount is stated. The aggregate
exposure of LG&E Power and LG&E Capital under such guarantees as of March 31,
2000 was approximately $63 million.
2. Guarantee by LG&E Capital of the lease obligations of LG&E Power Monroe,
LLC under an operating lease relating to three combustion turbines and related
facilities to be installed and constructed in Monroe, Georgia. The value of the
assets under lease is expected to be approximately $175 million.
3. Guarantee by LG&E Capital of the obligations of LG&E Power Inc. under a
lease of office space in Irvine, CA in an aggregate amount of less than $5
million.
4. Guarantees by LG&E Capital to provide equity contributions in respect of
the Gregory Project. Each guarantee is unlimited on its face, but the underlying
agreements effectively limit the guaranteed obligations to $42.5 million.
5. Guarantees by LG&E Capital of the obligations of HD/WS Corporation under a
standby ash disposal agreement relating to certain power
-128-
<PAGE>
projects in Franklin, VA, Altavista, VA and Hopewell, VA. There is no stated cap
on the potential liability under these guarantees.
6. Guarantee by LG&E Energy of all obligations of certain of the U.S. Non-
Utility Subsidiaries relating to the lease of the generating assets of Big
Rivers Electric Corporation ("Big Rivers"). The transaction provides the U.S.
Non-Utility Subsidiaries with access to approximately 1,700 megawatts of
capacity and requires that power be supplied to Big Rivers at contractual
prices. The leased assets are expected to be capable of meeting the requirements
of Big Rivers throughout the term of the lease. In addition, the U.S. Non-
Utility Subsidiaries are required to make annual lease payments of $31.5 million
to Big Rivers through July 2023.
7. LG&E Energy has guaranteed all obligations of LG&E Energy Marketing in its
contract with Oglethorpe Power Corporation ("OPC"). Under this contract LG&E
Energy Marketing is required to supply approximately one-half of the system-wide
power needs of OPC at fixed prices and has access to one-half of OPC's
generation capacity. LG&E Energy Marketing has assumed the risk of price
increases for any power it is required to purchase off system and any load
growth under this contract. LG&E Energy has discontinued its merchant energy
trading operation which includes servicing of this contract and has booked
reserves to cover expected future losses from these activities. In July 1998,
LG&E Energy recorded an after-tax loss on disposal of discontinued operations of
$225 million. In December 1999, LG&E Energy increased the size of this reserve
by $175 million based on what it believes to be appropriate estimates of future
energy prices and load growth. There is no guarantee that higher-than-
anticipated future commodity prices or load demands or other factors could not
result in additional losses.
8. Guarantee by LG&E Capital of certain obligations, up to a maximum amount of
$96 million, payable by LG&E Power Development Inc. with respect to a purchase
contract for eight turbines.
-129-
<PAGE>
EXHIBIT A-1
THE COMPANIES ACT 1985
__________________________________
A PUBLIC COMPANY LIMITED BY SHARES
__________________________________
ARTICLES OF ASSOCIATION
of
POWERGEN PLC*
(adopted by a Special Resolution passed on 22 October 1998 and
as amended by a Special Resolution passed on 22 October 1998)
________________________________________
PRELIMINARY
1. The regulations in Table A as in force at the date of the adoption of the
Articles do not apply to the Company.
2(1) In the Articles, unless the subject or context otherwise requires:
the Act means the Companies Act 1985 including any modification or re-
enactment thereof for the time being in force;
the Articles means these articles of association as altered from time to
time by special resolution;
the auditors means the auditors for the time being of the Company;
the board means the directors or any of them acting as the board of
directors of the Company;
certificated share means a share in the capital of the Company that is not
an uncertificated share and references in these Articles to a share being
held in certificated form shall be construed accordingly;
clear days in relation to the period of a notice means that period
excluding the day when the notice is given or deemed to be given and the
day for which it is given or on which it is to take effect;
the Companies Acts means the Companies Acts as defined by section 744 of
the Act and includes any enactment passed after those Acts which may, by
virtue of that or any other such enactment, be cited
________________________
* The name of the Company was changed from POWERGEN 1998 PLC to POWERGEN plc
on 9 December 1998.
Page 1
<PAGE>
together with those Acts as the Companies Acts (with or without the
addition of an indication of the date of any such enactment);
CREST member means a person who has been admitted by CRESTCo Limited as a
system-member;
director means a director of the Company;
dividend means dividend or bonus;
entitled by transmission means, in relation to a share in the capital of
the Company, entitled as a consequence of the death or bankruptcy of the
holder or otherwise by operation of law;
the holder in relation to any share means the member whose name is entered
in the register as the holder of such share;
member means a member of the Company;
the Memorandum means the memorandum of association of the Company as
amended from time to time;
the office means the registered office of the Company;
paid means paid or credited as paid;
PowerGen means PowerGen plc**, registered in England and Wales No. 2366970;
recognised person means a recognised clearing house or a nominee of a
recognised clearing house or of a recognised investment exchange, each of
which terms has the meaning given to it by section 185(4) of the Act;
the Redeemable Shares means the limited-voting redeemable preference shares
of (Pounds)1 each in the capital of the Company;
the register means the register of members of the Company;
the Regulations means the Uncertificated Securities Regulations 1995 (SI
1995 No.95/3272);
the seal means the common seal of the Company and includes any official
seal kept by the Company by virtue of sections 39 or 40 of the Act;
the secretary means the secretary of the Company and includes a joint,
assistant, deputy or temporary secretary and any other person appointed to
perform the duties of the secretary;
______________________________
** The name of the company referred to herein was changed from POWERGEN plc to
POWERGEN UK plc on 9 December 1998.
Page 2
<PAGE>
the Special Share means the special rights non-voting redeemable preference
share of (Pounds)1 in the capital of the Company;
the Special Shareholder means the holder for the time being of the Special
Share;
the Statutes means the Companies Acts and every other statute or
subordinate legislation within the meaning of the Interpretation Act 1978
for the time being in force concerning companies and affecting the Company
(including, without limitation, the Regulations);
The Stock Exchange means the London Stock Exchange Limited;
uncertificated share means a share in the capital of the Company which is
recorded on the register as being held in uncertificated form and title to
which may, by virtue of the Regulations, be transferred by means of a
relevant system and references in these articles to a share being held in
uncertificated form shall be construed accordingly; and
the United Kingdom means Great Britain and Northern Ireland.
(2) References to a document being executed include references to its being
executed under hand or under seal or by any other method.
References to writing include references to any visible substitute for writing
and to anything partly in one form and partly in another form.
Words denoting the singular number include the plural number and vice versa,
words denoting the masculine gender include the feminine gender and words
denoting persons include corporations.
Words or expressions contained in the Articles which are not defined in Article
2(1) bear the same meaning as in the Act (but excluding any statutory
modification thereof not in force at the date of adoption of the Articles)
unless inconsistent with the subject or context.
Words or expressions contained in the Articles which are not defined in Article
2(1) but are defined in the Regulations have the same meaning as in the
Regulations (but excluding any modification of the Regulations not in force at
the date of adoption of these Articles) unless inconsistent with the subject or
context.
Subject to the preceding two paragraphs, references to any provision of any
enactment or of any subordinate legislation (as defined by section 21(1) of the
Interpretation Act 1978) include any modification or re-enactment of that
provision for the time being in force.
Where, in relation to a share, the Articles refer to a relevant system, the
reference is to the relevant system in which that share is a participating
security at the relevant time.
Page 3
<PAGE>
The headings and the first paragraph of Article 48(1) are inserted for
convenience only and do not affect the construction of the Articles.
(3) In these Articles: (a) powers of delegation shall not be restrictively
construed but the widest interpretation shall be given thereto; (b) the word
board in the context of the exercise of any power contained in these Articles
includes any committee consisting of one or more directors, any director holding
executive office and any local or divisional board, manager or agent of the
Company to which or, as the case may be, to whom the power in question has been
delegated; (c) no power of delegation shall be limited by the existence or,
except where expressly provided by the terms of delegation, the exercise of that
or any other power of delegation, and (d) except where expressly provided by the
terms of delegation, the delegation of power shall not exclude the concurrent
exercise of that power by any other body or person who is for the time being
authorised to exercise it under these Articles or under another delegation of
the power.
SHARE CAPITAL
3. The share capital of the Company is (Pounds)525,049,999, divided into
1,050,000,000 ordinary shares of 50p each, 49,998 limited-voting redeemable
preference shares of (Pounds)1 each and one special rights non-voting redeemable
preference share of (Pounds)1.
4.(1) Subject to the provisions of the Companies Acts and without prejudice to
any rights attached to any existing shares or class of shares, any share may be
issued with such rights or restrictions as the Company may by ordinary
resolution determine or, subject to and in default of such determination, as the
board shall determine.
(2) The board may issue share warrants to bearer in respect of any fully paid
shares under a seal of the Company or in any other manner authorised by the
board. Any share while represented by such a warrant shall be transferable by
delivery of the warrant relating to it. In any case in which a warrant is so
issued, the board may provide for the payment of dividends or other moneys on
the shares represented by the warrant by coupons or otherwise. The board may
decide, either generally or in any particular case or cases, that any signature
on a warrant may be applied by mechanical means or printed on it or that the
warrant need not be signed by any person.
(3) The board may determine, and from time to time vary, the conditions on
which share warrants to bearer shall be issued and, in particular, the
conditions on which:
(a) a new warrant or coupon shall be issued in place of one worn-out, defaced,
lost or destroyed (but no new warrant shall be issued unless
Page 4
<PAGE>
the Company is satisfied beyond reasonable doubt that the original has been
destroyed); or
(b) the bearer shall be entitled to attend and vote at general meetings; or
(c) a warrant may be surrendered and the name of the bearer entered in the
register in respect of the shares specified in the warrant.
The bearer of such a warrant shall be subject to the conditions for the time
being in force in relation to the warrant, whether made before or after the
issue of the warrant. Subject to those conditions and to the provisions of the
Companies Acts, the bearer shall be deemed to be a member of the Company and
shall have the same rights and privileges as he would have if his name had been
included in the register as the holder of the shares comprised in the warrant.
(4) The Company shall not be bound by or be compelled in any way to recognise
any right in respect of the share represented by a share warrant other than the
bearer's absolute right to the warrant.
5.(1) Subject to the provisions of the Regulations, the board may permit the
holding of shares in any class of shares in uncertificated form and the transfer
of title to shares in that class by means of a relevant system and may determine
that any class of shares shall cease to be a participating security.
(2) Shares in the capital of the Company that fall within a certain class shall
not form a separate class of shares from other shares in that class because any
share in that class:
(a) is held in uncertificated form; or
(b) is permitted in accordance with the Regulations to become a participating
security.
(3) Where any class of shares is a participating security and the Company is
entitled under any provision of the Companies Acts, the Regulations or the
Articles to sell, transfer or otherwise dispose of, forfeit, re-allot, accept
the surrender of or otherwise enforce a lien over a share held in uncertificated
form, the Company shall be entitled, subject to the provisions of the Companies
Acts, the Regulations, the Articles and the facilities and requirements of the
relevant system:
(a) to require the holder of that uncertificated share by notice to change that
share into certificated form within the period specified in the notice and
to hold that share in certificated form so long as required by the Company;
Page 5
<PAGE>
(b) to require the holder of that uncertificated share by notice to give any
instructions necessary to transfer title to that share by means of the
relevant system within the period specified in the notice;
(c) to require the holder of that uncertificated share by notice to appoint
any person to take any step, including without limitation the giving of
any instructions by means of the relevant system, necessary to transfer
that share within the period specified in the notice; and
(d) to take any action that the board considers appropriate to achieve the
sale, transfer, disposal, forfeiture, re-allotment or surrender of that
share or otherwise to enforce a lien in respect of that share.
6. Subject to the provisions of the Companies Acts relating to authority,
pre-emption rights or otherwise and of any resolution of the Company in general
meeting passed pursuant to those provisions, all unissued shares for the time
being in the capital of the Company shall be at the disposal of the board, and
the board may (subject as aforesaid) allot (with or without conferring a right
of renunciation), grant options over, or otherwise dispose of them to such
persons, on such terms and conditions, and at such times as it thinks fit. This
power shall not apply to redeemable shares, which shall be governed by the
provisions of Article 7.
7. Subject to the provisions of the Companies Acts and without prejudice to
any rights attaching to any existing shares or class of shares, shares may be
issued which are to be redeemed or are to be liable to be redeemed at the option
of the Company or the holder on such terms and in such manner as may be provided
by the Articles.
8. The Company may exercise all powers of paying commissions or brokerage
conferred or permitted by the Companies Acts. Subject to the provisions of the
Companies Acts, any such commission or brokerage may be satisfied by the payment
of cash or by the allotment of fully or partly paid shares or partly in one way
and partly in the other.
9. Except as required by law, no person shall be recognised by the Company
as holding any share upon any trust and (except as otherwise provided by the
Articles or by law) the Company shall not be bound by or recognise any interest
in any share (or in any fractional part of a share) except the holder's absolute
right to the entirety of the share (or fractional part).
VARIATION OF RIGHTS
10.(1) Subject to the provisions of the Companies Acts, if at any time the
capital of the Company is divided into different classes of shares, the rights
attached to any class may (unless otherwise provided by the terms of issue of
Page 6
<PAGE>
the shares of that class) be varied or abrogated, whether or not the Company is
being wound up, either with the consent in writing of the holders of three-
quarters in nominal value of the issued shares of the class or with the sanction
of an extraordinary resolution passed at a separate general meeting of the
holders of the shares of the class (but not otherwise). All the provisions of
the Articles relating to general meetings of the Company shall, mutatis
mutandis, apply to every such separate meeting, except that:-
(a) the necessary quorum shall be two persons holding or representing by proxy
at least one-third in nominal value of the issued shares of the class or,
at any adjourned meeting of such holders, one holder present in person or
by proxy, whatever the amount of his holding, who shall be deemed to
constitute a meeting; and
(b) any holder of shares of the class present in person or by proxy may demand
a poll; and
(c) the holders of shares of the class shall, on a poll, have one vote in
respect of every share of the class held by them respectively.
(2) For the purposes of this Article 10, if at any time the capital of the
Company is divided into different classes of shares, unless otherwise expressly
provided by the rights attached to any share or class of shares, those rights
shall be deemed to be varied by:
(a) the reduction of the capital paid up on that share or class of shares
otherwise than by a purchase or redemption by the Company of its own
shares; and
(b) the allotment of another share ranking in priority for payment of a
dividend or in respect of capital or which confers on its holder voting
rights more favourable than those conferred by that share or class of
shares,
but shall not be deemed to be varied by:
(c) the creation or issue of another share ranking equally with, or subsequent
to, that share or class of shares or by the purchase or redemption by the
Company of its own shares; or
(d) the Company permitting, in accordance with the Regulations, the holding of
and transfer of title to shares of that or any other class in
uncertificated form by means of a relevant system.
REDEEMABLE SHARES
11.(1) The Redeemable Shares shall have the rights set out in this Article 11.
Page 7
<PAGE>
(2) The holders of the Redeemable Shares shall not be entitled to receive or
participate in any of the profits of the Company available for distribution by
way of dividend or otherwise.
(3) On a winding-up or other return of capital, the holders of the Redeemable
Shares shall be entitled, in priority to any holder of any other class of shares
in the Company (other than the Special Share), to receive in full the amounts
paid up on such shares from the assets of the Company available for distribution
among the members.
(4)(a) Subject to the provisions of the Companies Acts, the Company may redeem
the Redeemable Shares at any time by giving the holders of the Redeemable
Shares to be redeemed notice in writing of the date (the Redemption Date)
when such redemption is to be effective.
(b) Any notice given under paragraph (a) of this Article 11(4) shall specify
the number of shares to be redeemed, the Redemption Date and the place at
which the certificates for such Redeemable Shares are to be presented for
redemption. Upon the Redemption Date, the Company shall redeem the
Redeemable Shares on that date and the holder of the Redeemable Shares
shall be bound to deliver to the Company at such place the certificates
for such Redeemable Shares held by him. Upon such delivery the Company
shall pay to the holder in full the amounts paid up on such shares.
(5) The holders of the Redeemable Shares shall not be entitled to receive
notice of or to attend or vote at any general meeting of the Company in
respect of their holding of Redeemable Shares save that if a resolution
is to be proposed:
(a) to wind up the Company; or
(b) which varies, modifies, alters or abrogates any of the rights attaching
to the Redeemable Shares,
the holders of the Redeemable Shares shall have the right to attend such a
meeting and to speak and vote only on such resolution or any motion for
adjournment of the meeting before such resolution is voted on.
THE SPECIAL SHARE
12.(1) The Special Share may only be issued to, held by and transferred to one
of Her Majesty's Secretaries of State, another Minister of the Crown, the
Solicitor for the affairs of Her Majesty's Treasury or any other person
acting on behalf of the Crown.
(2) Notwithstanding any provision in the Articles to the contrary, each of
the following matters shall be deemed to be a variation of the rights
Page 8
<PAGE>
attaching to the Special Share and shall accordingly be effective only
with the consent in writing of the Special Shareholder and without such
consent shall not be done or caused to be done:-
(a) the amendment or removal or the alteration of the effect of (which, for
the avoidance of doubt, shall be taken to include the ratification of any
breach of) all or any of the following:-
(i) in Article 2(1), the definitions of the Special Share and the
Special Shareholder;
(ii) this Article;
(iii) Article 48; and
(iv) Article 77(6).
(b) the creation or issue of any shares in the Company with voting rights
attached, not being:-
(i) shares comprised (or shares which would, following issue, be
comprised) in the Relevant Share Capital (as defined in Article 48)
of the Company; or
(ii) shares which do not (or shares which, following issue, would not)
constitute equity share capital (as defined in section 744 of the
Act) and which, when aggregated with all other such shares, carry
(or would, if in issue, carry) the right to cast less than 15 per
cent. of the maximum number of votes capable of being cast on a
poll on any resolution at any general meeting of the Company
(whether or not the votes could be cast on a poll in relation to
all resolutions at all general meetings);
(c) the variation of any voting rights attached to any shares in the Company
(and, for the avoidance of doubt, the creation or issue of shares falling
within sub-paragraph (b)(i) or (ii) above shall not be regarded as a
variation for the purposes of this sub-paragraph);
(d) the giving by the Company of any consent or agreement to (including,
without limitation, the casting of any vote in favour of) any amendment,
removal or alteration of the effect of Article 11 of the Articles of
Association of PowerGen as such Article is altered pursuant to a special
resolution passed at the extraordinary general meeting of PowerGen
convened for or about 20 November 1998 or at any adjournment thereof;
(e) the giving by the Company of any consent or agreement to (including,
without limitation, the casting of any vote in favour of) the creation or
issue of any shares in the capital of PowerGen other than an issue of
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<PAGE>
such shares following which the Company will own the full legal and
beneficial interest in, and control, shares in the capital of PowerGen
carrying at least 85 per cent. of the voting rights exercisable at
general meetings of PowerGen;
(f) the disposal by the Company of any of the shares in PowerGen held by it
or of any rights or interests therein or the entering into by the Company
of any agreement or arrangement with respect to, or to the exercise of
any voting or other rights attaching to, such shares such that the
Company would cease to own the full legal and beneficial interest in, and
control, shares in the capital of PowerGen carrying at least 85 per cent.
of the voting rights exercisable at general meetings of PowerGen. For the
purposes of this paragraph, disposal shall include any sale, gift, lease,
licence, loan, mortgage, charge or the grant of any other encumbrance or
the permitting of any encumbrance to subsist (other than a floating
charge over the whole of the Company's assets), or any other disposition
to a third party;
(g) the giving by the Company of any consent or agreement to (including,
without limitation, the casting of any vote in favour of) any abrogation,
variation, waiver or modification of any of the rights or privileges
attaching to any shares of any class in PowerGen such that the Company
would cease to own the full legal and beneficial interest in, and
control, shares in the capital of PowerGen carrying at least 85 per cent.
of the voting rights exercisable at general meetings of PowerGen; and
(h) without limitation to any of the foregoing, any act or omission to act by
the Company or the directors which results in the Company ceasing to own
the full legal and beneficial interest in, and control, shares in the
capital of PowerGen carrying at least 85 per cent. of the voting rights
exercisable at general meetings of PowerGen.
(3) The Special Shareholder shall be entitled to receive notice of, and to
attend and speak at, any general meeting or any separate meeting of the holders
of any class of shares, but the Special Share shall carry no right to vote nor
any other rights at any such meeting.
(4) In a distribution of capital in a winding up of the Company, the Special
Shareholder shall be entitled to repayment of the capital paid on the Special
Share in priority to any repayment of capital to any other member. The Special
Share shall confer no other right to participate in the capital, and no right to
participate in the profits, of the Company.
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(5) The Special Shareholder may, after consulting the Company and subject to
the provisions of the Act, require the Company to redeem the Special Share at
par at any time by giving notice to the Company and delivering to it the
relevant share certificate. Upon redemption of the Special Share the provisions
of this Article shall cease to have effect.
SHARE CERTIFICATES
13.(a) Unless otherwise determined by the directors and permitted by the
Regulations, the Company shall not issue and no person shall be entitled
to receive a certificate in respect of any share at any time and for so
long as the title to that share is evidenced otherwise than by a
certificate and transfers may be made otherwise than by a written
instrument by virtue of the Regulations. The directors shall have power
to implement any arrangements they may, in their absolute discretion,
think fit in relation to the evidencing and transfer of uncertificated
shares (subject always to the Regulations and the facilities and
requirements of the relevant system concerned).
(b) Conversion of certificated shares into uncertificated shares, and vice
versa, may be made in such manner as the directors may, in their absolute
discretion, think fit (subject always to the Regulations and the
facilities and requirements of the relevant system concerned).
(c) The Company shall enter on the register of members how many shares are
held by each member in uncertificated form and in certificated form and
shall maintain the register in each case as is required by the
Regulations and the relevant system concerned.
(d) Notwithstanding any provision of the Articles, a class of share shall not
be treated as two classes by virtue only of that class comprising both
certificated shares and uncertificated shares or as a result of any
provision of the Articles or the Regulations which apply only in respect
of certificated or uncertificated shares.
(e) For the avoidance of doubt, the provisions of Articles 13(f) to (h)
inclusive and 14 shall not apply to uncertificated shares.
(f) Every member (subject as otherwise provided in the Articles), upon
becoming the holder of any certificated shares (except a recognised
person in respect of whom the Company is not required by law to complete
and have ready for delivery a certificate) shall be entitled, without
payment, to one certificate for all the certificated shares of each class
held by him (and, upon transferring a part of his holding of certificated
shares of any class, to a certificate for the balance of such holding)
or, with the consent of the board, several certificates each for
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one or more of his certificated shares upon payment for every certificate
of such reasonable sum as the board may determine.
(g) Every share certificate shall be sealed with the seal or executed by the
Company in accordance with Article 135(3) or in such other manner as the
board may approve and shall specify the number, class and distinguishing
numbers (if any) of the shares to which it relates and the amount or
respective amounts paid up thereon. No certificate shall be issued
representing certificated shares of more than one class.
(h) The Company shall not be bound to issue more than one certificate for
certificated shares held jointly by several persons and delivery of a
certificate to one joint holder shall be sufficient delivery to all of
them. Shares of different classes may not be included in the same
certificate.
14. If a share certificate is defaced, worn out, lost or destroyed, it may be
renewed on such terms (if any) as to evidence and indemnity (with or without
security) and payment of any exceptional out of pocket expenses reasonably
incurred by the Company in investigating evidence and preparing the requisite
form of indemnity as the board may determine but otherwise free of charge, and
(in the case of defacement or wearing out) on delivery up of the old
certificate.
LIEN
15. The Company shall have a first and paramount lien on every share (not
being a fully paid share) for all moneys (whether presently payable or not)
payable at a fixed time or called in respect of that share. The board may at any
time (generally or in particular cases) waive any lien or declare any share to
be wholly or in part exempt from the provisions of this Article. The Company's
lien on a share shall extend to any amount (including, without limitation,
dividends) payable in respect of it.
16. The Company may sell, in such manner as the board determines, any share
on which the Company has a lien if a sum in respect of which the lien exists is
presently payable and is not paid within fourteen clear days after notice has
been given to the holder of the share or to the person entitled to it by
transmission, demanding payment and stating that if the notice is not complied
with the shares may be sold.
17. To give effect to any such sale the board may, if the share is a
certificated share, authorise any person to execute an instrument of transfer of
the share sold to, or in accordance with the directions of, the transferee. If
the share is an uncertificated share, the board may exercise any of the
Company's powers under Article 5(3) to effect the sale of the share to, or in
accordance with the directions of, the transferee. The transferee shall not be
bound to see to the application of the purchase money nor shall his title to the
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shares be affected by any irregularity in or invalidity of the proceedings in
relation to the sale.
18. The net proceeds of the sale, after payment of the costs, shall be
applied in or towards payment or satisfaction of so much of the sum in respect
of which the lien exists as is presently payable, and any residue shall (if the
share sold is a certificated share, on surrender to the Company for cancellation
of the certificate in respect of the share sold and, whether the share sold is a
certificated or uncertificated share, subject to a like lien for any moneys not
presently payable as existed on the share before the sale) be paid to the person
entitled to the shares at the date of the sale.
CALLS ON SHARES
19. Subject to the terms of allotment, the board may from time to time make
calls upon the members in respect of any moneys unpaid on their shares (whether
in respect of nominal value or premium) and each member shall (subject to
receiving at least fourteen clear days' notice specifying when and where payment
is to be made) pay to the Company as required by the notice the amount called on
his shares. A call may be required to be paid by instalments. A call may be
revoked in whole or part and the time fixed for payment of a call may be
postponed in whole or part as the board may determine. A person upon whom a call
is made shall remain liable for calls made upon him notwithstanding the
subsequent transfer of the shares in respect whereof the call was made.
20. A call shall be deemed to have been made at the time when the resolution
of the board authorising the call was passed.
21. The joint holders of a share shall be jointly and severally liable to pay
all calls in respect thereof.
22. If a call or any instalment of a call remains unpaid in whole or in part
after it has become due and payable the person from whom it is due and payable
shall pay interest on the amount unpaid from the day it became due and payable
until it is paid at the rate fixed by the terms of allotment of the share or in
the notice of the call or, if no rate is fixed, such rate, not exceeding 15 per
cent. per annum, or, if higher, the appropriate rate (as defined by the Act), as
may be determined by the board, but the board may, in respect of any individual
member, waive payment of such interest wholly or in part.
23. An amount payable in respect of a share on allotment or at any fixed
date, whether in respect of nominal value or premium or as an instalment of a
call, shall be deemed to be a call duly made and notified and payable on the
date so fixed or in accordance with the terms of the allotment, and if it is not
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paid the provisions of the Articles shall apply as if that amount had become due
and payable by virtue of a call duly made and notified.
24. Subject to the terms of allotment, the board may make arrangements on the
issue of shares for a difference between the allottees or holders in the amounts
and times of payment of calls on their shares.
25. The board may, if it thinks fit, receive from any member willing to
advance the same all or any part of the moneys uncalled and unpaid upon any
shares held by him. Such payment in advance of calls shall extinguish the
liability on the share in respect of which it is made to the extent of the
payment. The Company may pay upon all or any of the moneys so advanced (until
they would but for such advance become presently payable) interest at such rate
agreed between the board and the member not exceeding (unless the Company by
ordinary resolution otherwise directs) 15 per cent. per annum or, if higher, the
appropriate rate (as defined in the Act).
FORFEITURE AND SURRENDER
26. If a call or any instalment of a call remains unpaid in whole or in part
after it has become due and payable, the board may give to the person from whom
it is due not less than fourteen clear days' notice requiring payment of the
amount unpaid together with any interest which may have accrued and any costs,
charges and expenses incurred by the Company by reason of such non-payment. The
notice shall name the place where payment is to be made and shall state that if
the notice is not complied with the shares in respect of which the call was made
will be liable to be forfeited.
27. If any such notice is not complied with, any share in respect of which it
was given may, at any time before the payment required by the notice has been
made, be forfeited by a resolution of the board and the forfeiture shall include
all dividends or other moneys payable in respect of the forfeited share and not
paid before the forfeiture. When any share has been forfeited, notice of the
forfeiture shall be served upon the person who was before the forfeiture the
holder of the share, but no forfeiture shall be invalidated by any omission or
neglect to give the notice.
28. Subject to the provisions of the Companies Acts, a forfeited share shall
be deemed to belong to the Company and may be sold, re-allotted or otherwise
disposed of on such terms and in such manner as the board determines, either to
the person who was before the forfeiture the holder or to any other person and
at any time before sale, re-allotment or other disposal, the forfeiture may be
cancelled on such terms as the board thinks fit. Where for the purposes of its
disposal a forfeited share held in certificated form is to be transferred to any
person, the board may authorise any person to execute an instrument of transfer
of the share to that person. Where for the purposes of its disposal a forfeited
share held in uncertificated
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form is to be transferred to any person, the board may exercise any of the
Company's powers under Article 5(3). The Company may receive the consideration
given for the share on its disposal and may register the transferee as holder of
the share.
29. A person any of whose shares have been forfeited shall cease to be a
member in respect of them and shall, if the share is a certificated share,
surrender to the Company for cancellation the certificate for the shares
forfeited. The person shall remain liable to the Company for all moneys which at
the date of forfeiture were presently payable by him to the Company in respect
of those shares with interest thereon at the rate at which interest was payable
on those moneys before the forfeiture or, if no interest was so payable, at the
rate of 15 per cent. per annum or, if higher, the appropriate rate (as defined
in the Act) (or such lower rate as the board may determine) from the date of
forfeiture until payment, but the board may waive payment wholly or in part or
enforce payment without any allowance for the value of the shares at the time of
forfeiture or for any consideration received on their disposal.
30. The board may accept the surrender of any share which it is in a position
to forfeit upon such terms and conditions as may be agreed and, subject to any
such terms and conditions, a surrendered share shall be treated as if it had
been forfeited.
31. The forfeiture of a share shall involve the extinction at the time of
forfeiture of all interest in and all claims and demands against the Company in
respect of the share and all other rights and liabilities incidental to the
share as between the person whose share is forfeited and the Company, except
only those rights and liabilities expressly saved by the Articles, or as are
given or imposed in the case of past members by the Companies Acts.
32. A statutory declaration by a director or the secretary that a share has
been duly forfeited or surrendered on a specified date shall be conclusive
evidence of the facts stated in it as against all persons claiming to be
entitled to the share and the declaration shall (subject to the execution of an
instrument of transfer or transfer by means of the relevant system, as the case
may be) constitute a good title to the share and the person to whom the share is
disposed of shall not be bound to see to the application of the purchase money,
if any, nor shall his title to the share be affected by any irregularity in or
invalidity of, the proceedings in reference to the forfeiture, surrender, sale,
re-allotment or disposal of the share.
TRANSFER OF SHARES
33.(a) All transfers of uncertificated shares shall be made in accordance with
and be subject to the Regulations and the facilities and requirements of
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the relevant system concerned and, subject thereto, in accordance with
any arrangements made by the directors pursuant to Article 13(a).
(b) The instrument of transfer of a certificated share may be in any usual
form or in any other form which the board may approve and shall be
executed by or on behalf of the transferor and, unless the share is fully
paid, by or on behalf of the transferee. An instrument of transfer need
not be under seal.
(c) In relation to all transfers, the transferor shall remain the holder of
the shares concerned until the name of the transferee is entered in the
register of members in respect of them.
34.(1) The registration of transfers may be suspended (to the extent the same is
consistent with the Statutes) at such times and for such periods (not exceeding
thirty days in any year) as the board may from time to time determine and either
generally or in respect of any class of shares or otherwise as may be consistent
with the Statutes, provided that the board may not suspend the registration of
transfers of any participating security without the consent of the operator of
the relevant system concerned.
(2) The board may refuse to register a transfer of any shares (whether
certificated or not and whether fully paid or not):
(a) to an entity which is not a natural or legal person;
(b) to a minor; or
(c) to be held jointly by more than four persons.
The board may also refuse to register a transfer of uncertificated shares in
such other circumstances (if any) as may be permitted by the Regulations and the
requirements of the relevant system concerned.
35. The board may refuse to register the transfer of a certificated share
unless the instrument of transfer:
(a) is lodged, duly stamped (if stampable), at the office or at such other
place as the board may appoint accompanied by the certificate for the
shares to which it relates and such other evidence as the board may
reasonably require to show the right of the transferor to make the
transfer;
(b) is in respect of only one class of shares; and
(c) is in favour of not more than four transferees jointly.
In the case of a transfer of a certificated share by a recognised person, the
lodgement of share certificates will only be necessary if and to the extent that
certificates have been issued in respect of the shares in question.
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36. The board may, in its absolute discretion and without giving any reason,
refuse to register the transfer of a certificated share which is not fully paid,
provided that the refusal does not prevent dealings in shares in the Company
from taking place on an open and proper basis.
37. If the board refuses to register a transfer, it shall send to the
transferee notice of the refusal within 14 days after the date on which, in
respect of certificated shares, the transfer was lodged with the Company at the
transfer office or, in respect of uncertificated shares, the date on which the
operator instruction was received by the Company or by a sponsoring system
participator acting on its behalf.
38. No fee will be charged by the Company in respect of the registration of
any instrument of transfer or other document or instruction relating to or
affecting the title to any share.
39. The Company shall be entitled to retain any instrument of transfer which
is registered, but any instrument of transfer which the board refuses to
register shall be returned to the person lodging it when notice of the refusal
is given.
TRANSMISSION OF SHARES
40. If a member dies the survivor or survivors where he was a joint holder,
and his personal representatives where he was a sole holder or the only survivor
of joint holders, shall be the only persons recognised by the Company as having
any title to his interest; but nothing in the Articles shall release the estate
of a deceased member (whether a sole or joint holder) from any liability in
respect of any share held by him.
41.(1) A person becoming entitled by transmission to a share may, upon such
evidence being produced as the board may properly require as to his entitlement,
elect either to become the holder of the share or to have some person nominated
by him registered as the transferee. If he elects to become the holder he shall
give notice to the Company to that effect. If he elects to have another person
registered and the share is a certificated share, he shall execute an instrument
of transfer of the share to that person. If he elects to have himself or
another person registered and the share is an uncertificated share, he shall
take any action the board may require (including without limitation the
execution of any document and the giving of any instruction by means of a
relevant system) to enable himself or that person to be registered as the holder
of the share. All the provisions of the Articles relating to the transfer of
shares shall apply to any such notice or instrument of transfer as if it were an
instrument of transfer executed by the member and the death or bankruptcy of the
member or other event giving rise to the transmission had not occurred.
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(2) The board may at any time give notice requiring any such person to elect
either to be registered himself or to transfer the share and if the notice is
not complied with within sixty days the board may thereafter withhold payment of
all dividends or other moneys payable in respect of the share until the
requirements of the notice have been complied with.
42. A person becoming entitled by transmission to a share shall, upon such
evidence being produced as the board may properly require as to his entitlement
and subject to the requirements of Article 41, have the same rights in relation
to the share as he would have had if he were the holder of the share, and may
give a discharge for all dividends and other moneys payable in respect of the
share, but he shall not, before being registered as the holder of the share, be
entitled in respect of it to receive notice of or to attend or vote at any
meeting of the Company or to receive notice of or to attend or vote at any
separate meeting of the holders of any class of shares in the Company.
ALTERATION OF SHARE CAPITAL
43. The Company may by ordinary resolution:
(a) increase its share capital by such sum to be divided into shares of such
amount as the resolution prescribes;
(b) consolidate and divide all or any of its share capital into shares of
larger amount than its existing shares;
(c) subject to the provisions of the Companies Acts, sub-divide its shares,
or any of them, into shares of smaller amount than is fixed by the
Memorandum and the resolution may determine that, as between the shares
resulting from the sub-division, any of them may have any preference or
advantage as compared with the others; and
(d) cancel shares which, at the date of the passing of the resolution, have
not been taken or agreed to be taken by any person and diminish the
amount of its share capital by the amount of the shares so cancelled.
44. All shares created by ordinary resolution pursuant to Article 43 shall
be:
(a) subject to all the provisions of the Articles including, without
limitation, provisions relating to payment of calls, lien, forfeiture,
transfer and transmission; and
(b) unclassified, unless otherwise provided by the Articles, by the
resolution creating the shares or by the terms of allotment of the
shares.
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45. Whenever as a result of a consolidation or division of shares any
difficulty arises, the board may settle the matter in any manner it deems fit
and, in particular, may sell shares representing fractions to which any members
would become entitled to any person (including, subject to the provisions of the
Companies Acts, the Company) and distribute the net proceeds of sale in due
proportion among those members (except that any amount due to a member, being
less than (Pounds)2.50 or such other amount as the board may from time to time
determine, may be retained for the benefit of the Company). Without limiting the
generality of the foregoing, for the purposes of effecting any such sale, the
Directors may allot shares representing fractions to which any members would
otherwise become entitled to any person and, in respect of certificated shares,
authorise some person to execute a transfer of the shares sold or, in respect of
uncertificated shares, authorise any person to transfer such shares, in
accordance with the facilities and requirements of the relevant system
concerned, in each case to, or in accordance with the directions of, the
purchaser. Where the shares to be sold are held in uncertificated form, the
board may do all acts and things it considers necessary or expedient to effect
the transfer of the shares to, or in accordance with the directions of, the
purchaser. The transferee shall not be bound to see to the application of the
purchase money nor shall his title to the shares be affected by any irregularity
in or invalidity of the proceedings in reference to the sale. For the purposes
of this Article, any shares representing fractional entitlements to which any
member would, but for this Article, become entitled may be issued in
certificated form or uncertificated form.
46. Subject to the provisions of the Companies Acts, the Company may by
special resolution reduce its share capital, any capital redemption reserve and
any share premium account in any way.
PURCHASE OF OWN SHARES
47. Subject to and in accordance with the provisions of the Companies Acts
and without prejudice to any relevant special rights attached to any class of
shares, the Company may purchase any of its own shares of any class (including,
without limitation, redeemable shares) in any way and at any price (whether at
par or above or below par), and so that any shares to be so purchased may be
selected in any manner whatsoever. Every contract for the purchase of, or under
which the Company may become entitled or obliged to purchase, shares in the
Company shall be authorised by such resolution of the Company as may be required
by the Act and by an extraordinary resolution passed at a separate general
meeting of the holders of each class of shares (if any) which at the date on
which the contract is authorised by the Company in general meeting entitle them,
either immediately or at any time later on, to convert all or any of the shares
of that class held by them into equity share capital of the Company.
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LIMITATIONS ON SHAREHOLDINGS
48.(1) The purpose of this Article is to prevent, until the date of redemption
of the Special Share pursuant to Article 12(5), any person (other than a
Permitted Person) directly or indirectly owning or controlling the right to cast
on a poll 15 per cent. or more of the votes at general meetings of the Company.
This Article shall remain in force until the date of redemption of the Special
Share pursuant to Article 12(5) notwithstanding any provision in the Articles to
the contrary. Thereafter this Article shall be and shall be deemed to be of no
effect (save to the extent that the provisions of this Article are referred to
in other Articles), the separate register required under paragraph (3) of this
Article shall no longer be required to be maintained by the Company and any
notice by the Company calling for a Required Disposal (whether given before or
after the date of redemption of the Special Share) and the powers of the
Directors under this Article in respect of a Required Disposal shall cease to
have effect; but the validity of anything done under this Article before that
date shall not otherwise be affected and any actions taken under this Article
before that date shall be conclusive and shall not be open to challenge on any
grounds whatsoever.
(2) In this Article:-
(a) ADR Depositary means a custodian or depositary or a nominee thereof,
approved by the directors, under contractual arrangements with the
Company by which it or that nominee holds shares in the Company and
issues American Depositary Receipts evidencing rights in relation to
those shares or a right to receive them;
(b) Additional Interest means any such interest as is referred to in
paragraph (f)(ii) below;
(c) Holder means a person who has an interest in shares of the Company
evidenced by American Depositary Receipts as are referred to in paragraph
(a) above;
(d) interest, in relation to shares, means:-
(i) any interest which would be taken into account in determining for
the purposes of Part VI of the Original Act whether a person has a
notifiable interest (including any interest which he would be taken
as having for those purposes); and
(ii) any interest (an Additional Interest) mentioned in section
209(1)(a), (b), (d) or (e) of the Original Act (except that of a
bare or custodian trustee under the laws of England and Wales and
of a simple trustee under the laws of Scotland) or mentioned in
section 208(4)(b) of the Original Act (but on the basis that the
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entitlement there referred to could arise under an agreement within
the meaning in section 204(5) and (6) of that Act),
and interested shall be construed accordingly;
(e) the Original Act means the Companies Act 1985 as in force at the date of
adoption of this Article and, notwithstanding any repeal, modification or
re-enactment thereof after that date (including for the avoidance of doubt,
any amendment, replacement or repeal by regulations made by the Secretary
of State pursuant to section 210A of that Act to the definition of relevant
share capital in section 198(2) or to the provisions as to what is taken to
be an interest in shares in section 208 or as to what interests are to be
disregarded in section 209 or the percentage giving rise to a notifiable
interest in section 199(2));
(f) Permitted Person means:-
(i) an ADR Depositary, acting in his capacity as such;
(ii) a recognised person, acting in its capacity as such;
(iii) the chairman of a meeting of the Company or of a meeting of the
holders of Relevant Share Capital or of any class thereof when
exercising the voting rights conferred on him under paragraph (8)
below;
(iv) a trustee (acting in that capacity) of any employees' share scheme
of the Company;
(v) the Crown or one of Her Majesty's Secretaries of State, another
Minister of the Crown, the Solicitor for the affairs of Her
Majesty's Treasury and any other person acting on behalf of the
Crown;
(vi) any person who has an interest but who, if the incidents of his
interest were governed by the laws of England and Wales, would in
the opinion of the directors be regarded as a bare trustee of that
interest in respect of that interest only;
(vii) an underwriter in respect of interests in shares which exist only
by virtue of a contingent obligation to purchase or subscribe for
such shares pursuant to underwriting or sub-underwriting
arrangements approved by the directors or, for a period of three
months, in respect of interests in shares purchased or subscribed
for by it pursuant to such an obligation;
(viii) any other person who (under arrangements approved by the directors)
subscribes or otherwise acquires Relevant Share Capital (or
interests therein) which has been allotted or issued
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with a view to that person (or purchasers from that person)
offering the same to the public, for a period not exceeding three
months from the date of the relevant allotment or issue (and in
respect only of the shares so subscribed or otherwise acquired);
(ix) Japan Securities Clearing Corporation and/or its nominee acting in
its capacity as a clearing house in respect of dealings on the
Tokyo Stock Exchange;
(x) Depositary Trust Company and/or its nominee acting in the capacity
of a clearing agency in respect of dealings in American Depositary
Receipts;
(xii) any person who has an interest, and who shows to the satisfaction
of the directors that he has it, by virtue only either of being
entitled to exercise or control the exercise (within the meaning of
section 203(4) of the Original Act) of one-third or more of the
voting power at general meetings of a company which is a Permitted
Person within (i) to (xi) above or of that company or its directors
being accustomed to act in accordance with that person's directions
or instructions; or
(xiii) a CREST member acting as trustee of shares in respect of which no
other person (other than a Permitted Person) is or becomes a
Relevant Person (including, without limitation, by virtue of being
deemed to be one);
(i) Relevant Person means any person (whether or not identified) who has, or
who appears to the directors to have, an interest in shares which carry the
right to cast 15 per cent. or more of the total votes attaching to Relevant
Share Capital of all classes (taken as a whole) and capable of being cast
on a poll, or who is deemed for the purposes of this Article to be a
Relevant Person;
(j) Relevant Share Capital means the relevant share capital (as defined in
section 198(2) of the Original Act) of the Company;
(k) Relevant Shares means all shares comprised in the Relevant Share Capital in
which a Relevant Person has, or appears to the directors to have, an
interest or which are deemed for the purposes of this Article to be
Relevant Shares; and
(l) Required Disposal means a disposal or disposals of such a number of
Relevant Shares or interests therein as will cause a Relevant Person to
cease to be a Relevant Person, not being a disposal to another Relevant
Person (other than a Permitted Person) or a disposal which constitutes any
other person (other than a Permitted Person) a Relevant Person;
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and, for the purposes of this Article, where the directors resolve that they
have made reasonable enquiries and that they are unable to determine:-
(aa) whether or not a particular person has an interest in any particular
shares comprised in Relevant Share Capital; or
(bb) who is interested in any particular shares so comprised,
the shares concerned shall be deemed to be Relevant Shares and all persons
interested in them to be Relevant Persons.
(3) Subject to paragraphs (4), (14), (15) and (16) below and without prejudice
to Article 77, the provisions of Part VI of the Original Act shall apply in
relation to the Company as if those provisions extended to Additional Interests
and accordingly the rights and obligations arising under that Part shall apply
in relation to the Company, its members and all persons interested in Relevant
Share Capital, as extended by this paragraph; but so that Additional Interests
shall, when disclosed to the Company, be entered in a separate register kept by
the Company for that purpose. The rights and obligations created by this
paragraph in respect of interests in shares (including, but not limited to,
Additional Interests) are in addition to and separate from those arising under
Part VI of the Act.
(4) Sections 210(3) to (6), 211(10), 213(3) (so far as it relates to section
211(10)), 214(5), 215(8), 216(1) to (4), 217(7), 218(3), 219(3) and (4), 454,
455, 732 and 733 of the Original Act shall not apply in respect of Additional
Interests.
(5) If, to the knowledge of the directors, any person other than a Permitted
Person is or becomes a Relevant Person (including, without limitation, by virtue
of being deemed to be one), the directors shall give notice to all persons
(other than persons referred to in paragraph (10) below) who appear to the
directors to have interests in the Relevant Shares and, if different, to the
holder(s) of those shares. The notice shall set out the restrictions referred to
in paragraph (8) below and call for a Required Disposal to be made within 21
days of the giving of the notice to such person(s) or holder(s) or such longer
period as the directors consider reasonable. If the Relevant Shares are held by
the ADR Depositary, the notice shall also state that:
(a) a specified Holder or specified Holders (the Relevant Holder(s)), as the
case may be, is or are believed or deemed to be a Relevant Person or
Persons or is or are persons through whom a Relevant Person or Persons is
or are believed or deemed to be interested in shares of the Company in
either case as specified in the notice; and
(b) the Relevant Holder(s) or the Relevant Person or Persons, as the case may
be, is or are believed or deemed to be interested in the number of
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shares of the Company specified in relation to that person in the notice.
The directors may extend the period in which any such notice is required to be
complied with and may withdraw any such notice (whether before or after the
expiration of the period referred to) if it appears to them that there is no
Relevant Person in relation to the shares concerned. After the giving of such a
notice, and save for the purpose of a Required Disposal under this or the
following paragraph, no transfer of any of the Relevant Shares may be registered
until either the notice is withdrawn or a Required Disposal has been made to the
satisfaction of the directors and registered.
(6) If a notice given under paragraph (5) above has not been complied with in
all respects to the satisfaction of the directors and has not been withdrawn, so
far as they are able, the directors shall make a Required Disposal (or procure
that a Required Disposal is made) and shall give written notice of the disposal
to those persons on whom the notice was served. The Relevant Person or Persons
and the holder of the shares to be disposed of shall be deemed to have
irrevocably and unconditionally authorised the directors to make such Required
Disposal. The manner, timing and terms of any such Required Disposal made or
sought to be made by the directors (including but not limited to the price or
prices at which the same is made and the extent to which assurance is obtained
that no transferee, except a Permitted Person, is or would become a Relevant
Person) shall be such as the directors determine, based on advice from bankers,
brokers, or other appropriate persons consulted by them for the purpose, to be
reasonably practicable having regard to all the circumstances, including but not
limited to the number of shares to be disposed of and the requirement that the
disposal be made without delay and the directors shall not be liable to any
person for any of the consequences of reliance on such advice. If, in relation
to a Required Disposal to be made by the directors, Relevant Shares are held by
more than one holder (treating joint holders of any Relevant Shares as a single
holder) the directors shall cause as nearly as practicable the same proportion
of each holding (so far as known to them) of the Relevant Shares to be sold.
(7) For the purpose of effecting any Required Disposal, the directors may
authorise in writing any officer or employee of the Company to execute any
necessary transfer on behalf of any holder and may enter the name of the
transferee in the register of members in respect of the transferred shares
notwithstanding the absence of any share certificate and may issue a new
certificate to the transferee and an instrument of transfer executed by such
person shall be as effective as if it had been executed by the registered holder
of the transferred shares and the title of the transferee shall not be affected
by any irregularity or invalidity in the proceedings relating thereto. The net
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proceeds of the disposal shall be received by the Company, whose receipt shall
be a good discharge for the purchase money, and shall be paid (without any
interest being payable in respect of it and after deduction of any expenses
incurred by the directors in the sale) to the former holder (or, in the case of
joint holders, the first of them named in the register) together with, if
appropriate, a new certificate in respect of the balance of the Relevant Shares
to which he is entitled upon surrender by him or on his behalf of any
certificate in respect of the Relevant Shares sold and formerly held by him.
(8) A holder of a Relevant Share on whom a notice has been given under (and
complying with) paragraph (5) above shall not in respect of that share be
entitled, until such time as the notice has been complied with to the
satisfaction of the directors or withdrawn, to attend or vote at any general
meeting of the Company or meeting of the holders of Relevant Share Capital or of
any class thereof, or to exercise any other right conferred by membership in
relation to any such meeting; and the rights to attend (whether in person or by
representative or proxy), to speak and to demand and vote on a poll which would
have attached to the Relevant Share had it not been a Relevant Share shall vest
in the chairman of any such meeting. The manner in which the chairman exercises
or refrains from exercising any such rights shall be entirely at his discretion.
The chairman of any such meeting shall be informed by the directors of any share
becoming or being deemed to be a Relevant Share.
(9) Without prejudice to the provisions of the Act, the directors may assume
without enquiry that a person is not a Relevant Person unless the information
contained in the registers kept by the Company under Part VI of the Act or under
Part VI of the Original Act (as applied and extended by this Article), including
the separate register to be kept under paragraph (3) above, appears to the
directors to indicate to the contrary or the directors have reason to believe
otherwise, in which circumstances the directors shall make reasonable enquiries
to discover whether any person is a Relevant Person.
(10) The directors shall not be obliged to give any notice required under this
Article to be given to any person if they do not know either his identity or his
address. The absence of such a notice in those circumstances and any accidental
error in or failure to give any notice to any person to whom notice is required
to be given under this Article shall not prevent the implementation of, or
invalidate, any procedure under this Article.
(11) If any director has reason to believe that a person (not being a Permitted
Person) is a Relevant Person, he shall inform the other directors.
(12) Save as otherwise provided in this paragraph, the provisions of the
Articles applying to the giving of notice of meetings to members shall apply to
the giving to a member of any notice required by this Article. Any notice
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required by this Article to be given to a person who is not a member, or who is
a member whose registered address is not within the United Kingdom and who has
not given to the Company an address within the United Kingdom at which notices
may be given to him, shall be deemed validly served if it is sent through the
post in a prepaid envelope addressed to that person at the address (or if more
than one, at one of the addresses), if any, at which the directors believe him
to be resident or carrying on business or his last known address as shown on the
register or on the lists of Holders maintained by the ADR Depositary. The notice
shall in such a case be deemed to have been given on the day following that on
which the envelope containing the same is posted, unless it was sent by second
class post or there is only one class of post, in which case it shall be deemed
to have been given on the day next but one after it was posted. Proof that the
envelope was properly addressed, prepaid and posted shall be conclusive evidence
that the notice was given.
(13) Any resolution or determination of, or decision or exercise of any
discretion or power by, the directors or any director or by the chairman of any
meeting under or pursuant to the provisions of this Article (including without
prejudice to the generality of the foregoing as to what constitutes reasonable
enquiry or as to the manner, timing and terms of any Required Disposal made by
the directors under paragraph (6) above) shall be final and conclusive; and any
disposal or transfer made, or other thing done, by or on behalf of, or on the
authority of, the directors or any director pursuant to the foregoing provisions
of this Article shall be conclusive and binding on all persons concerned and
shall not be open to challenge, whether as to its validity or otherwise on any
ground whatsoever. The directors shall not be required to give any reasons for
any decision, determination or declaration taken or made in accordance with this
Article.
(14) Paragraph (3) above shall not apply to an ADR Depositary in its capacity as
such. A Holder shall be deemed for the purposes of this Article to have an
interest in the number of shares in the Company in respect of which rights are
evidenced by an American Depositary Receipt and not (in the absence of any other
reason why he should be so treated) in the remainder of the shares in the
Company held by the ADR Depositary.
(15) Paragraph (3) above shall not apply to a recognised person acting in its
capacity as such, nor shall it apply to a CREST member acting as trustee. Where
in that capacity interests in shares in the Company are held by a recognised
person or a CREST member acting as trustee under arrangements recognised by the
Company for the purposes of this Article any person who has rights in relation
to shares in the Company in which such a recognised person or CREST member has
such an interest shall be deemed to be interested in the number of shares in the
Company for which such a recognised person is or may become liable to account to
him and any interest
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which (by virtue of his being a tenant in common in relation to interests in
shares in the Company so held by such a recognised person or CREST member) he
would otherwise be treated for the purposes of this Article as having in a
larger number of shares in the Company shall (in the absence of any other reason
why he should be so treated) be disregarded.
(16) This Article shall apply notwithstanding any provision in any other of the
Articles which is inconsistent with or contrary to it.
GENERAL MEETINGS
49. All general meetings other than annual general meetings shall be called
extraordinary general meetings.
50. The board shall convene and the Company shall hold general meetings as
annual general meetings in accordance with the requirements of the Act.
51. The board may call general meetings whenever and at such times and places
as it shall determine and, on the requisition of members pursuant to the
provisions of the Act, shall promptly proceed to convene an extraordinary
general meeting in accordance with the requirements of the Companies Acts and
for a date not later than seven weeks after receipt of the requisition. If there
are not within the United Kingdom sufficient directors to call a general
meeting, any director of the Company may call a general meeting.
NOTICE OF GENERAL MEETINGS
52. An annual general meeting and an extraordinary general meeting called for
the passing of a special resolution shall be called by at least twenty-one clear
days' notice. All other extraordinary general meetings shall be called by at
least fourteen clear days' notice, but a general meeting may be called by
shorter notice if it is so agreed:-
(a) in the case of an annual general meeting, by all the members entitled to
attend and vote thereat; and
(b) in the case of any other meeting, by a majority in number of members having
a right to attend and vote being a majority together holding not less than
ninety-five per cent in nominal value of the shares giving that right.
Subject to the provisions of the Articles and to any restrictions imposed on any
shares, the notice shall, subject to Article 53, be given to all the members, to
each of the directors and to the auditors for the time being or, if more than
one for the time being, each of them.
53. For the purposes of giving notice of any general meeting to members who
hold shares of any class which is a participating security, the directors may
determine that the members in respect of such shares entitled to receive
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such notice are those persons entered on the register of members at the close of
business on a day determined by them, such day not being more than 21 days
before the day that the notice of general meeting is despatched.
54.(1) Without prejudice to the powers of the Company to convene, conduct and
adjourn general meetings in such manner as may from time to time be permitted by
law, if the board so determines the provisions of this Article shall apply if
any general meeting is convened at or adjourned to more than one place.
(2) The notice of the meeting or adjourned meeting shall specify the place at
which the chairman of the meeting shall preside (the Specified Place) and the
directors shall make arrangements for simultaneous attendance and participation
at other places (satellite meeting places), whether adjoining the Specified
Place or in a different and separate place or places altogether or otherwise, by
members, provided that persons attending at any satellite meeting place shall be
able to see and hear and be seen and heard (whether by audio visual links or
otherwise howsoever enabling the same) by persons attending at the other places
at which the meeting is convened. For the purposes of all other provisions of
the Articles any such meeting shall be treated as being held at the Specified
Place.
(3) The board and, at any general meeting, the chairman may from time to time
make such arrangements for the purpose of controlling the level of attendance at
any such place (whether involving the issue of tickets or the imposition of some
means of selection or otherwise) as they shall in their absolute discretion
consider appropriate, and may from time to time vary any such arrangements or
make new arrangements in place of them, provided that a member who is not
entitled to attend, in person or by proxy, at any particular place shall be
entitled so to attend at one of the other places; and the entitlement of any
member so to attend the meeting or adjourned meeting at such place shall be
subject to any such arrangements as may be for the time being in force and by
the notice of meeting or adjourned meeting stated to apply to the meeting.
(4) If a meeting is adjourned to more than one place, notice of the adjourned
meeting shall be given notwithstanding any other provision of the Articles.
55. For the purposes of Article 54, the right of a member to participate in
the business of any general meeting convened at or adjourned to more than one
place shall include without limitation the right to speak, vote on a show of
hands, vote on a poll, be represented by a proxy and have access to all
documents which are required by the Companies Acts or the Articles to be made
available at the meeting.
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56. The notice shall specify the time and place of the meeting and the
general nature of the business to be transacted. The notice shall, in the case
of an annual general meeting, specify the meeting as such, and, in the case of a
meeting to pass a special or extraordinary resolution, specify the intention to
propose the resolution as a special or extraordinary resolution, as the case may
be.
57. The accidental omission to give notice of a meeting, or to send a form of
proxy with a notice where required by the Articles, to any person entitled to
receive the same, or the non-receipt of a notice of meeting or form of proxy by
any such person, shall not invalidate the proceedings at that meeting.
58. The board and, at any general meeting, the chairman may make any
arrangement and impose any requirement or restriction it or he considers
appropriate to ensure the security of a general meeting including, without
limitation, requirements for evidence of identity to be produced by those
attending the meeting, the searching of their personal property and the
restriction of items that may be taken into the meeting place. The board and,
at any general meeting, the chairman are entitled to refuse entry to a person
who refuses to comply with these arrangements, requirements or restrictions.
PROCEEDINGS AT GENERAL MEETINGS
59. No business shall be transacted at any general meeting unless a quorum is
present, but the absence of a quorum shall not preclude the choice or
appointment of a chairman, which shall not be treated as part of the business of
the meeting. Save as otherwise provided by the Articles, two persons, each being
a member or a proxy for a member or a duly authorised representative of a
corporation or a corporation sole which is a member, entitled to vote upon the
business to be transacted shall be a quorum.
60. If such a quorum is not present within five minutes (or such longer time
not exceeding thirty minutes as the chairman of the meeting may decide to wait)
from the time appointed for the meeting, or if during a meeting such a quorum
ceases to be present, the meeting, if convened on the requisition of members,
shall be dissolved, and in any other case shall stand adjourned to such time and
place as the chairman of the meeting may determine. If at the adjourned meeting
a quorum is not present within fifteen minutes after the time appointed for
holding the meeting, the meeting shall be dissolved.
61. The chairman, if any, of the board or in his absence some other director
nominated by the board, shall preside as chairman of the meeting, but if neither
the chairman nor such other director (if any) is present within five minutes
after the time appointed for holding the meeting or is not willing to act as
chairman, the directors present shall elect one of their number to be chairman.
If there is only one director present and willing to act, he shall be
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chairman. If no director is willing to act as chairman, or if no director is
present within five minutes after the time appointed for holding the meeting,
the persons present and entitled to vote shall choose one of their number to be
chairman.
62. A director shall, notwithstanding that he is not a member, be entitled to
attend and speak at any general meeting and at any separate meeting of the
holders of any class of shares in the Company.
63.(1) The chairman may, with the consent of a meeting at which a quorum is
present (and shall if so directed by the meeting), adjourn the meeting from time
to time and from place to place, but no business shall be transacted at an
adjourned meeting other than business which might properly have been transacted
at the meeting had the adjournment not taken place. In addition, the chairman
may adjourn the meeting to another time and place without such consent if it
appears to him that:
(a) it is likely to be impracticable to hold or continue that meeting because
of the number of members wishing to attend who are not present;
(b) the unruly conduct of persons attending the meeting prevents or is likely
to prevent the orderly continuation of the business of the meeting; or
(c) an adjournment is otherwise necessary so that the business of the meeting
may be properly conducted.
(2) Any such adjournment may be for such time and to such other place (or, in
the case of a meeting to which Article 54 applies, such other places) as the
chairman may, in his absolute discretion determine, notwithstanding that by
reason of such adjournment some members may be unable to be present at the
adjourned meeting. Any such member may nevertheless execute a form of proxy for
the adjourned meeting which, if delivered by him to the chairman or the
secretary, shall be valid even though it is given at less notice than would
otherwise be required by the Articles. When a meeting is adjourned for three
months or more or for an indefinite period, at least seven clear days' notice
shall be given specifying the time and place (or places in the case of a meeting
to which Article 54 applies) of the adjourned meeting and the general nature of
the business to be transacted. Otherwise it shall not be necessary to give any
notice of an adjournment or of the business to be transacted at an adjourned
meeting.
64. If an amendment shall be proposed to any resolution under consideration
but shall in good faith be ruled out of order by the chairman of the meeting,
the proceedings on the substantive resolution shall not be invalidated by any
error in such ruling. With the consent of the chairman, an
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amendment may be withdrawn by its proposer before it is voted on. In the case of
a resolution duly proposed as a special or extraordinary resolution, no
amendment thereto (other than a mere clerical amendment to correct a patent
error) may in any event be considered or voted upon. No amendment to a
resolution duly proposed as an ordinary resolution may be considered or voted on
(other than a mere clerical amendment to correct a patent error) unless either
(a) at least 48 hours before the time appointed for holding the meeting or
adjourned meeting at which the ordinary resolution is to be considered, notice
of the terms of the amendment and the intention to move it has been lodged at
the office, or (b) the chairman in his absolute discretion decides that the
amendment may be considered and voted on.
65. A resolution put to the vote of a general meeting shall be decided on a
show of hands unless, before or on the declaration of the result of a vote on
the show of hands or on the withdrawal of any other demand for a poll, a poll is
duly demanded. Subject to the provisions of the Companies Acts, a poll may be
demanded by:-
(a) the chairman of the meeting; or
(b) at least five members present in person or by proxy or by a duly authorised
representative and having the right to vote at the meeting; or
(c) any member or members present in person or by proxy or by a duly authorised
representative and representing not less than one-tenth of the total voting
rights of all the members having the right to vote at the meeting; or
(d) any member or members present in person or by proxy or by a duly authorised
representative and holding shares conferring a right to vote at the meeting
being shares on which an aggregate sum has been paid up equal to not less
than one-tenth of the total sum paid up on all the shares conferring that
right,
and a demand by a person as proxy for a member or as the duly authorised
representative of a member shall be the same as a demand by the member (except
that, for the purpose of determining whether the requirements of this Article
are met, the voting rights which may be exercised by any such person in his
capacity as proxy for, or duly authorised representative of, the member shall be
taken into account and not the voting rights which may be exercised by the
member himself).
66. Unless a poll is duly demanded (and the demand is not withdrawn before the
poll is taken) a declaration by the chairman that a resolution has been carried
or carried unanimously, or by a particular majority, or lost, or
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not carried by a particular majority and an entry to that effect in the minutes
of the meeting shall be conclusive evidence of the fact without proof of the
number or proportion of the votes recorded in favour of or against the
resolution.
67. The demand for a poll may, before the poll is taken, be withdrawn but
only with the consent of the chairman and a demand so withdrawn shall not be
taken to have invalidated the result of a show of hands declared before the
demand was made. If the demand for a poll is withdrawn, the chairman or any
other person or member entitled may demand a poll.
68. Subject to Article 70, a poll shall be taken as the chairman directs and
he may appoint scrutineers (who need not be members) and fix a time and place
for declaring the result of the poll. The result of the poll shall be deemed to
be the resolution of the meeting at which the poll was demanded.
69. In the case of an equality of votes, whether on a show of hands or on a
poll, the chairman shall be entitled to a casting vote in addition to any other
vote he may have.
70. A poll demanded on the election of a chairman or on a question of
adjournment shall be taken at the meeting at which it is demanded. A poll
demanded on any other question shall be taken either at the meeting at which it
is demanded or at such time and place as the chairman directs not being more
than thirty days after the poll is demanded. The demand for a poll shall not
prevent the continuance of a meeting for the transaction of any business other
than the question on which the poll was demanded. If a poll is demanded before
the declaration of the result of a show of hands and the demand is duly
withdrawn, the meeting shall continue as if the demand had not been made.
71. No notice need be given of a poll not taken at the meeting at which it is
demanded if the time and place at which it is to be taken are announced at the
meeting at which it is demanded. In any other case at least seven clear days'
notice shall be given specifying the time and place at which the poll is to be
taken.
72.(1) Where for any purpose an ordinary resolution of the Company is required,
a special or extraordinary resolution shall also be effective and where for any
purpose an extraordinary resolution is required a special resolution shall also
be effective.
(2) A resolution in writing executed by or on behalf of each member who would
have been entitled to vote upon it if it had been proposed at a general meeting
at which he was present shall be as effectual as if it had been passed at a
general meeting properly convened and held and may consist of several
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instruments in the like form each executed by or on behalf of one or more of the
members.
VOTES OF MEMBERS
73. Subject to any rights or restrictions attached to any shares, on a show of
hands every member who is present in person (which expression shall include a
person present as the duly authorised representative of a corporation or a
corporation sole which is a member) shall have one vote. A proxy appointed, in
respect of all or part of such shareholding, by a member who holds shares in the
Company pursuant to a written agreement with the Company on behalf of a third
party or a number of third parties (a Nominee Proxy) shall on a show of hands
also have one vote (and, for the avoidance of doubt, any such proxy will, on a
show of hands, be entitled to one vote only, even if that proxy is himself a
member or is acting as a proxy for more than one member). On a poll every
member present in person or by proxy shall have one vote for every share of
which he is the holder.
74. In. the case of joint holders of a share the vote of the senior who tenders
a vote, whether in person or by proxy, shall be accepted to the exclusion of the
votes of the other joint holders and for this purpose seniority shall be
determined by the order in which the names of the holders stand in the register.
75. A member in respect of whom an order has been made by any court or official
having competent jurisdiction (whether in the United Kingdom or elsewhere) in
matters concerning mental disorder may vote, whether on a show of hands or on a
poll, by his receiver, curator bonis or other person authorised in that behalf
appointed by that court or official, and any such receiver, curator bonis or
other person may, on a poll, vote by proxy. Evidence to the satisfaction of the
board of the authority of the person claiming to exercise the right to vote
shall be deposited at the office, or at such other place as is specified in
accordance with the Articles for the deposit of instruments of proxy, not less
than 48 hours before the time appointed for holding the meeting or adjourned
meeting at which the right to vote is to be exercised and in default the right
to vote shall not be exercisable.
76. No member shall be entitled to vote at any general meeting or at any
separate meeting of the holders of any class of shares in the Company, either in
person or by proxy, in respect of any share held by him unless all moneys
presently payable by him in respect of that share have been paid.
77.(1) If at any time the board is satisfied that any member, or any other
person appearing to be interested in shares held by such member, has been duly
served with a notice under section 212 of the Act (a section 212 notice) and is
in default for the prescribed period in supplying to the Company the information
thereby required, or, in purported compliance with such a notice,
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has made a statement which is false or inadequate in a material particular then
the board may, in its absolute discretion at any time thereafter by notice (a
direction notice) to such member (which shall be conclusive against such member
and its validity shall not be questioned by any person) direct, with effect from
the service of the direction notice, that:-
(a) in respect of the shares in relation to which the default occurred (the
default shares, which expression shall include any further shares which are
allotted or issued after the date of the section 212 notice in respect of
such shares), the member shall not be entitled to attend or vote at a
general meeting or at a separate class meeting of the Company either
personally or by proxy or on a poll;
(b) where the default shares represent or comprise at least 0.25 per cent. in
nominal value of the issued shares of any class of shares in the capital of
the Company, then the direction notice may additionally direct in respect
of the default shares of any such class that:-
(i) no payment shall be made by way of dividend and no shares shall
be issued in lieu of dividend;
(ii) no transfer of any of default shares shall be registered unless:
(aa) the member is not himself in default as regards supplying the
information requested and the transfer when presented for
registration is accompanied by a certificate by the member in
such form as the board may in its absolute discretion require to
the effect that after due and careful enquiry the member is
satisfied that no person in default as regards supplying such
information is interested in any of the shares the subject of the
transfer;
(bb) the transfer is an approved transfer; or
(cc) the registration of the transfer is required by the Regulations.
The Company shall send to each other person appearing to be interested in
any of the default shares a copy of the direction notice, but the failure
or omission by the Company to do so shall not invalidate such notice.
(2) Any direction notice shall cease to have effect not more than seven days
after the earlier of:-
(a) receipt by the Company of notice of an approved transfer, but only in
relation to the shares transferred: or
<PAGE>
(b) the board being satisfied that such member and any other person
appearing to be interested in shares held by such member has given to
the Company all the information required by the relevant section 212
notice.
(3) The board may at any time give notice cancelling a direction notice.
(4) The Company may exercise any of its powers under Article 5(3) in respect of
any default share that is held in uncertificated form.
(5) For the purposes of this Article:-
(a) a person shall be treated as appearing to be interested in any shares
if the member holding such shares has given to the Company a
notification under section 212 of the Act which either (aa) names such
person as being so interested or (bb) fails to establish the
identities of those interested in the shares and (after taking into
account the said notification and any other relevant section 212
notification) the Company knows or has reasonable cause to believe
that the person in question is or may be interested in the shares;
(b) the prescribed period is 28 days from the date of service of the
section 212 notice unless the default shares represent or comprise at
least 0.25 per cent. in nominal value of the issued shares of any
class of shares in the capital of the Company, when the prescribed
period in respect of the default shares of any such class is 14 days
from the date of service of the section 212 notice;
(c) a transfer of shares is an approved transfer if but only if:-
(i) it is a transfer of shares to an offeror by way or in pursuance
of acceptance of a take-over offer (within the meaning of
section 428(1) of the Act);
(ii) the board is satisfied that the transfer is made pursuant to a
sale of the whole of the beneficial ownership of the shares the
subject of the transfer to a party bona fide unconnected with
the member and with other persons appearing to be interested in
such shares; or
(iii) the transfer results from a sale made through a recognised
investment exchange as defined in the Financial Services Act
1986 or any other stock exchange outside the United Kingdom on
which the Company's shares are normally traded.
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(5) Nothing contained in this Article shall limit the powers of the Company
under section 216 of the Act.
(6) Where the member on whom a section 212 notice is served is the ADR
Depositary (as defined in Article 48) acting in its capacity as such:-
(a) the obligations of the ADR Depositary as a member pursuant to
paragraph (1) above shall be limited to disclosing to the Company such
information relating to the shares in question as has in each such
case been recorded pursuant to the terms of any agreement entered into
between the ADR Depositary and the Company;
(b) the directions referred to in paragraph (1) above shall not be
effective unless and until the ADR Depositary has been served with a
notice specifying the person(s) (other than the ADR Depositary) having
an interest in a specified number of the shares in question comprising
the default shares. Provided always that nothing in this paragraph
(6) shall in any other way restrict the powers of the board under this
Article.
(7) For the purposes of this Article:-
(a) where any person has an interest in shares in the Company evidenced by
an American Depositary Receipt, Article 48(14) shall apply for
determining the number of shares in which that person is interested;
and
(b) where any person has an interest in shares in the Company in
uncertificated form, Article 48(15) shall apply for determining the
number of shares in which that person is interested.
(8) Where such a person as is described in paragraph (7) of this Article is in
default of a section 212 notice and a direction notice has been served pursuant
to paragraph (1) of this Article, the ADR Depositary or CREST member acting as
trustee (as the case may be) shall only be subject to any directions referred to
in paragraph (1) of this Article in respect of such number of shares in which
that person is determined, in accordance with paragraph (7) of this Article, to
have an interest.
78. If any votes are counted which ought not to have been counted, or might
have been rejected, the error shall not vitiate the result of the voting unless
it is pointed out at the same meeting, or at any adjournment of the meeting,
and, in the opinion of the chairman, it is of sufficient magnitude to vitiate
the result of the voting.
79. No objection shall be raised to the qualification of any voter except at
the meeting or adjourned meeting or poll at which the vote objected to is
tendered, and every vote not disallowed at such meeting shall be valid and
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every vote not counted which ought to have been counted shall be disregarded.
Any objection made in due time shall be referred to the chairman whose decision
shall be final and conclusive.
80. On a poll votes may be given either personally or by proxy or (in the case
of a corporation or a corporation sole which is a member) by a duly authorised
representative. A member entitled to more than one vote need not, if he votes,
use all his votes or cast all the votes he uses in the same way. A proxy need
not be a member.
PROXIES
81. An instrument appointing a proxy shall be in writing under the hand of the
appointor or his attorney or, if the appointor is a corporation, either under
its common seal or the hand of a duly authorised officer, attorney or other
person authorised to sign it or, if the appointor is a corporation sole, under
the hand of a duly authorised representative thereof. A member may appoint more
than one proxy to attend on the same occasion provided that, in any case, the
member must state in the instrument appointing each such proxy, the number of
shares in respect of which the appointment of that proxy is made.
82. Instruments of proxy shall be in any usual form or in any other form which
the board may approve and the board may, if it thinks fit, but subject to the
provisions of the Act, send out with the notice of any meeting forms of
instrument of proxy for use at the meeting. Delivery of an instrument appointing
a proxy shall not preclude a member from attending and voting in person at the
meeting or poll concerned.
83. The instrument appointing a proxy and any power of attorney or other
written authority under which it is executed or an office or notarially
certified copy or a copy certified in accordance with the Powers of Attorney Act
1971 of such power or written authority shall:-
(a) be deposited at the office or at such other place within the United Kingdom
as is specified in the notice convening the meeting or in any instrument of
proxy sent out by the Company in relation to the meeting not less than 48
hours before the time appointed for holding the meeting or adjourned
meeting at which the person named in the instrument proposes to vote; or
(b) in the case of a poll taken more than 48 hours after it is demanded, be
deposited as aforesaid after the poll has been demanded and not less than
24 hours before the time appointed for the taking of the poll; or
(c) where the poll is not taken forthwith but is taken not more than 48 hours
after it was demanded, be delivered at the meeting at which the
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poll was demanded to the chairman or to the secretary or to any director.
An instrument of proxy which is not deposited or delivered in a manner so
permitted shall be invalid. No instrument of proxy shall be valid after the
expiration of twelve months from the date stated in it as the date of its
execution. When two or more valid but differing instruments of proxy are
delivered in respect of the same share for use at the same meeting, the one
which was delivered last (regardless of its date or of the date of its
execution) shall be treated as replacing and revoking the others as regards that
share; if the Company is unable to determine which was delivered last, none of
them shall be treated as valid in respect of that share.
84.(1) A vote given or poll demanded by proxy or by the duly authorised
representative of a corporation or corporation sole shall be valid
notwithstanding the previous determination of the authority of the person voting
or demanding a poll, unless notice of the determination was received by the
Company at the office or at such other place at which the instrument of proxy
was duly deposited at least 48 hours before the commencement of the meeting or
adjourned meeting at which the vote is given or the poll demanded or (in the
case of a poll taken otherwise than on the same day as the meeting or adjourned
meeting) the time appointed for taking the poll.
(2) An instrument appointing a proxy shall be deemed to include the right to
demand, or join in demanding, a poll and, in the case of a Nominee Proxy only,
to confer the right to speak at a meeting. A proxy who is not a Nominee Proxy
shall not, except with the permission of the Chairman, have any right to speak
at a meeting. The instrument of proxy shall also be deemed to confer authority
to vote on any amendment of a resolution put to the meeting for which it is
given as the proxy thinks fit. The instrument of proxy shall, unless it provides
to the contrary, be valid for any adjournment of a meeting as well as for the
meeting to which it relates.
(3) If a member appoints more than one proxy and the instruments of proxy
appointing such proxies purport, in aggregate, to confer on those proxies the
authority to vote at a general meeting more shares than are at the relevant time
held by that member, each of those instruments of proxy shall be invalid and
none of the proxies so appointed by that member shall be entitled to attend,
speak (if relevant) or vote at that general meeting.
85. Any corporation or corporation sole which is a member of the Company (in
this Article, the grantor) may (in the case of a corporation, by resolution of
its directors or other governing body or by authority to be given under seal or
under the hand of an officer or officers duly authorised by it) authorise such
person as it thinks fit to act as its representative at any meeting of the
Company or at any separate meeting of the holders of any class of
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shares. A person so authorised shall be entitled to exercise the same power on
behalf of the grantor of the authority (in respect of that part of the grantor's
holding to which his authorisation relates, in the case of an authorisation of
more than one person) as the grantor could exercise if it were an individual
member of the Company and the grantor shall for the purposes of the Articles be
deemed to be present in person at any such meeting if a person so authorised is
present at it. In relation to any such meeting, a person authorised under
section 3 of the Treasury Solicitor Act 1876 shall be treated for the purposes
of this Article as if his authority had been granted by the Solicitor for the
affairs of Her Majesty's Treasury; and in the Articles references to a duly
authorised representative of a corporation sole include, in relation to the
Solicitor for the affairs of Her Majesty's Treasury, references to a person
authorised under that section.
NUMBER OF DIRECTORS
86. Unless otherwise determined by ordinary resolution, the number of directors
(other than alternate directors) shall be not less than four nor more than
sixteen in number.
APPOINTMENT AND RETIREMENT OF DIRECTORS
87. At every annual general meeting the greater of (i) one-third of the
directors for the time being or, if their number is not three or a multiple of
three, the number nearest to but not greater than one-third (such directors to
be determined in accordance with Article 88) and (ii) the number of directors
required to retire pursuant to Article 88(1) shall retire from office by
rotation. A director retiring by rotation shall be eligible for reappointment.
88.(1) The directors to retire by rotation shall be or include any director who
(i) wishes to retire and not offer himself for reappointment; or (ii) shall not
have been appointed by the Company by ordinary resolution in the period of three
years ending on the date of the meeting.
(2) Any further directors so to retire shall be those of the other directors
who have been longest in office since their last appointment or reappointment,
but as between persons who became or were last reappointed directors on the same
day those to retire shall (unless they otherwise agree among themselves) be
determined by lot.
(3) The directors to retire on each occasion (both as to number and identity)
shall be determined by the composition of the board at the date of the notice
convening the annual general meeting and no director shall be required to retire
or be relieved from retiring or be retired by reason of any change in the number
or identity of the directors after the date of the notice but before the close
of the meeting.
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89. If the Company, at the meeting at which a director retires by rotation or
otherwise, does not fill the vacancy, the retiring director shall, if willing to
act, be deemed to have been reappointed unless at the meeting it is resolved not
to fill the vacancy or unless a resolution for the reappointment of the director
is put to the meeting and lost.
90. No person other than a director retiring by rotation shall be appointed or
reappointed a director at any general meeting unless:-
(a) he is recommended by the board; or
(b) not less than seven nor more than forty-two clear days before the date
appointed for the meeting, notice executed by a member qualified to vote at
the meeting (not being the person to be proposed) has been given to the
Company of the intention to propose that person for appointment or
reappointment stating the particulars which would, if he were so appointed
or reappointed be required to be included in the Company's register of
directors, together with notice executed by that person of his willingness
to be appointed or reappointed.
91. Except as otherwise authorised by the Companies Acts, the appointment of
any person proposed as a director shall be effected by a separate resolution.
92. Subject as aforesaid, the Company may by ordinary resolution appoint a
person who is willing to act to be a director either to fill a vacancy or as an
additional director and may also determine the rotation in which any additional
directors are to retire.
93. The board may appoint a person who is willing to act to be a director,
either to fill a vacancy or as an additional director, provided that the
appointment does not cause the number of directors to exceed any number, if any,
fixed by or in accordance with the Articles as the maximum number of directors.
A director so appointed shall hold office only until the next following annual
general meeting and shall not be taken into account in determining the directors
who are to retire by rotation at that meeting. If not reappointed at such annual
general meeting, he shall vacate office at the conclusion thereof.
94. A director who retires at an annual general meeting may, if willing to act,
be reappointed. If he is not reappointed, he shall retain office until the
meeting appoints someone in his place, or if it does not do so, until the end of
the meeting.
95.(1) No person shall be disqualified from being appointed or reappointed a
director, and no director shall be required to vacate that office, by
reason only of the fact that he has attained the age of seventy years or
any other age nor shall it be necessary by reason of his age to give
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special notice under the Companies Acts of any resolution. Where the board
convenes any general meeting of the company at which (to the knowledge of
the board) a director will be proposed for appointment or reappointment who
at the date for which the meeting is convened will have attained the age of
seventy years or more, the board shall give notice of his age in years in
the notice convening the meeting or in any document accompanying the
notice, but the accidental omission to do so shall not invalidate any
proceedings, or any appointment or reappointment of that director, at that
meeting.
(2) A director shall not be required to hold any shares of the Company by way
of qualification.
ALTERNATE DIRECTORS
96. Any director (other than an alternate director) may appoint any other
director, or any other person approved by resolution of the board and willing to
act, to be an alternate director and may remove from office an alternate
director so appointed by him.
97. An alternate director shall be entitled to receive notice of all meetings
of the board and of all meetings of committees of the board of which his
appointor is a member, to attend and vote at any such meeting at which his
appointor is not personally present, and generally to perform all the functions
of his appointor (except as regards power to appoint an alternate) as a director
in his absence. It shall not be necessary to give notice of such a meeting to an
alternate director who is absent from the United Kingdom.
98. A director or any other person may act as alternate director to represent
more than one director, and an alternate director shall be entitled at meetings
of the board or any committee of the board to one vote for every director whom
he represents (and who is not present) in addition to his own vote (if any) as a
director, but he shall count as only one for the purpose of determining whether
a quorum is present.
99. An alternate director may be repaid by the Company such expenses as might
properly have been repaid to him if he had been a director but shall not in
respect of his services as an alternate director be entitled to receive any
remuneration from the Company. An alternate director shall be entitled to be
indemnified by the Company to the same extent as if he were a director.
100. An alternate director shall cease to be an alternate director:-
(a) if his appointor ceases to be a director; but, if a director retires
by rotation or otherwise but is reappointed or deemed to have been
reappointed at the meeting at which he retires, any appointment of an
alternate director made by him which was in
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force immediately prior to his retirement shall continue after his
reappointment;
(b) on the happening of any event which, if he were a director, would
cause him to vacate his office as director; or
(c) if he resigns his office by notice to the Company.
101. Any appointment or removal of an alternate director shall be by notice to
the Company signed by the director making or revoking the appointment and shall
take effect in accordance with the terms of the notice (subject to any approval
required by Article 96) upon receipt of such notice at the office.
102. Save as otherwise provided in the Articles, an alternate director shall be
deemed for all purposes to be a director and shall alone be responsible for his
own acts and defaults and he shall not be deemed to be the agent of the director
appointing him.
POWERS OF THE BOARD
103. Subject to the provisions of the Companies Acts, the Memorandum and the
Articles and to any directions given by special resolution, the business of the
Company shall be managed by the board which may exercise all the powers of the
Company. No alteration of the Memorandum or Articles and no such direction shall
invalidate any prior act of the board which would have been valid if that
alteration had not been made or that direction had not been given. The powers
given by this Article shall not be limited by any special power given to the
board by the Articles. A meeting of the board at which a quorum is present may
exercise all powers exercisable by the board.
104. The board may exercise the voting power conferred by the shares in any
body corporate held or owned by the Company in such manner in all respects as it
thinks fit (including without limitation the exercise of that power in favour of
any resolution appointing its members or any of them directors of such body
corporate, or voting or providing for the payment of remuneration to the
directors of such body corporate).
DELEGATION OF POWERS OF THE BOARD
105. The board may delegate any of its powers to any committee consisting of
one or more directors. The board may also delegate to any director holding any
executive office such of its powers as the board considers desirable to be
exercised by him. Any such delegation shall, in the absence of express provision
to the contrary in the terms of the delegation, be deemed to include authority
to sub-delegate to one or more directors (whether or not acting as a committee)
or to any employee or agent of the Company all or any of the powers delegated
and may be made subject to such conditions as the board may specify and either
collaterally with or to the exclusion of its own powers and may be revoked or
altered. The board may co-opt onto any such
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committee persons other than directors, who may enjoy voting rights in the
committee. The co-opted members shall be less than one-half of the total
membership of the committee and a resolution of any committee shall be effective
only if a majority of the members present are directors. Subject to any such
conditions imposed by the board, the proceedings of a committee with two or more
members shall be governed by the Articles regulating the proceedings of
directors so far as they are capable of applying.
106. The board may establish local or divisional boards or agencies for
managing any of the affairs of the Company, either in the United Kingdom or
elsewhere, and may appoint any persons to be members of the local or divisional
boards, or any managers or agents, and may fix their remuneration. The board may
delegate to any local or divisional board, manager or agent any of the powers,
authorities and discretions vested in or exercisable by the board, with power to
sub-delegate, and may authorise the members of any local or divisional board, or
any of them, to fill any vacancies and to act notwithstanding vacancies. Any
appointment or delegation made pursuant to this Article may be made upon such
terms and subject to such conditions as the board may decide and the board may
remove any person so appointed and may revoke or vary the delegation but no
person dealing in good faith and without notice of the revocation or variation
shall be affected by it.
107. The board may, by power of attorney or otherwise, appoint any person or
persons to be the agent or agents of the Company for such purposes, with such
powers, authorities and discretions (not exceeding those vested in the board)
and on such conditions as the board determines, including without limitation
authority for the agent or agents to delegate all or any of his or their powers,
authorities and discretions, and may revoke or vary such delegation.
108. The board may appoint any person to any office or employment having a
designation or title including the word director or attach to any existing
office or employment with the Company such a designation or title and may
terminate any such appointment or the use of any such designation or title. The
inclusion of the word director in the designation or title of any such office or
employment shall not imply that the holder is a director of the Company, nor
shall the holder thereby be empowered in any respect to act as, or be deemed to
be a director of, the Company for any of the purposes of the Articles.
BORROWING POWERS
109.(1) Subject as hereinafter provided, the board may exercise all the powers
of the Company to borrow money, to guarantee, to indemnify and to
mortgage or charge all or any part of its undertaking, property,
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assets (in each case, present and future) and uncalled capital, and to
issue debentures and other securities whether outright or as collateral
security for any debt, liability or obligation of the Company or of any
third party.
(2)(A) The board shall restrict the borrowings of the Company and exercise all
voting and other rights or powers exercisable by the Company in relation
to its subsidiary undertakings (if any) so as to secure (so far as
regards subsidiary undertakings as by such exercise they can secure) that
the aggregate principal amount for the time being remaining outstanding
of all money borrowed by the Group (which expression in this Article
means the Company and its subsidiary undertakings for the time being) and
for the time being owing, subject as hereinafter provided, to persons
other than the Company and its wholly owned subsidiaries shall not,
without the previous sanction of an ordinary resolution of the Company,
exceed an amount equal to 2.5 times the Adjusted Capital and Reserves.
(B) In this Article the expression Adjusted Capital and Reserves means at the
relevant time a sum equal to the aggregate of:-
(a) the amount paid up (or credited as or deemed to be paid up) on the issued
share capital of the Company and such of the share capital of the Company
as is allotted but not issued; and
(b) the amount standing to the credit of the reserves of the Group
(including, without limitation, any revaluation reserve, share premium
account or capital redemption reserve and after excluding any amount
standing to the debit of any goodwill reserve) after adding thereto or
deducting therefrom any balance standing to the credit or debit of the
profit and loss account all based on the audited balance sheet but
after:-
(i) making such adjustments as may be appropriate in respect of any
variation in the amount of such paid up (or credited as or deemed to
be paid up) share capital or any such reserves subsequent to the
date of such balance sheet and so that for this purpose (1) if any
issue or proposed issue of shares by the Company for cash has been
underwritten then such shares shall be deemed to have been issued
and the amount (including any premium) of the subscription moneys
payable in respect thereof (not being moneys payable later than six
months after the date of allotment) shall to the extent so
underwritten be deemed to have been paid up on the date when the
issue of such shares was underwritten (or, if such underwriting was
conditional, on the date when it became unconditional) and (2)
subject as aforesaid,
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share capital (including any premium) shall be deemed to have been
paid up as soon as it has been unconditionally agreed to be
subscribed or taken up (within six months of such agreement) by any
person;
(ii) making such adjustments as may be appropriate in respect of any
distributions declared, recommended or made by the Company or its
subsidiary undertakings (otherwise than attributable directly or
indirectly to the Company) out of profits earned up to and
including the date of such balance sheet, in relation to the
Company, or the date of the latest available audited balance sheet
of the relevant subsidiary undertaking, in relation to such
subsidiary undertaking (as the case may be) to the extent that such
distribution is not provided for in such balance sheet;
(iii) making such adjustments as may be appropriate in respect of any
variation in the interests of the Company in its subsidiary
undertakings since the date of such balance sheet; and
(iv) making all such adjustments, if the calculation is required for the
purposes of or in connection with a transaction under or in
connection with which any company is to become or cease to be a
subsidiary undertaking, as would be appropriate if such transaction
had been carried into effect.
(3) For the purposes of the foregoing limit the following provisions shall
apply:-
(A) there shall be deemed, subject as hereinafter provided, to have been
borrowed and to be outstanding as borrowed moneys of the relevant
member of the Group (but only to the extent that the same would not
otherwise fall to be taken into account):-
(a) the principal amount of all debentures of any member of the
Group which are not for the time being beneficially owned by
any member of the Group;
(b) the outstanding amount of acceptances (not being acceptances in
respect of the purchase or sale of goods or services in the
ordinary course of trading which are outstanding for six months
or less) by any member of the Group or by any bank or accepting
house under any acceptance credit opened on behalf of and in
favour of any member of the Group;
(c) the nominal amount of any issued and paid up share capital
(other than equity share capital) of any subsidiary
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undertaking of the Company not for the time being
beneficially owned by any member of the Group;
(d) the nominal amount of any other issued and paid up share
capital and the principal amount of any other debentures or
other borrowed moneys (not being shares or debentures which,
or borrowed moneys the indebtedness in respect of which, are
for the time being beneficially owned within the Group) of
any body whether corporate or unincorporate the redemption
or repayment whereof is guaranteed or wholly or (to the
extent the same is partly secured) partly secured by, any
member of the Group; provided that any amount which falls to
be treated as borrowed money under this sub-paragraph (d)
and which has been incurred in connection with the sale of
any product or service of any member of the Group or of any
other entity in which any member of the Group has an
interest shall be reduced by a sum equal to the aggregate of
(i) the estimated realisable value of any security available
to any member of the Group or other such entity (otherwise
than from any other member of the Group) in respect of such
amount and (ii) the amount of any insurance cover available
to any such member or other such entity in respect of such
amount. For this purpose the board may act in reliance on a
bona fide estimate of the estimated realisable value of any
such security or the amount of any such insurance cover but
if a certificate by the auditors as to such value or such
amount is requested, such certificate shall be conclusive
evidence of the same;
(e) any fixed or minimum premium payable on final redemption or
repayment of any debentures, share capital or other borrowed
moneys falling to be taken into account provided that, where
the items concerned are bonds, notes, debentures, loan
stocks and/or other debt securities issued at a discount,
only the issue price, together with any amount of discount
required to be recognised in the audited balance sheet by
any Statement of Standard Accounting Practice or other
accountancy practice or principle generally accepted for the
time being in the United Kingdom, shall be treated as
borrowed moneys;
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(f) any fixed amount in respect of any Finance Lease or Hire
Purchase Agreement (as those expressions are hereinafter
defined) payable by the Company or any of its subsidiary
undertakings which would be shown at the material time as an
obligation in a balance sheet prepared in accordance with
the accounting principles used in the preparation of the
audited balance sheet; for this purpose Finance Lease means
a contract between a lessor and a member of the Group as
lessee or sub-lessee where substantially all the risks and
rewards of the ownership of the asset leased or sub-leased
are to be borne by the lessee or sub-lessee and Hire
Purchase Agreement means a contract of hire between a hire
purchase lender and the Company or a member of the Group as
hirer;
(B) moneys borrowed by any member of the Group for the purposes of repaying or
redeeming (with or without premium) in whole or in part any other borrowed
moneys falling to be taken into account and intended to be applied for such
purpose within six months after the borrowing thereof shall not during such
period, except to the extent so applied, themselves fall to be taken into
account;
(C) any amounts borrowed by any member of the Group for the purpose of
financing any contract up to an amount not exceeding those moneys
receivable under such contract which are guaranteed or insured by the
Export Credits Guarantee Department or other institution or body carrying
on a similar business shall be deemed not to be borrowed moneys;
(D) moneys borrowed by a subsidiary undertaking of the Company not being a
wholly-owned subsidiary (a partly owned subsidiary undertaking) and not
owing to another member of the Group shall be taken into account subject to
the exclusion of a proportion thereof equal to the minority proportion of
the borrower and moneys borrowed by a member of the Group from and owing to
a partly owned subsidiary undertaking shall be taken into account to the
extent of a proportion thereof equal to the minority proportion of the
lender; for these purposes minority proportion shall mean the proportion of
the issued equity share capital of the partly owned subsidiary undertaking
which is not attributable (directly or indirectly) to the Company or any
other subsidiary undertaking of the Company;
(E) moneys borrowed by any member of the Group at the time it becomes a
subsidiary undertaking of the Company and for a period of six months
thereafter and moneys borrowed remaining secured on any asset acquired by a
member of the Group at the time of such
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acquisition and for a period of six months thereafter shall be deemed not
to be borrowed moneys;
(F) there shall be credited against the amount of any moneys borrowed any
amounts beneficially owned by the Company or any of its subsidiary
undertakings which are deposited with any bank or other person (whether on
current account or otherwise) not being the Company or one of its
subsidiary undertakings and which are repayable to the Company or any of
its subsidiary undertakings on demand or within twelve months of any
demand, subject, in the case of money deposited by a partly owned
subsidiary undertaking (as defined in paragraph (D) above), to the
exclusion of a proportion thereof equal to the minority proportion (as
defined in paragraph (D) above);
(G) commitments of any member of the Group under hire purchase agreements,
operating and other leases (except any lease which constitutes a Finance
Lease or Hire Purchase Agreement which would not be shown at the material
time as an obligation in a balance sheet prepared in accordance with the
accounting principles used in the preparation of the audited balance sheet)
shall be deemed not to be borrowed moneys;
(H) it is hereby expressly provided that for the purposes of the foregoing
limit the following sums shall be deemed not to be borrowed moneys of the
Group:-
(a) any and all sums retained, deducted or set off by any member of the
Group (or its agent, trustee or nominee) from sums otherwise payable
under the terms of any contract or other arrangement relating to the
design, management, construction, supply, erection or installation of
building or engineering works, plant or equipment, where such
retention, deduction or set off is made pursuant to any express or
implied right or entitlement under such contract or other arrangement,
and whether the sums retained, deducted or set off are held by that
member (or its agent, trustee or nominee) as trustee or otherwise;
(b) any and all sums advanced or paid to any member of the Group (or its
agent, trustee or nominee) by way of capacity charges for capacity
proposed to be made available to customers of any member of the Group
at power stations not yet constructed and brought into service for so
long as, and to the extent that, any present obligation on the part of
the relevant member of the Group to repay such charges has not arisen;
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(c) any and all sums advanced or paid to any member of the Group (or its
agent, trustee or nominee) by customers of any member of the Group as
prepayments or progress payments or payments on account or option fees
or by way of deposit or security in respect of any products or
services or under any sales contracts or contracts for differences or
pooling and/or settlements systems or arrangements (including under
the Pooling and Settlement Agreement for the Electricity Industry in
England and Wales); and
(d) any and all sums secured by a property clawback debenture issued by
the Company on 2 November 1990 pursuant to a direction made under
section 71 of the Electricity Act 1989;
(e) any and all sums advanced to any member of the Group (or its agent,
trustee or nominee) by any person (including any bank or financial
institution) to the extent of any monetary deposits maintained by any
member of the Group with such person over which such person has rights
of retention, deduction or set off in respect of the sums advanced;
(f) any and all sums which otherwise would fall to be treated as borrowed
moneys of any member of the Group which were treated with the
concurrence of the auditors and in accordance with any current
Statement of Standard Accounting Practice or other accountancy
practice or principle generally accepted for the time being in the
United Kingdom in the latest available audited balance sheet of the
relevant member of the Group on which such consolidation was based as
otherwise than borrowed moneys of that member of the Group;
(I) any guarantee or indemnity given by any member of the Group in respect of
any amount or obligation deemed not to be borrowed moneys under any of the
provisions of this Article shall be deemed not to be borrowed moneys;
(J) when the aggregate amount of moneys borrowed at any material time is being
ascertained:-
(a) any particular borrowing then outstanding which is denominated or
repayable in a currency other than sterling shall be translated for
the purposes of calculating the sterling equivalent:-
(i) with the exception of Excepted Foreign Currency Borrowings (as
hereinafter defined), at the rate of exchange prevailing at the
material time in London provided that the moneys comprising such
borrowing
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shall be translated (if thereby such sterling amount would be
less) at the option of the Company at the rate of exchange
prevailing in London six months before such time; for the
purposes of this sub-paragraph the rate of exchange shall be
taken as the middle market rate as at the close of business in
London on the relevant day or, if such day is not a business day,
as supplied by such person or calculated on such basis as the
auditors may determine or approve;
(ii) in the case of any Excepted Foreign Currency Borrowings, at the
rate of exchange which would be applicable to the moneys
comprising such borrowing on their repayment to the extent that
such rate of exchange is fixed under any Exchange Cover Scheme
(as hereinafter defined) in connection with such moneys borrowed
provided that where it is not possible to determine the rate of
exchange applicable at the time of repayment of any such moneys
borrowed they shall be translated into sterling under the terms
of the applicable Exchange Cover Scheme on such basis as may be
agreed with, or determined by, the auditors, or, if this is
agreed by the auditors not to be practicable, in accordance with
the provisions of (i) above;
(b) For the purposes of this paragraph (J):-
(i) Excepted Foreign Currency Borrowings means moneys borrowed denominated
or repayable in a currency other than sterling which have the benefit
of an Exchange Cover Scheme and Exchange Cover Scheme means any
exchange cover scheme, forward currency contract, currency option,
back to back loan, swap or other arrangement taken out or entered into
to reduce the risks associated with fluctuations in exchange rates;
and
(ii) where under the terms of any borrowing the amount of money which would
be required to discharge the principal amount of moneys borrowed in
full if it fell to be repaid (whether at the option of the company
borrowing the same or by reason of default) at such material time is
less than the amount which would otherwise be taken into account in
respect of such moneys borrowed for the purposes of this Article, the
amount of such moneys borrowed to be taken into account shall be such
lesser amount.
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(4)(A) For the purposes of this Article:
(a) audited balance sheet means the then latest available audited balance
sheet of the Company prepared (on the historical cost basis, modified
to such extent as may be stated in the accounting policies used for
the preparation of such balance sheet) for the purposes of the Act or,
if an audited consolidated balance sheet dealing with the state of
affairs of the Company and all its subsidiary undertakings to be dealt
with in group accounts has been so prepared for those purposes for the
same financial year. that audited consolidated balance sheet, in which
event all references to reserves and profit and loss shall be deemed
to be references to consolidated reserves and consolidated profit and
loss and any amounts attributable to outside interests shall be
excluded; and
(b) references to subsidiary undertakings of the Company are only to those
subsidiary undertakings of the Company included in the consolidation
(if any) in the audited balance sheet.
(B) A certificate or report by the auditors as to the amount of the Adjusted
Capital and Reserves or the amount of any borrowings or to the effect that
the limit imposed by this Article has not been or will not be exceeded at
any particular time or times shall be conclusive evidence of such amount or
fact for the purposes of this Article.
Nevertheless for the purposes of this Article the board may at any time act
in reliance on a bona fide estimate of the amount of the Adjusted Capital
and Reserves and if, in consequence the limit herein before contained is
inadvertently exceeded, an amount borrowed equal to the excess may be
disregarded until the expiration of three months after the date on which by
reason of a determination of the auditors or otherwise the board become
aware that such a situation has or may have arisen.
Save as otherwise provided in this Article, the audited balance sheet shall
be definitive for the purposes of establishing the amount of Adjusted
Capital and Reserves.
(C) If as a result of any change in legislation relating to or affecting
taxation matters, any fixed amount payable by the Company or any of its
subsidiaries in respect of any Finance Lease (as hereinbefore defined)
shall increase and, if in consequence the limit hereinbefore contained is
exceeded, an amount of borrowed moneys equal to the excess may be
disregarded until the expiration of six months after the date on which the
board becomes aware that such a situation has arisen.
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(5) No person dealing with the Company or any of its subsidiary undertakings
shall be concerned to see or enquire whether the limit imposed by the provisions
of this Article is observed and no debt incurred or security given in excess of
such limit shall be invalid or ineffectual unless the lender or the recipient of
the security had at the time when the debt was incurred or security given
express notice that the said limit had been or would thereby be exceeded.
DISQUALIFICATION AND REMOVAL OF DIRECTORS
110. The office of a director shall be vacated if:-
(a) he ceases to be a director by virtue of any provisions of the Companies
Acts or the Articles or he becomes prohibited by law from being a director;
or
(b) he becomes bankrupt or makes any arrangement or composition with his
creditors generally; or
(c) he is, or may be, suffering from mental disorder and either:-
(i) he is admitted to hospital in pursuance of an application for
admission for treatment under the Mental Health Act 1983 or, in
Scotland, an application for admission under the Mental Health
(Scotland) Act 1984; or
(ii) an order is made by a court having jurisdiction (whether in the United
Kingdom or elsewhere) in matters concerning mental disorder for his
detention or for the appointment of a receiver, curator bonis or other
person to exercise powers with respect to his property or affairs; or
(d) (not being a director holding office as such for a fixed term) he resigns
his office by notice to the Company or his office as a director is vacated
pursuant to Article 93; or
(e) he shall for more than six consecutive months have been absent without
permission of the board from meetings of the board held during that period
and his alternate director (if any) shall not during such period have
attended in his stead and the board resolves that his office be vacated; or
(f) he is requested in writing by all of the other directors to resign and all
of the other directors are not less than four in number.
111. The Company may, in accordance with and subject to the provisions of the
Act, by ordinary resolution of which special notice has been given remove any
director from office (notwithstanding any provision of these Articles or of any
agreement between the Company and such director, but without prejudice to any
claim he may have for damages for breach of any
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such agreement) and appoint another person in place of a director so removed
from office and any person so appointed shall be treated for the purpose of
determining the time at which he or any other director is to retire by rotation
as if he had become a director on the day on which the director in whose place
he is appointed was last elected a director. In default of such appointment the
vacancy arising upon the removal of a director from office may be filled as a
casual vacancy.
REMUNERATION OF DIRECTORS
112.(1) The ordinary remuneration of the directors for their services excluding
amounts payable under any other provision of the Articles) shall not exceed in
aggregate (Pounds)200,000 per annum or such higher amount as the Company may
from time to time by ordinary resolution determine. Subject thereto, each
director shall be paid a fee (which shall be deemed to accrue from day to day)
at such rate as may from time to time be determined by the board.
(2) Any director who holds any executive office (including for this purpose the
office of chairman or deputy chairman whether or not such office is held in an
executive capacity), who serves on any committee of the directors or otherwise
performs special services which in the opinion of the directors are outside the
scope of the ordinary duties of a director may (without prejudice to the
provisions of Article 112(1)) be paid such extra remuneration by way of salary,
commission or otherwise as the directors may determine.
DIRECTORS' EXPENSES
113. The directors may be paid all travelling, hotel, and other expenses
properly incurred by them in connection with their attendance at meetings of the
board or committees of the board or general meetings or separate meetings of the
holders of any class of shares or of debentures of the Company or otherwise in
connection with the discharge of their duties.
EXECUTIVE DIRECTORS
114. Subject to the provisions of the Companies Acts, the board may appoint one
or more of its body to the office of chief executive director or to any other
executive office (except that of auditor) in the Company and may enter into an
agreement or arrangement with any director for his employment by the Company or
for the provision by him of any services outside the scope of the ordinary
duties of a director. Any such appointment, agreement or arrangement may be made
upon such terms, including (without limitation) terms as to remuneration, as the
board determines, and any remuneration which is so determined may be in addition
to or in lieu of any ordinary remuneration as a director. The board may revoke
or vary any such
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appointment but without prejudice to any rights or claims which the person whose
appointment is revoked or varied may have against the Company by reason of such
revocation or variation.
115. All of the directors including the chairman of the board and the chief
executive director for the time being (in each case, if any) shall be subject to
retirement by rotation.
116. Any appointment of a director to the office of chief executive director or
an executive office shall terminate if he ceases to be a director but without
prejudice to any rights or claims which he may have against the Company by
reason of such cessation. A director appointed to an executive office shall not
ipso facto cease to be a director if his appointment to such executive office
terminates.
117. The emoluments of any chief executive director or director holding any
other executive office for his services as such shall be determined by the
board, and may be of any description, and (without limiting the generality of
the foregoing) may include admission to or continuance of membership of any
scheme (including any share acquisition scheme) or fund instituted or
established or financed or contributed to by the Company for the provision of
pensions, life assurance or other benefits for employees or their dependants, or
the payment of a pension or other benefits to him or his dependants on or after
retirement or death, apart from membership of any such scheme or fund.
DIRECTORS' INTERESTS
118. Subject to the provisions of the Companies Acts, and provided that he has
disclosed to the board the nature and extent of any material interest of his, a
director notwithstanding his office:-
(a) may be a party to, or otherwise interested in, any transaction or
arrangement with the Company or in which the Company is otherwise
interested;
(b) may act by himself or his firm in a professional capacity for the Company
(otherwise than as auditor) and he or his firm shall be entitled to
remuneration for professional services as if he were not a director;
(c) may be a director or other officer of, or employed by, or a party to any
transaction or arrangement with, or otherwise interested in, any body
corporate promoted by the Company or in which the Company is otherwise
interested; and
(d) shall not, by reason of his office, be accountable to the Company for any
benefit which he derives from any such office or employment or from any
such transaction or arrangement or from any interest in any
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such body corporate and no such transaction or arrangement shall be liable
to be avoided on the ground of any such interest or benefit.
119. For the purposes of Article 118:-
(a) a general notice given to the board that a director is to be regarded as
having an interest of the nature and extent specified in the notice in any
transaction or arrangement in which a specified person or class or persons
is interested shall be deemed to be a disclosure that the director has an
interest in any such transaction of the nature and extent so specified; and
(b) an interest of which a director has no knowledge and of which it is
unreasonable to expect him to have knowledge shall not be treated as an
interest of his.
GRATUITIES, PENSIONS AND INSURANCE
120.(1) The board may (by establishment of or maintenance of schemes or
otherwise) provide benefits, whether by the payment of gratuities or pensions or
by insurance or otherwise, for any past or present director or employee of the
Company or any of its subsidiary undertakings or any company associated with, or
any business acquired by, any of them, and for any member of his family
(including a spouse and a former spouse) or any person who is or was dependent
on him, and may (as well before as after he ceases to hold such office or
employment) contribute to any fund and pay premiums for the purchase or
provision of any such benefit.
(2) Without prejudice to the provisions of Article 165, the board shall have
power to purchase and maintain insurance for or for the benefit of any persons
who are or were at any time directors, officers, employees or auditors of the
Company, or of any subsidiary undertaking of the Company or any other company
which is its parent company or in which the Company or such parent company has
any interest whether direct or indirect or which is in any way allied to or
associated with the Company or any employee or subsidiary undertaking of the
Company or of any such other company, or who are or were at any time trustees of
any employee or retirement benefits scheme in which employees of the Company or
of any such subsidiary undertaking or other company are interested, including
(without prejudice to the generality of the foregoing) insurance against any
liability incurred by such persons in respect of any act or omission in the
actual or purported execution or discharge of their duties or in the exercise or
purported exercise of their powers or otherwise in relation to their duties,
powers or offices in relation to the Company or any such subsidiary undertaking,
other company or employee or retirement benefits scheme.
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(3) No director or former director shall be accountable to the Company or the
members for any benefit provided pursuant to this Article 120 and the receipt of
any such benefit shall not disqualify any person from being or becoming a
director of the Company.
121. Pursuant to section 719 of the Act, the board is hereby authorised to make
such provision as may seem appropriate for the benefit of any persons employed
or formerly employed by the Company or any of its subsidiaries in connection
with the cessation or the transfer of the whole or part of the undertaking of
the Company or any subsidiary undertaking. Any such provision shall be made by
a resolution of the board in accordance with the said section.
PROCEEDINGS OF DIRECTORS
122. Subject to the provisions of the Articles, the board may regulate its
proceedings as it thinks fit. A director may, and the secretary at the request
of a director shall, call a meeting of the board. Notice of a board meeting
shall be deemed to be properly given to a director if it is given to him
personally or by word of mouth or sent in writing or by electronic mail to him
at his last known address or any other address given by him to the Company for
this purpose. A director absent or intending to be absent from the United
Kingdom may request the board that notices of board meetings shall during his
absence be sent in writing to him at an address given by him to the Company for
this purpose, but such notices need not be given any earlier than notices given
to directors not so absent and, if no request is made to the board, it shall not
be necessary to give notice of a board meeting to any director who is for the
time being absent from the United Kingdom. Questions arising at a meeting shall
be decided by a majority of votes. In the case of an equality of votes, the
chairman shall have a second or casting vote. Any director may waive notice of a
meeting and any such waiver may be retrospective.
123. The quorum for the transaction of the business of the board may be fixed
by the board and unless so fixed at any other number shall be two. A person who
holds office only as an alternate director shall, if his appointor is not
present, be counted in the quorum. Any director who ceases to be a director at a
board meeting may continue to be present and to act as a director and be counted
in the quorum until the termination of the board meeting if no director objects.
124. The continuing directors or a sole continuing director may act
notwithstanding any vacancies in their number, but, if the number of directors
is less than the number fixed as the quorum, the continuing directors or
director may act only for the purpose of filling vacancies or of calling a
general meeting.
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125. The board may appoint one of their number to be the chairman, and one of
their number to be the deputy chairman, of the board and may at any time remove
either of them from such office. Unless he is unwilling to do so, the director
appointed as chairman, or in his stead the director appointed as deputy
chairman, shall preside at every meeting of the board at which he is present. If
there is no director holding either of those offices, or if neither the chairman
nor the deputy chairman is willing to preside or neither of them is present
within five minutes after the time appointed for the meeting, the directors
present may appoint one of their number to be chairman of the meeting.
126. All acts done by a meeting of the board, or of a committee of the board,
or by a person acting as a director or alternate director shall, notwithstanding
that it be afterwards discovered that there was a defect in the appointment of
any director or any member of the committee or alternate director or that any of
them were disqualified from holding office, or had vacated office, or were not
entitled to vote, be as valid as if every such person had been duly appointed
and was qualified and had continued to be a director or, as the case may be, an
alternate director and had been entitled to vote.
127.(1) A resolution in writing signed by all the directors entitled to receive
notice of a meeting of the board or of a committee of the board (not being less
than the number of directors required to form a quorum of the board) shall be as
valid and effectual as if it had been passed at a meeting of the board or (as
the case may be) a committee of the board duly convened and held and for this
purpose:-
(a) a resolution may consist of several documents to the same effect each
signed by one or more directors;
(b) a resolution signed by an alternate director need not also be signed by his
appointor; and
(c) a resolution signed by a director who has appointed an alternate director
need not also be signed by the alternate director in that capacity.
(2) Without prejudice to the first sentence of Article 122, a meeting of the
board or of a committee of the board may consist of a conference between
directors who are not all in one place, but of whom each is able (directly or by
telephonic communication or video conferencing facilities) to speak to each of
the others, and to be heard by each of the others simultaneously. A director
taking part in such a conference shall be deemed to be present in person at the
meeting and shall be entitled to vote or be counted in a quorum accordingly.
Such a meeting shall be deemed to take place where the largest group of those
participating in the conference is assembled, or, if there is no
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such group, where the chairman of the meeting then is. The word meeting in the
Articles shall be construed accordingly.
128. Save as otherwise provided by the Articles, a director shall not vote at a
meeting of the board or a committee of the board on any resolution concerning a
matter in which he has an interest (other than by virtue of his interests in
shares or debentures or other securities of, or otherwise in or through, the
Company) which (together with any interest of any person connected with him) is
to his knowledge material unless his interest arises only because the resolution
concerns one or more of the following matters:
(a) the giving of a guarantee, security or indemnity in respect of money lent
or obligations incurred by him or any other person at the request of or for
the benefit of, the Company or any of its subsidiary undertakings;
(b) the giving of a guarantee, security or indemnity in respect of a debt or
obligation of the Company or any of its subsidiary undertakings for which
the director has assumed responsibility (in whole or part and whether alone
or jointly with others) under a guarantee or indemnity or by the giving of
security;
(c) a contract, arrangement, transaction or proposal concerning an offer of
shares, debentures or other securities of the Company or any of its
subsidiary undertakings for subscription or purchase, in which offer he is
or may be entitled to participate as a holder of securities or in the
underwriting or sub-underwriting of which he is to participate;
(d) a contract, arrangement, transaction or proposal concerning any other body
corporate in which he or any person connected with him is interested,
directly or indirectly, and whether as an officer, shareholder, creditor or
otherwise, if he and any persons connected with him do not to his knowledge
hold an interest (as that term is used in sections 198 to 211 of the Act)
representing one per cent. or more of either any class of the equity share
capital of such body corporate (or any other body corporate through which
his interest is derived) or of the voting rights available to members of
the relevant body corporate (any such interest being deemed for the purpose
of this Article to be a material interest in all circumstances);
(e) a contract, arrangement, transaction or proposal for the benefit of
employees of the Company or of any of its subsidiary undertakings which
does not award him any privilege or benefit not generally accorded to the
employees to whom the arrangement relates; and
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(f) a contract, arrangement, transaction or proposal concerning any insurance
which the Company is empowered to purchase or maintain for, or for the
benefit of, any directors of the Company or for persons who include
directors of the Company.
For the purpose of determining whether a proposal concerns a company in which a
director is interested, there shall be disregarded any shares held by a director
as bare or custodian trustee and in which he has no beneficial interest, any
shares comprised in a trust in which the director's interest is in reversion or
remainder if and so long as some other person is entitled to receive the income
thereof, and any shares comprised in an authorised unit trust in which the
director is only interested as a unit holder. For the purposes of this Article,
an interest of a person who is, for any purpose of the Act (excluding any
statutory modification thereof not in force when this Article becomes binding on
the Company), connected with a director shall be treated as an interest of the
director and, in relation to an alternate director, an interest of his appointor
shall be treated as an interest of the alternate director without prejudice to
any interest which the alternate director has otherwise.
129. A director shall not be counted in the quorum present at a meeting in
relation to a resolution on which he is not entitled to vote.
130. The Company may by ordinary resolution ratify any action not duly
authorised by reason of a contravention of any provision of the Articles
prohibiting a director from voting at a meeting of the board or of a committee
of the board.
131. Where proposals are under consideration concerning the appointment
(including fixing or varying the terms of appointment) of two or more directors
to offices or employments with the Company or any body corporate in which the
Company is interested, the proposals may be divided and considered in relation
to each director separately and in such cases each of the directors concerned
(if not debarred from voting under the proviso to paragraph (e) of Article 128)
shall be entitled to vote and be counted in the quorum in respect of each
resolution except that concerning his own appointment.
132. If a question arises at a meeting of the board or of a committee of the
board as to the entitlement of a director to vote or be counted in a quorum, the
question may, before the conclusion of the meeting, be referred to the chairman
of the meeting and his ruling in relation to any director other than himself
shall be final and conclusive except in a case where the nature or extent of the
interests of the director concerned have not been fairly disclosed. If any such
question arises in respect of the chairman of the meeting, it shall be decided
by resolution of the board (on which the chairman shall not vote) and such
resolution will be final and conclusive
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except in a case where the nature and extent of the interests of the chairman
have not been fairly disclosed.
SECRETARY
133. Subject to the provisions of the Companies Acts, the secretary shall be
appointed by the board for such term, at such remuneration and upon such
conditions as it may think fit; and any secretary so appointed may be removed by
the board, but without prejudice to any claim for damages for breach of any
contract of service between him and the Company.
MINUTES
134. The board shall cause minutes to be made in books kept for the purpose of:-
(a) all appointments of officers made by the board; and
(b) all proceedings at meetings of the Company, of the holders of any class of
shares in the Company, of the board, and of committees of the board,
including the names of the directors present at each such meeting.
Any such minutes, if purporting to be signed by the chairman of the meeting to
which they relate or of the meeting at which they are read shall be sufficient
evidence without any further proof of the facts therein stated.
THE SEAL
135.(1) The seal shall only be used by the authority of a resolution of the
board or of a committee of the board. The board may determine who shall sign any
instrument to which the seal is affixed and unless otherwise so determined it
shall be signed by at least one director and the secretary or by at least two
directors. The board may resolve that the Company shall not have a seal.
(2) Any document may be executed under the seal by impressing the seal by
mechanical means or by printing the seal or a facsimile of it on the document or
by applying the seal or a facsimile of it by any other means to the document.
(3) Where the Companies Acts so permit, any instrument or document signed by
one director and the secretary or by two directors and expressed (using any form
of words) to be executed by the Company shall have the same effect as if
executed under the seal, provided that no instrument or document which makes it
clear on its face that it is intended to have effect as a deed shall be so
signed without the authority of the board or a duly authorised committee
thereof.
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(4) An instrument or document which is executed by the Company as a deed shall
not be deemed to be delivered by the Company solely as a result of it having
been executed by the Company.
136. The board may by resolution determine either generally or in any
particular case that any certificates for shares or debentures or representing
any other form of security:-
(a) to which the seal is affixed may have signatures printed on them or affixed
to them by some mechanical means or that such certificates need not bear any
signature; and
(b) to be executed by the Company pursuant to Article 135(2) may have
signatures printed on them or affixed to them by some mechanical means.
137. The Company may exercise the powers conferred by section 39 of the Act
with regard to having an official seal for use abroad.
REGISTERS
138. Subject to the provisions of the Companies Acts and the Regulations, the
Company may keep an overseas or local or other register in any place, and the
board may make, amend and revoke any such regulations as it may think fit
respecting the keeping of the register.
139. Any director or the secretary or any other person appointed by the board
for the purpose shall have power to authenticate and certify as true copies of
and extracts from:
(a) any document comprising or affecting the constitution of the Company;
(b) any resolution passed by the Company, the holders of any class of shares in
the capital of the Company, the board or any committee of the board; and
(c) any book, record and document relating to the business of the Company
(including without limitation the accounts).
If certified in this way, a document purporting to be a copy of a resolution, or
the minutes or an extract from the minutes of a meeting of the Company, the
holders of any class of shares in the capital of the Company, the board or a
committee of the board shall be conclusive evidence in favour of all persons
dealing with the Company in reliance on it or them that the resolution was duly
passed or that the minutes are, or the extract from the minutes is, a true and
accurate record of proceedings at a duly constituted meeting.
DIVIDENDS
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140. Subject to the provisions of the Companies Acts, the Company may by
ordinary resolution declare dividends in accordance with the respective rights
of the members, but no dividend shall exceed the amount recommended by the
board.
141. Subject to the provisions of the Companies Acts, the board may pay interim
dividends if it appears to the board that they are justified by the profits of
the Company available for distribution. If the share capital is divided into
different classes, the board may pay interim dividends on shares which confer
deferred or non-preferred rights with regard to dividend as well as on shares
which confer preferential rights with regard to dividend, but no interim
dividend shall be paid on shares carrying deferred or non-preferred rights if,
at the time of payment, any preferential dividend is in arrear. The board may
also pay at intervals settled by it any dividend payable at a fixed rate if it
appears to the board that the profits available for distribution justify the
payment. Provided the board acts in good faith it shall not incur any liability
to the holders of shares conferring preferred rights for any loss they may
suffer by the lawful payment of an interim dividend on any shares having
deferred or non-preferred rights.
142. Except as otherwise provided by the rights attached to any shares or class
of shares, all dividends shall be declared and paid according to the amounts
paid up on the shares on which the dividend is paid; but no amount paid on a
share in advance of the date on which a call is payable shall be treated for the
purposes of this Article as paid on the share. All dividends shall be
apportioned and paid proportionately to the amounts paid up on the shares during
any portion or portions of the period in respect of which the dividend is paid;
but, if any share is issued on terms providing that it shall rank for dividend
as from a particular date, that share shall rank for dividend accordingly.
143.(1) A general meeting declaring a dividend may, upon the recommendation of
the board, by ordinary resolution direct that it shall be satisfied wholly or
partly by the distribution of assets, and in particular of paid up shares or
debentures of any other company, and, where any difficulty arises in regard to
the distribution, the board may settle the same as it thinks fit and in
particular may issue fractional certificates or authorise any person to sell and
transfer any fractions or disregard fractions altogether, and may fix the value
for distribution of any assets and may determine that cash shall be paid to any
member on the basis of the value so fixed in order to adjust the rights of
members and may vest any assets in trustees.
(2) The board may, if authorised by an ordinary resolution of the Company,
offer any holders of ordinary shares the right to elect to receive ordinary
shares, credited as fully paid, instead of cash in respect of the whole
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(or some part, to be determined by the board) of any dividend specified by the
ordinary resolution. The following provisions shall apply:-
(a) An ordinary resolution may specify a particular dividend, or may specify
all or any dividends declared within a specified period but such period may
not end later than the beginning of the fifth annual general meeting
following the date of the meeting at which the ordinary resolution is
passed.
(b) The entitlement of each holder of ordinary shares to new ordinary shares
shall be such that the relevant value of the entitlement shall be as nearly
as possible equal to (but not greater than) the cash amount (disregarding
any tax credit) of the dividend that such holder elects to forego. For this
purpose relevant value shall be calculated by reference to the average of
the middle market quotations for the Company's ordinary shares on The Stock
Exchange, as derived from the Daily Official List, on the day on which the
ordinary shares are first quoted "ex" the relevant dividend and the four
subsequent dealing days, or in such other manner as may be determined by or
in accordance with the ordinary resolution.
A certificate or report by the auditors as to the amount of the relevant
value in respect of any dividend shall be conclusive evidence of that
amount.
(c) On or as soon as practicable after announcing that any dividend is to be
declared or recommended, the board, if it intends to offer an election in
respect of that dividend, shall also announce that intention, and shall,
after determining the basis of allotment, if it decides to proceed with the
offer, notify the holders of ordinary shares in writing of the right of
election offered to them, and specify the procedure to be followed and
place at which, and the latest time by which elections must be lodged in
order to be effective provided that the directors may make, in relation to
uncertificated shares, such other arrangements as they may in their
absolute discretion think fit (subject always to the facilities and
requirements of the relevant system concerned).
(d) The board shall not proceed with any election unless the Company has
sufficient unissued shares authorised for issue and sufficient reserves or
funds that may be capitalised to give effect to it after the basis of
allotment is determined.
(e) The board may exclude from any offer any holders of ordinary shares where
the directors believe the making of the offer to them would or might
involve the contravention of the laws of any territory or that for any
other reason the offer should not be made to them.
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(f) The dividend (or that part of the dividend in respect of which a right of
election has been offered) shall not be payable in cash on ordinary shares
in respect of which an election has been made (the elected ordinary shares)
and instead additional ordinary shares shall be allotted to the holders of
the elected ordinary shares on the basis of allotment calculated as stated.
For such purpose the board shall capitalise out of any amount for the time
being standing to the credit of any reserve or fund (including the profit
and loss account) whether or not the same is available for distribution as
the board may determine a sum equal to the aggregate nominal amount of the
additional ordinary shares to be allotted on that basis and apply it in
paying up in full the appropriate number of unissued ordinary shares for
allotment and distribution to the holders of the elected ordinary shares on
that basis.
(g) The additional ordinary shares when allotted shall rank pari passu in all
respects with the fully paid ordinary shares then in issue except that they
will not be entitled to participation in the relevant dividend. Unless the
directors otherwise determine (and subject always to the Regulations and
the requirements of the relevant system concerned), the ordinary shares so
allotted shall be issued as certificated shares (where the ordinary shares
in respect of which they have been allotted were certificated shares at the
Scrip Record Time) or as uncertificated shares (where the ordinary shares
in respect of which they have been allotted were uncertificated shares at
the Scrip Record Time) provided that if the Company is unable under the
facilities and requirements of the relevant system concerned to issue
ordinary shares in respect of the person entitled thereto as uncertificated
shares able to be evidenced and transferred without a written instrument,
such shares shall be issued as certificated shares; for these purposes, the
Scrip Record Time means such time on the record date for determining the
entitlements of members to make elections as described in this Article, or
on such other date, as the directors may in their absolute discretion
determine.
(h) No fraction of a share shall be allotted. The board may make such
provision as it thinks fit for any fractional entitlements including
without limitation payment in cash to holders in respect of their
fractional entitlements, provision for the accrual, retention or
accumulation of all or part of the benefit of fractional entitlements to or
by the Company or to or by or on behalf of any holder or the application of
any accrual, retention or accumulation to the allotment of fully paid
shares to any holder.
(i) The board may do all acts and things it considers necessary or expedient to
give effect to the allotment and issue of any share
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pursuant to this Article or otherwise in connection with any offer made
pursuant to this Article and may authorise any person, acting on behalf of
the holders concerned, to enter into an agreement with the Company
providing for such allotment or issue and incidental matters. Any agreement
made under such authority shall be effective and binding on all concerned.
(j) The board may, at its discretion, amend, suspend or terminate any offer
pursuant to this Article.
144. The board may deduct from any dividend or other moneys payable to any
member in respect of a share any moneys presently payable by him to the Company
in respect of that share.
145. Any resolution declaring a dividend on shares of any class, whether a
resolution of the Company in general meeting or a resolution of the directors,
may specify that the same shall be payable to the persons registered as the
holders of such shares at the close of business on a particular date,
notwithstanding that it may be a date prior to that on which the resolution is
passed, and thereupon the dividend shall, subject to the provisions of Article
146, be payable to them in accordance with their respective holdings so
registered, but without prejudice to the rights inter se in respect of such
dividend of transferors and transferees of any such shares.
146. Any dividend or other moneys payable in respect of a share may be paid by
cheque or warrant sent by post to the registered address of the holder or person
entitled or, if two or more persons are the holders of the share or are jointly
entitled to it by transmission, to the registered address of that one of those
persons who is first named in the register or in any case to such person and to
such address as the holder or person entitled thereto may in writing direct or
notify. Every such cheque or warrant shall be made payable to the order of the
person or persons entitled or to such other person and shall be sent at the risk
of the person or persons entitled. Any joint holder or other person jointly
entitled to a share as aforesaid may give receipts for any dividend or other
moneys payable in respect of the share. Any such dividend or other money may
also be paid by any other method (including direct debit, bank transfer and
dividend warrant and, in respect of uncertificated shares, by means of the
relevant system concerned (subject to the facilities and requirements of the
relevant system concerned) which the board considers appropriate.
147. Payment of a cheque or warrant by the bank on which it was drawn or the
transfer of funds by the bank instructed to make the transfer or, in respect of
an uncertificated share, the making of payment in accordance with the facilities
and requirements of the relevant system concerned (which, if the
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relevant system is CREST, shall be the creation of an assured payment obligation
in respect of the dividend or other moneys payable in favour of the settlement
bank of the member or other person concerned) shall be a good discharge to the
Company.
148. No dividend or other moneys payable in respect of a share shall bear
interest against the Company unless otherwise provided by the rights attached to
the share.
149. Any dividend which has remained unclaimed for twelve years from the date
when it became due for payment shall, if the board so resolves, be forfeited and
cease to remain owing by the Company. Any unclaimed dividend or other moneys
payable in respect of a share may (but need not) be paid by the Company into an
account separate from the Company's own account. Such payment shall not
constitute the Company a trustee thereof. The Company shall be entitled to
cease sending dividend warrants and cheques by post or otherwise to a member if
such instruments have been returned undelivered to, or left uncashed by, that
member on at least two consecutive occasions, or, following one such occasion,
reasonable enquiries have failed to establish the member's new address. The
entitlement conferred on the Company by this Article in respect of any member
shall cease if such member claims a dividend or cashes a dividend warrant or
cheque.
CAPITALISATION OF PROFITS AND RESERVES
150. The board may with the authority of an ordinary resolution of the
Company:-
(a) subject as hereinafter provided, resolve to capitalise any undistributed
profits of the Company not required for paying any preferential dividend
(whether or not they are available for distribution) or any sum standing to
the credit of any reserve or other fund, including (without limitation) the
Company's share premium account, capital redemption reserve and revaluation
reserve, if any;
(b) appropriate the sum resolved to be capitalised to the members or any class
of members on the record date specified in the relevant resolution who
would have been entitled to it if it were distributed by way of dividend
and in the same proportions and apply such sum on their behalf either in or
towards paying up the amounts, if any, for the time being unpaid on any
shares held by them respectively, or in paying up in full unissued shares,
debentures or other obligations of the Company of a nominal amount equal to
that sum, and allot the shares, debentures or other obligations credited as
fully paid to those members, or as they may direct, in those proportions,
or partly in one way and partly in the other; but the share premium
account, the capital redemption reserve and any profits which are not
available for distribution may, for the
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purposes of this Article, only be applied in paying up unissued shares to
be allotted to members credited as fully paid;
(c) make such provision by authorising the sale and transfer to any person of
fractions to which any members would become entitled or may issue
fractional certificates or may resolve that the distribution be made as
nearly as practicable in the correct proportion but not exactly so or may
ignore fractions altogether or resolve that cash payments be made to any
members in order to adjust the rights of all parties or otherwise as (in
each case) the board determines where shares or debentures become, or would
otherwise become, distributable under this Article in fractions;
(d) authorise any person to enter on behalf of all the members concerned into
an agreement with the Company providing for either:
(i) the allotment to such members respectively, credited as fully paid, of
any shares, debentures or other obligations to which they are entitled
upon such capitalisation; or
(ii) the payment up by the Company on behalf of such members (by the
application thereto of their respective proportions of the profits
resolved to be capitalised) of the amounts or any part of the amounts,
remaining unpaid on their existing shares and any agreement made under
such authority shall be binding on all such members; and
(e) generally do all acts and things required to give effect to such resolution
as aforesaid.
RECORD DATES
151. Notwithstanding any other provision of these Articles, the Company or the
board may fix any date as the record date for:
(a) any dividend, distribution, allotment or issue, which may be on or at any
time before or after any date on which the dividend, distribution,
allotment or issue is declared, paid or made; or
(b) the giving of notices or other documents to members (including, without
limitation, any notice of a general meeting), which may be on or at any
time before or after any date on which the notice or document is given or
dated.
ACCOUNTS
152. No member shall (as such) have any right to inspect any accounting records
or other book or document of the Company except as conferred by statute or
authorised by the board or by ordinary resolution of the Company.
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153. A copy of every balance sheet and profit and loss account (including any
documents required by law to be annexed thereto) which is to be laid before the
Company in general meeting and of the directors' and auditors' reports shall, at
least twenty-one days before the date of the meeting, be delivered or sent by
post to every member and to every debenture holder of the Company of whose
address the Company is aware, and to every other person who is entitled to
receive notice of meetings from the Company under the provisions of the
Companies Acts or of the Articles or, in the case of joint holders of any share
or debenture, to one of the joint holders, and copies shall be sent to The Stock
Exchange in accordance with any obligations for the time being binding the
Company. The requirements of this Article shall be deemed satisfied in relation
to, and copies of such documents need not be sent to, any member to whom a
summary financial statement (with such form and content as may be prescribed by
the Companies Acts and any regulation made thereunder and The Stock Exchange) is
sent in accordance with the Companies Acts.
NOTICES
154. Any notice to be given to or by any person pursuant to the Articles shall
be in writing except that a notice calling a meeting of the board need not be in
writing.
155. The Company may serve or deliver any notice or other document on or to a
member either personally or by sending it by post in a prepaid envelope
addressed to the member at his registered address or by leaving it at that
address. In the case of joint holders of a share, all notices or other documents
shall be served on or delivered to the joint holder whose name stands first in
the register in respect of the joint holding and any notice or other document so
served or delivered shall be deemed for all purposes sufficient service on or
delivery to all the joint holders. A member whose registered address is not
within the United Kingdom and who gives to the Company an address within the
United Kingdom at which notices may be given to him shall be entitled to have
notices given to him at that address, but otherwise no such member shall be
entitled to receive any notice from the Company.
156. A member present, either in person or by proxy, at any meeting of the
Company or of the holders of any class of shares in the Company shall be deemed
to have received notice of the meeting and, where requisite, of the purposes for
which it was called.
157. A notice or other document may be served or delivered by the Company on or
to the persons entitled by transmission to a share by sending or delivering it,
in any manner authorised by the Articles for the service or delivery of a notice
or other document on or to a member, addressed to them
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by name, or by the title of representatives of the deceased, or trustee of the
bankrupt or by any like description at the address, if any, within the United
Kingdom supplied for that purpose by the persons claiming to be so entitled.
Until such an address has been supplied, a notice or other document may be
served or delivered in any manner in which it might have been served or
delivered if the death or bankruptcy or other event giving rise to the
transmission had not occurred.
158. Every person who becomes entitled to a share shall be bound by any notice
in respect of that share which, before his name is entered in the register, has
been duly given to a person from whom he derives his title, provided that no
person who becomes entitled by transmission to a share shall be bound by any
direction notice issued under Article 77 to a person from whom he derives his
title.
159. Any notice or other document, if sent by post, shall be deemed to have
been served or delivered on the day following that on which it was put in the
post unless it was sent by second class post or there is only one class of post
in which case it shall be deemed to have been served or delivered on the day
next but one after it was posted, and, in proving service or delivery, it shall
be sufficient to prove that the notice or document was properly addressed,
stamped and put in the post. Any notice or other document not sent by post but
left at a registered address shall be deemed to have been served or delivered on
the day it was so left.
160.(1) If at any time the Company is unable effectively to convene a general
meeting by notices sent through the post in the United Kingdom as a result of
the suspension or curtailment of postal services, notice of such general meeting
may be sufficiently given by advertisement in the United Kingdom and in that
event the notice shall be deemed to have been served on all members and persons
entitled by transmission, who are entitled to have notice of meetings served
upon them, on the day on which the advertisement is published. In any such case
the Company shall send confirmatory copies of the notice by post if at least
seven days prior to the meeting the posting of notices to addresses throughout
the United Kingdom again becomes practicable.
(2) Any notice given by advertisement shall be advertised on the same date in
at least two daily newspapers having a national circulation in the United
Kingdom and such notice shall be deemed to have been served at noon on the day
when the advertisement appears.
DESTRUCTION OF DOCUMENTS
161. The Company shall be entitled to destroy all instruments of transfer of
shares which have been registered (and all other documents on the basis of which
any entry is made in the register) at any time after the expiration of six
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years from the date of registration thereof and all dividend mandates or
variations or cancellations thereof and notifications of change of address at
any time after the expiration of two years from the date of recording thereof
and all share certificates which have been cancelled at any time after the
expiration of one year from the date of the cancellation thereof and all paid
dividend warrants and cheques on the date of actual payment thereof and all
instruments of proxy which have been used for the purpose of a poll at any time
after the expiration of one year from the date of such use and all instruments
of proxy which have not been used for the purpose of a poll at any time after
one month from the end of the meeting to which the instrument of proxy relates
and at which no poll was demanded. It shall conclusively be presumed in favour
of the Company that every entry in the register purporting to have been made on
the basis of an instrument of transfer or other document so destroyed was duly
and properly made, that every instrument of transfer so destroyed was a valid
and effective instrument duly and properly registered, that every share
certificate so destroyed was a valid and effective certificate duly and properly
cancelled and that every other document hereinbefore mentioned so destroyed was
a valid and effective document in accordance with the recorded particulars
thereof in the books or records of the Company; Provided always that:-
(a) the provisions aforesaid shall apply only to the destruction of a document
in good faith and without notice of any claim (regardless of the parties
thereto) to which the document might be relevant;
(b) nothing herein contained shall be construed as imposing upon the Company
any liability in respect of the destruction of any such document earlier
than as aforesaid or in any other circumstances which would not attach to
the Company in the absence of this Article;
(c) references herein to the destruction of any document include references to
the disposal thereof in any manner;
(d) references herein to instruments of transfer shall include, in relation to
uncertificated shares, operator-instructions relating to the transfer of
such shares; and
(e) in relation to uncertificated shares, the provisions hereof shall apply
only to the extent the same are consistent with the Regulations.
UNTRACED SHAREHOLDERS
162.(1) The Company shall be entitled to sell the shares of a member or the
shares to which a person is entitled by transmission if and provided that:-
(a) during the period of twelve years prior to the date of the publication of
the advertisements referred to in paragraph (b) below (or, if published on
different dates, the first thereof) at least three dividends in respect
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of the shares in question have been declared and all dividend warrants and
cheques which have been sent in the manner authorised by the Articles in
respect of the shares in question have remained uncashed; and
(b) the Company shall as soon as practicable after expiry of the said period of
twelve years have inserted advertisements both in a national daily
newspaper and in a newspaper circulating in the area of the last known
address of such member or other person giving notice of its intention to
sell the shares; and
(c) during the said period of twelve years and the period of three months
following the publication of the said advertisements the Company shall have
received no indication either of the whereabouts or of the existence of
such member or person; and
(d) if the shares are listed on The Stock Exchange, notice shall have been
given to The Stock Exchange of the Company's intention to make such sale
prior to the publication of advertisements.
If during any twelve year period referred to in paragraph (a) above, further
shares have been issued in right of those held at the beginning of such period
or of any previously issued during such period and all the other requirements of
this Article have been satisfied in regard to the further shares, the Company
may also sell the further shares.
(2) To give effect to any sale pursuant to Article 162(1), the board may:
(a) where the shares are held in certificated form, authorise any person to
execute an instrument of transfer of the shares to, or in accordance with
the directions of, the buyer; or
(b) where the shares are held in uncertificated form, do all acts and things it
considers necessary or expedient to effect the transfer of the shares to,
or in accordance with the directions of, the buyer.
(3) An instrument of transfer executed in accordance with Article 162(2)(a)
shall be as effective as if it had been executed by the holder of, or person
entitled by transmission to, the shares. An exercise by the Company of its
powers in accordance with Article 162(2)(b) shall be as effective as if
exercised by the registered holder of or person entitled by transmission to the
shares. The transferee shall not be bound to see to the application of the
purchase money, and his title to the shares shall not be affected by any
irregularity in, or invalidity of, the proceedings in reference to the sale.
(4) The net proceeds of sale shall belong to the Company which shall be obliged
to account to the former member or other person previously entitled as aforesaid
for an amount equal to such proceeds and the Company shall
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enter the name of such former member or other person in the books of the Company
as a creditor for such amount. No trust shall be created in respect of the debt,
no interest shall be payable in respect of the same and the Company shall not be
required to account for any money earned on the net proceeds, which may be
employed in the business of the Company or invested in such investments as the
board from time to time thinks fit.
WINDING UP
163. If the Company is wound up, the liquidator may, with the sanction of an
extraordinary resolution of the Company and any other sanction required by the
Insolvency Act 1986, divide among the members in specie the whole or any part of
the assets of the Company and may, for that purpose, value any assets and
determine how the division shall be carried out as between the members or
different classes of members. The liquidator may, with the like sanction, vest
the whole or any part of the assets in trustees upon such trusts for the benefit
of the members as he with the like sanction determines, but no member shall be
compelled to accept any assets upon which there is a liability.
164. The power of sale of a liquidator shall include a power to sell wholly or
partially for shares or debentures or other obligations of another body
corporate, either then already constituted or about to be constituted for the
purpose of carrying out the sale.
INDEMNITY
165. Subject to the provisions of the Companies Acts but without prejudice to
any indemnity to which a director may otherwise be entitled, every
director or other officer of the Company shall be indemnified out of the
assets of the Company against all costs, charges, losses, expenses and
liabilities incurred by him in the actual or purported execution and
discharge of his duties or the actual or purported exercise of his powers
or otherwise in relation thereto, including (but without limitation) any
liability incurred by him in defending any proceedings, whether civil or
criminal, in which judgment is given in his favour (or the proceedings are
otherwise disposed of without any finding or admission of any material
breach of duty on his part) or in which he is acquitted or in connection
with any application in which relief is granted to him by the court from
liability for negligence, default, breach of duty or breach of trust in
relation to the affairs of the Company.
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THE COMPANIES ACT 1985
___________________________________
A Public Company Limited By Shares
___________________________________
Memorandum of Association
of
PowerGen PLC*
___________________________________
1. The name of the Company is "PowerGen 1998 PLC"*.
2. The Company is to be a public company.
3. The registered office of the Company is to be situated in England and Wales.
4. The objects for which the Company is established are:
(1) To carry on the business of a holding company and to co-ordinate,
finance and manage all or any part of the businesses and operations of
any and all companies controlled directly or indirectly by the Company
or in which the Company is interested, whether as a shareholder or
otherwise and whether directly or indirectly.
(2) To carry on any or all of the businesses of generating, producing,
transforming, converting, processing, developing, transmitting,
supplying, distributing and dealing in electricity or any other forms
of energy or any products derived from or connected with any of these
activities and in any manner whatsoever in the United Kingdom or
elsewhere and for all purposes to acquire supplies of electricity or
other sources or
________________________________________________________________________________
* The name of the Company was changed from POWERGEN 1998 PLC to POWERGEN plc
on 9 December 1998.
<PAGE>
forms of energy from, and to provide bulk or other supplies thereof
to, any person for own use, transformation, conversion, processing,
development, transmission, supply, distribution, dealing or otherwise
in the United Kingdom or elsewhere and, as appropriate, expand and
extend the business or businesses and activities relating thereto or
any part or parts thereof (including, without limitation, the business
and activity of an electricity generating company).
(3) To explore for, produce, acquire or otherwise obtain any fuel or other
raw materials or sources or forms of energy of any kind for use in
connection with the generation of electricity or any other form of
energy or otherwise and to process, develop, supply, distribute and
deal in or with any such raw materials or sources or forms of energy
or any by-products thereof in any manner and to process and deal in
any by-products which may be obtained from any of the activities of
the Company.
(4) Subject to such terms and conditions as may be thought fit, to enter
into, carry on and participate in financial transactions and
operations of all kinds including (without limitation) swaps, options
(including traded options), swap option contracts, forward exchange
contracts, futures contracts, forward rate agreements, contracts for
differences, caps, collars, floors and any other financial instruments
(including hedging agreements of any kind) or any combination thereof
or any option with respect to any such financial transaction or
operation all or any of which may be on a fixed and/or floating basis
and/or in respect of Sterling (and any other currency or basket of
currencies including but not limited to European Currency Units (as
the same may from time to time be designated or constituted) or
commodities of any kind and in the case of such swaps, options, swap
option contracts, forward exchange contracts, futures contracts,
forward rate agreements, contracts for differences, caps, collars,
floors and any other financial instruments (including hedging
agreements of any kind) they may be undertaken by the Company on a
speculative basis or in connection with the management of financial
risks relating to the Company or any other company, firm or person or
otherwise on such terms as may be thought fit and with or without
security, and to undertake, carry on and execute all kinds of
financial, commercial, trading, trust, agency and other operations.
<PAGE>
(5) To carry on any or all of the businesses of constructing, engineering,
manufacturing, producing, supplying, hiring out, installing, servicing
and dealing in all types of buildings, plant and equipment whether
used in connection with the generation, production, transformation,
conversion, processing, development, transmission, supply or
distribution of electricity or any other form of energy or otherwise
(including, but without limitation, in connection with the
conservation and efficient use of energy).
(6) To carry on any or all of the businesses of investors, designers,
developers, manufacturers, producers, wholesalers, retailers,
suppliers, distributors, hiring and hiring-out, installers, servicers
and dealers in electrical appliances, household and general domestic
equipment, furniture, fixtures and fittings and all kinds of goods,
plant, equipment, tools, components, systems, materials and
installations whether or not connected with the use of electricity or
other forms of energy of any kind and whether for domestic, industrial
or commercial purposes or otherwise.
(7) To carry on any or all of the businesses of investors, researchers and
developers and to conduct, promote and commission research and
research and development activities of all kinds, whether relating to
the generation, production, transformation, conversion, processing,
development, transmission, supply or distribution of electricity or
other forms of energy or any of the other businesses or activities of
the Company or otherwise (including, but without limitation, such
activities relating to the conservation and efficient use of energy),
and to exploit and turn to account the results of any such research or
research and development carried out by or for the Company or
otherwise.
(8) To do anything which a person who is authorised to generate, transmit
or supply electricity under or pursuant to the Electricity Act 1989
(or any statutory modification or re-enactment thereof) or any licence
or exemption granted thereunder or pursuant thereto is permitted or
required to do under or by virtue of that Act (or any statutory
modification or re-enactment thereof), licence or exemption.
(9) To acquire (whether by purchase, lease, concession, grant or
otherwise), establish, develop, exploit, operate and maintain
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land, claims, wells, mines, licences, consents, authorisations,
concessions, drilling and mining rights, exploration and production
rights, and/or rights and interests of all descriptions in or relating
to the same, which may seem to the Directors of the Company to be
capable or possibly capable of facilitating directly or indirectly the
procurement, generation, production, processing, development,
transformation, conversion, transmission, supply or distribution of,
or dealing in, electricity or other forms of energy or any products
derived from or connected with any of these activities or of
facilitating any of the other businesses or activities of the Company
or of affording a supply of natural or other gas, petroleum or other
hydrocarbons, coal or other minerals, any other sources or forms of
energy, chemicals or revenue or products derived directly or
indirectly from any of them.
(10) To construct, lay, maintain, install and remove and carry on works in
respect of electric wires (including those overhead and underground),
cables, lines, plant and equipment and facilities ancillary to the
operation or use of a grid or distribution network, and to acquire,
operate and maintain the consents, authorisations, wayleaves,
easements and other rights capable of facilitating the same.
(11) To carry on any or all of the businesses of, and provide services
associated with, engineers (including, without limitation, electrical,
mechanical, mining, drilling, civil, chemical and telecommunications
engineers), biologists, physicists, chemists, contractors,
consultants, mechanics, technicians, geologists, draughtsmen,
designers, surveyors, architects, builders and decorators (in each
case) of all kinds.
(12) To carry out such building, mining, engineering or other operations
and works, and to manufacture, acquire, process, distribute or deal in
such goods and to acquire, hold or deal with such property, assets,
rights and liabilities, as may seem to the Board of Directors of the
Company directly or indirectly to advance the interests of the
Company.
(13) To carry on any or all of the businesses of consultants, advisers and
suppliers of management, personnel and training services, whether
generally or in respect of one or more of the types of business or
activity which the Company or any
<PAGE>
of its subsidiaries has power to carry on, and to provide training and
educational course, instruction and materials, of every description,
for employees of the Company or for any other persons.
(14) To carry on any or all of the businesses of bankers, financiers,
commodity traders, factors, debt collectors, dealers in securities and
currencies and all rights and interests therein or in respect thereof,
underwriters, insurers, brokers of all kinds, persons carrying on
investment business of any kind under the Financial Services Act 1986
(or any statutory modification or re-enactment thereof) or otherwise.
(15) To carry on any or all of the businesses of developers of and dealers
in property, storage contractors, freight contractors, carriers by
land, water and air of freight and passengers, forwarding agents,
shipping agents and agents of all kinds.
(16) To purchase, charter, lease, take or let on hire, operate, use or turn
to account, build, equip, repair, maintain, supply and deal in
tankers, bulk carriers, and other ships and vessels and craft of every
description, motor vehicles, aircraft, railways and all forms of
railway transport and any other means of transport or conveyance and
any parts or accessories of any kind relating thereto or connected
therewith.
(17) To carry on any or all of the businesses of running, operating,
managing or co-operating in projects or works designed to restore,
preserve, improve or protect the environment in any manner whatsoever,
to carry on any business relating to, or connected with, the
conservation of nature or nature or wild life reserves, parks or
trails of any kind whatsoever, and to carry on any business of any
kind convened, directly or indirectly, and whether or not connected
with any other activity or object of the Company, with the
conservation and efficient use of energy.
(18) To carry on any or all of the businesses of running, operating,
managing, supplying and dealing in radio, telecommunication and other
systems, data processing and information retrieval systems, computers,
computer programs and software, and services facilities and equipment
ancillary to, or for use in connection with, such systems.
Page 5
<PAGE>
(19) To establish, acquire, produce, transmit, publish, or reproduce in any
form whatsoever and supply or otherwise deal in brochures, magazines,
newspapers, books, pictures, photographs, stationery and other
documents, recordings, films, and programmes for radio, television,
cinema or any other means of communication.
(20) To advertise, market and sell any and all products and services of the
Company and of any other person and to carry on any or all of the
businesses of advertisers and advertising or public relations agents
or advisers or of a marketing and selling organisation.
(21) To carry on any or all of the businesses of suppliers, distributors,
manufacturers, producers, processors, importers and exporters of, and
dealers in, chemicals, pharmaceuticals, fertilisers and foodstuffs.
(22) To acquire by any means, hold, deal in or with and dispose of
howsoever any real or personal property, assets, rights or corporeal
or incorporeal hereditaments whatsoever and wherever situate, whether
or not for the purposes of, or in connection with, any of the
Company's activities, and, without prejudice to the generality of the
foregoing, to purchase, take on lease or in exchange, hire, take
concessions or grants of or otherwise acquire and hold or dispose of
any real or personal property, assets or rights or any estate or
interest in such property, assets or rights, or in the proceeds of
sale thereof, including without limitation any lands, buildings,
installations, structures, easements, rights, privileges and
concessions and to use, exploit, develop, and safeguard the same.
(23) To insure any property, asset, matter or interest against any
potential liability or loss of the Company or of any other person and
the life or health of any person which may seem to the Board of
Directors of the Company to be in the interests of the Company.
(24) (i) To purchase and maintain insurance for or for the benefit of any
persons who are or where at any time directors, officers or employees
or auditors of the Company, or of any other company which is its
holding company or in which the Company or such holding company or any
of the
<PAGE>
predecessors of the Company or of such holding company has any
interest whether direct or indirect or which is in any way allied to
or associated with the Company, or of any subsidiary undertaking of
the Company or of any such other company, or who are or were at any
time trustees of any pension fund in which employees of the Company or
of any such other company or subsidiary undertaking are interested,
including (without prejudice to the generality of the foregoing)
insurance against any liability incurred by such persons in respect of
any act or omission in the actual or purported execution and/or
discharge of their duties and/or in the exercise or purported exercise
of their powers and/or otherwise in relation to their duties, powers
or offices in relation to the Company or any such other company,
subsidiary undertaking or pension fund and (ii) to such extent as may
be permitted by law or otherwise to indemnify or to exempt any such
person against or from any such liability; for the purposes of this
Clause "holding company" and "subsidiary undertaking" shall have the
same meanings as in the Companies Act 1989.
(25) To apply for and take out, purchase or otherwise acquire, protect,
maintain and renew any patents, patent rights, trade marks, designs,
licences and other intellectual property rights of all kinds or any
secret or other information as to any invention and to hold, use,
exercise, develop or grant licences in respect of, or otherwise turn
to account or deal in or with, the property, rights or information so
acquired.
(26) To carry on any other trade or business whatever which, in the opinion
of the Board of Directors of the Company, is or may be capable of
being carried on directly or indirectly for the benefit of the
Company.
(27) To apply for, promote and obtain any Act of Parliament, charter,
privilege, concession, licence or authorisation of any government,
state or municipality, or any other department or authority, or enter
into arrangements with any such body or any other person, for enabling
the Company to carry any of its objects into effect or for extending
any of the powers of the Company or for effecting any modification of
the constitution of the Company or for any other purpose which may
seem to the Board of Directors of the Company to be expedient, and to
oppose any Act, charter, privilege,
Page 7
<PAGE>
concession, licence or authorisation as aforesaid or any proceedings
or applications which may seem calculated directly or indirectly to
prejudice the interests of the Company.
(28) To enter into such financial, commercial or other transactions as may
seem to the Board of Directors of the Company to be desirable for the
purposes of the Company's affairs.
(29) To enter into consortia or other collaborative arrangements which may
seem to the Board of Directors of the Company to advance the interests
of the Company in pursuance of international or other projects.
(30) To acquire and hold interests of any kind whatsoever in other
companies, whether or not having the same or similar objects as the
Company, and to enter into any arrangements with any such other
companies which may seem to the Board of Directors of the Company to
advance the interests of the Company.
(31) To establish, or promote any company, whether or not having objects
similar to those of the Company, and to place or guarantee the placing
of, underwrite, subscribe for or otherwise acquire, hold, dispose of
and deal with, and guarantee the payment of interest, dividends and
capital on, all or any of the shares, debentures, debenture stock or
other securities or obligations of any company or association or
investments of any nature whatsoever or any options or rights in
respect thereof or interests therein, and to pay or provide for
brokerage, commission and underwriting in respect of any such issue
upon such terms as the Board of Directors of the Company may decide.
(32) To have regard to the protection of the natural environment and of
buildings or other objects of historic, architectural, religious or
other significance, when formulating and implementing proposals.
(33) To borrow or raise money and to receive deposits, and to lend or
deposit money, give credit or financial accommodation or, whether
gratuitously or otherwise, guarantees or indemnities and to secure or
discharge any debt or other obligation and whether (in each case) in
respect of
<PAGE>
its own obligations or those of some other person, and to charge or
give any other security over its undertaking, property, rights or
assets (present or future) or any part thereof or its uncalled
capital, in any circumstances and upon such terms and conditions as
the Board of Directors of the Company may think fit.
(34) To draw, make, accept, endorse, discount, negotiate, execute, issue,
buy, sell and deal in or with promissory notes, bills of exchange,
bills of lading, warrants, debentures and other negotiable or
transferable instruments.
(35) To act as agents, brokers or trustees and to enter into any
arrangement for partnership, joint working, joint venture in business
or for the sharing of profits or for amalgamation with any other
person or otherwise which may seem to the Board of Directors of the
Company to advance the interests of the Company and to vest any
property, assets, rights or liabilities of the Company in any person
or company on behalf of the Company and with or without any
declaration of trust in favour of the Company.
(36) To establish and maintain or contribute to or make any arrangements
for providing pensions, superannuation funds, donations, allowances,
share acquisition and profit sharing schemes, gratuities, emoluments,
loans and other matters or benefits to or for the benefit of any
individuals who are or were at any time in the employment or service
of the Company or of any company which is its holding company or is a
subsidiary of the Company or any such holding company or otherwise is
allied to or associated with the Company or any predecessors of the
Company or of any other such company, or who are or were at any time
directors or officers of the Company or of any such other company, and
the wives, widows, families and dependants of any such individuals or
to or for the benefit of such other persons as may from time to time
be permitted by law; to establish, support, subsidise or subscribe to
any institutions, associations, clubs, schemes, funds or trusts which
may be considered by the Board of Directors of the Company likely to
benefit any such persons or to further the interests of the Company or
of any such other company; and to make payments for or towards the
insurance of any such persons; and in particular, but without
prejudice to the generality of
Page 9
<PAGE>
the foregoing, to make arrangements in connection with any
acquisition, vesting and transfer contemplated in sub-clause (1) of
this Clause for the continuance or transfer to the Company of any
pension arrangements of the Central Electricity Generating Board.
(37) To subscribe for, or contribute (in cash or in kind) to, or otherwise
support and to promote or sponsor, any national, charitable,
benevolent, general or useful object or any object which may in the
opinion of the Board of Directors of the Company be likely directly or
indirectly to further the interests of the Company, its employees or
its members.
(38) To purchase or otherwise acquire and undertake all or any part of the
business, property, assets, rights and liabilities of any person who
is carrying on, or proposing to carry on, any business which the
Company is authorised or empowered to carry on or who is possessed of
any business, property, assets, rights or liability suitable for the
purposes of the Company.
(39) To pay and discharge all or any expenses, costs and disbursements, and
to pay commissions to and to remunerate any person for services
rendered or to be rendered, in connection with the formation,
promotion, registration and flotation of the Company and the
underwriting or placing or issue at any time of any securities of the
Company or of any other person.
(40) To issue any securities for any purpose whether by way of security or
indemnity or in satisfaction of any liability undertaken or agreed to
be undertaken by the Company or otherwise.
(41) To procure the Company to be registered or recognised in any part of
the world.
(42) To sell, lease, grant rights over or in respect of or otherwise
howsoever dispose of or deal with, the whole or any part of the
undertaking, property assets and rights of the Company or of any
interest therein for such consideration as the Board of Directors of
the Company may think fit and to distribute any property or assets in
specie or otherwise among the members of the Company.
<PAGE>
(43) To do all or any of the above things in any part of the world, and
either as principal, agent, trustee, contractor or otherwise, and
either alone or in conjunction with others, and either by or through
agents, trustees, subsidiary companies, sub-contractors or otherwise.
(44) To do all such other things as may be deemed, or as the Board of
Directors of the Company considers, to further the interests of the
Company or be incidental or conducive to the attainment of the above
objects or any of them.
And it is hereby declared that in this clause:
(a) unless the context otherwise requires, words in the singular include the
plural and vice versa;
(b) unless the context otherwise requires, a reference to a person includes a
reference to a company, and a reference to a person or company (other than
references to the Company) includes a reference to a firm, partnership,
corporation, government or other authority (municipal, local or otherwise),
undertaking, organisation, association, statutory, public or other body and
any other legal entity, whether resident, domiciled or situated (in any
such case) in the United Kingdom or elsewhere;
(c) references to "other" and "otherwise" shall not be construed ejusdem
generis where a wider construction is possible;
(d) the words "subsidiary" (except in paragraph (e) below) and "holding
company" have the same meaning as in section 736 of the Companies Act 1985;
(e) any reference to the carrying on by the Company of any business or
businesses of any description or descriptions shall include the carrying on
of such business or businesses in any or all of its or their respective
branches; and
(f) the objects specified in each of the foregoing paragraphs of this clause
shall be separate and distinct objects of the Company and accordingly shall
not be in any way limited or restricted (except so far as otherwise
expressly stated in any paragraph) by reference to or inference from the
terms of any other paragraph or the order in which the paragraphs occur or
the name of the Company, and none of the paragraphs shall be deemed merely
subsidiary or incidental to any other paragraph.
Page 11
<PAGE>
5. The liability of the members is limited.
6. The share capital of the Company is (Pounds)50,000 divided into 50,000
shares of (Pounds)1 each.
<PAGE>
We, the subscribers to this memorandum of association, wish to be formed into a
company pursuant to this memorandum. We agree to take the number of shares
shown opposite our respective names.
Name and address of subscriber Number of shares taken
David John Jackson
The Firs
Bampton Road
Clanfield
Oxfordshire OX 18 2RG 1 share of (Pounds)1
Patrick Francis John O'Donnell
Bourke
Sherenden
Hart's Heath Road
Curtisden Green
Kent TN17 1LJ 1 share of (Pounds)1
Total shares taken
2 shares of (Pounds)1 each
Date:
Witness to signatures:
Page 13
<PAGE>
EXHIBIT 99.B-2
EXHIBIT B-2
FORM OF UTILITY SERVICE AGREEMENT
This Service Agreement (this "Agreement") is entered into as of the ___
day of _______, by and between [insert name of subsidiary], a __________________
Corporation (the "Company") and LG&E Energy Services, Inc., a Kentucky
corporation ("LG&E Services").
WHEREAS, LG&E Services is a direct or indirect wholly owned subsidiary of
LG&E Energy Corp.;
WHEREAS, LG&E Services has been formed for the purpose of providing
administrative, management and other services to subsidiaries and affiliates of
LG&E Energy Corp.; and
WHEREAS, the Company believes that it is in the interest of the Company
to provide for an arrangement whereby the Company may, from time to time and at
the option of the Company, agree to purchase such administrative, management and
other services from LG&E Services;
NOW, THEREFORE, in consideration of the mutual covenants contained herein
and other valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto, intending to be legally bound, hereby
agree as follows:
1. SERVICES. LG&E Services supplies, or will supply, certain administrative,
management or other services to Company similar to those supplied to other
subsidiaries or affiliates of LG&E Energy Corp. Such services are and will
be provided to the Company only at the request of the Company. Exhibit A
hereto lists and describes all of the services that are available from LG&E
Services.
2. PERSONNEL. LG&E Services provides and will provide such services by
utilizing the services of their executives, accountants, financial advisers,
technical advisers, attorneys and other persons with the necessary
qualifications.
If necessary, LG&E Services, after consultation with the Company, may
also arrange for the services of nonaffiliated experts, consultants and
attorneys in connection with the performance of any of the services supplied
under this Agreement.
3. COMPENSATION AND ALLOCATION. As and to the extent required by law, LG&E
Services provides and will provide such services at fully allocated cost.
Exhibit A hereof contains rules for determining and allocating such costs.
4. COMPLIANCE. All contracts, agreements, or arrangements of any kind,
hereafter required to be filed with and/or approved by the Securities and
Exchange Commission ("SEC")
<PAGE>
pursuant to the Public Utility Holding Company Act of 1935, as subsequently
amended, between Louisville Gas and Electric Company or Kentucky Utilities
Company, and any affiliate, associate, holding, mutual service or subsidiary
company, within the same holding company system, as these terms are defined
in 15 U.S.C. (S)79b as it presently exists or as subsequently amended, shall
contain and be conditioned upon the following without modification or
alteration:
Louisville Gas and Electric Company ("LG&E") and Kentucky Utilities
Company ("KU") will not seek to overturn, reverse, set aside, change or
enjoin, whether through appeal or the initiation or maintenance of any
action in any forum, a decision or order of the Kentucky Public Service
Commission, or the Virginia State Corporation Commission which pertain to
recovery, disallowance, allowance, deferral or ratemaking treatment of
any expense, charge, cost or allocation incurred or accrued by LG&E or KU
in or as a result of a contract, agreement, arrangement, or transaction
with any affiliate, associate, holding, mutual service or subsidiary
company on the basis that such expense, charge, cost or allocation: (1)
has itself been filed with or approved by the SEC or (2) was incurred
pursuant to a contract, agreement, or allocation method which was filed
with or approved by the SEC.
5. TERMINATION AND MODIFICATION. The Company may terminate this Agreement by
providing 60 days written notice of such termination to LG&E Services. LG&E
Services may terminate this Agreement by providing 60 days written notice of
such termination to the Company.
This Agreement is subject to termination or modification at any time to
the extent its performance may conflict with the provisions of the Public
Utility Holding Company Act of 1935, as amended, or with any rule, regulation or
order of the Securities and Exchange Commission adopted before or after the
making of this Agreement. This Agreement shall be subject to the approval of any
state commission or other state regulatory body whose approval is, by the laws
of said state, a legal prerequisite to the execution and delivery or the
performance of this Agreement.
6. SERVICE REQUESTS. The Company and LG&E Services will prepare a Service
Request on or before ________________ of each year listing services to be
provided to the Company by LG&E Services and any special arrangements
related to the provision of such services for the coming year, based on
services provided during the past year. The Company and LG&E Services may
supplement the Service Request during the year to reflect any additional or
special services that the Company wishes to obtain from LG&E Services, and
the arrangements relating thereto.
7. BILLING AND PAYMENT. Unless otherwise set forth in a Service Request,
payment for services provided by LG&E Services shall be by making remittance
of the amount billed or by making appropriate accounting entries on the
books of the Company and LG&E Services. Billing will be made on a monthly
basis, with the bill to be rendered by the 25/th/ of the month,
<PAGE>
and remittance or accounting entries completed within 30 days of billing.
Any amount remaining unpaid after 30 days following receipt of the bill
shall bear interest thereon from the date of the bill at annual rate of
A1/P1 30-day Commercial Paper.
8. NOTICE. Where written notice is required by this Agreement, all notices,
consents, certificates, or other communications hereunder shall be in
writing and shall be deemed given when mailed by United States registered or
certified mail, postage prepaid, return receipt requested, addressed as
follows:
1. To the Company:
______________________________
______________________________
2. To LG&E Energy Services, Inc.:
______________________________
______________________________
9. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Kentucky, without regard to their
conflict of laws provisions.
10. MODIFICATION. No amendment, change or modification of this Agreement shall
be valid, unless made in writing and signed by all parties hereto.
11. ENTIRE AGREEMENT. This Agreement, together with its exhibits, constitutes
the entire understanding and agreement of the parties with respect to its
subject matter, and effective upon the execution of this Agreement by the
respective parties hereof and thereto, any and all prior agreements,
understandings or representations with respect to this subject matter are
hereby terminated and canceled in their entirety and are of no further force
and effect.
12. WAIVER. No waiver by any party hereto of a breach of any provision of this
Agreement shall constitute a waiver of any preceding or succeeding breach of
the same of the same or any other provision hereof.
13. ASSIGNMENT. This Agreement shall inure to the benefit and shall be binding
upon the parties and their respective successors and assigns. No assignment
of this Agreement or any party's rights, interests or obligations hereunder
may be made without the other party's consent, which shall not be
unreasonably withheld, delayed or conditioned.
<PAGE>
14. SEVERABILITY. If any provision or provisions of this Agreement shall be held
by a court of competent jurisdiction to be invalid, illegal, or
unenforceable, the validity, legality, and enforceability of the remaining
provisions shall in no way be affected or impaired thereby.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of this _____ day of _____.
LG&E Energy Services, Inc.
By:________________________________
Name:
Title:
[Subsidiary]
By:________________________________
Name:
Title:
<PAGE>
Exhibit A
Description of Services and Allocation Factors
-----------------------------------------------
Cost Assignment
LG&E Services' costs accumulated for each activity, project, program, or work
order will be directly assigned, distributed or allocated as follows:
(i) Costs accumulated in an activity, project, program or work
order for services specifically performed for a single Client Entity
will be directly assigned and charged to such entity.
(ii) Costs accumulated in an activity, project, program or work
order for services specifically performed for two or more Client
Entities will be distributed among and charged to such Client
Entities using methods determined on a case-by-case basis consistent
with the nature of the work performed and based on one of the
allocation methods described below.
(iii) Costs accumulated in an activity, project, program or work
order for services of a general nature which are applicable to all
Client Entities or to a class or classes of Client Entities will be
allocated among and charged to such Client Entities by application of
one or more of the allocation methods described below.
Allocation Methods
The following methods will be applied, as indicated in the Description of
Services section that follows, to allocate costs for services of a general
nature.
1. Information Systems Chargeback Rates - Rates for services,
------------------------------------
including but not limited to software, consulting, mainframe
and personal computer services, are based on the costs of
labor, materials and information services overheads related to
the provision of each service. Such rates are applied based on
the specific equipment employed and the measured usage of
services by Client Entities. These rates will be determined
annually based on actual experience and may be adjusted for any
known and reasonably quantifiable events, or at such time as
may be required due to significant changes.
2. Number of Customers Ratio - A ratio based on the number of
-------------------------
customers. This ratio will be determined annually based on the
actual number of customers at the end of the previous calendar
year and may
<PAGE>
be adjusted for any known and reasonably quantifiable events,
or at such time as may be required due to significant
changes.
3. Payroll Ratio - Based on the sum of the payroll at the end of
-------------
each month for the immediately preceding twelve consecutive
calendar months, the numerator of which is for an operating
company or an affected affiliate company and the denominator
of which is for all operating companies and affected
affiliate companies. This ratio will be determined annually,
or at such time as may be required due to significant
changes.
4. Three-Factor Formula - This formula will be determined
--------------------
annually based on the average of gross property (original
cost of plant in service, excluding depreciation), payroll
charges (salaries and wages, including overtime, shift
premium and holiday pay, but not including pension, benefit
and company-paid payroll taxes) and gross revenues during the
previous calendar year and may be adjusted for any known and
reasonably quantifiable events, or at such time as may be
required due to significant changes.
5. Telecommunications Chargeback Rates - Rates for use of
-----------------------------------
telecommunications services other than those encompassed by
Information Systems Chargeback Rates are based on the costs
of labor, materials, outside services and telecommunications
overheads. Such rates are applied based on the specific
equipment employment and the measured usage of services by
Client Entities. These rates will be determined annually
based on actual experience and may be adjusted for any known
and reasonably quantifiable events, or at such time as may be
required due to significant changes.
6. Gas Sales Ratio - A ratio based on the actual number of Mcf
---------------
of natural gas sold by the applicable gas distribution or
marketing operations. This ratio will be determined annually
based on actual results of operations for the previous
calendar year and may be adjusted for any known and
reasonably quantifiable events, or at such time, based on
results of operations for a subsequent twelve-month period,
as may be required due to significant changes.
7. Transmission Construction Expenditures Ratio - A ratio based
--------------------------------------------
on transmission construction or capital expenditures, net of
reimbursements, for the immediately preceding twelve
consecutive calendar months. The numerator is equal to such
expenditures for a specific Client Entity and the denominator
is equal to such
<PAGE>
expenditures for all applicable Client Entities. This ratio
will be determined annually, or at such time as may be
required due to a significant change.
8. Distribution Construction Expenditures Ratio - A ratio based
--------------------------------------------
on distribution construction or capital expenditures, net of
reimbursements, for the immediately preceding twelve
consecutive calendar months. The numerator is equal to such
expenditures for a specific Client Entity and the denominator
is equal to such expenditures for all applicable Client
Entities. This ratio will be determined annually, or at such
time as may be required due to a significant change.
9. Substation Construction Expenditures Ratio - A ratio based on
------------------------------------------
substation construction or capital expenditures, net of
reimbursements, for the immediately preceding twelve
consecutive calendar months. The numerator is equal to such
expenditures for a specific Client Entity and the denominator
is equal to such expenditures for all applicable Client
Entities. This ratio will be determined annually, or at such
time as may be required due to a significant change.
10. Electric MWh Generation Ratio - A ratio based on the sum of
-----------------------------
electric MWh generated during each month for the immediately
preceding twelve consecutive calendar months. The numerator
is equal to the electric MWh generated by a specific Client
Entity and the denominator is equal to all electric MWh
generated by all applicable Client Entities. This ratio will
be determined annually, or at such time as may be required
due to significant changes.
11. Electric Sales Ratio - Based on firm kilowatt-hour electric
-----------------------------------------------------------
sales for the immediately preceding twelve consecutive
-------------------------
calendar months, the numerator of which is for an operating
company or an affiliate and the denominator of which is for
all operating companies and affected affiliate companies.
This ratio will be determined annually, or at such time as
may be required due to a significant change.
12. Transportation Ratio - Based on the actual usage of vehicles
------------------------------------------------------------
in the fleet for the immediately preceding twelve consecutive
--------------------------------
calendar months, the numerator of which is for an operating
company or an affiliate and the denominator of which is for
all operating companies
<PAGE>
and affected affiliate companies. This ratio will be
determined annually, or at such time as may be required due
to a significant change.
Description of Services
A description of each of the services performed by LG&E Energy Services,
Inc., which may be modified from time to time, is presented below. As discussed
above, where identifiable, costs will be directly assigned or distributed to
Client Entities. For costs accumulated in an activity, project, program or work
order which are for services of a general nature that cannot be directly
assigned or distributed, the method or methods of allocation are also set forth.
Substitution or changes may be made in the methods of allocation hereinafter
specified, as may be appropriate, and will be provided to state regulatory
agencies and to each affected Client Entity.
1. Information Systems Services - Provides electronic data processing
services. Costs of a general nature are allocated using the Information Systems
Chargeback Rates.
2. Customer Services - Provides billing, mailing, remittance processing,
call center and customer communication services for customers. Costs of a
general nature are allocated using the Number of Customers Ratio.
3. Marketing and Sales - Establishes strategies, provides oversight for
marketing, sales and branding of utility and related services, conducts
marketing and sales programs, and economic development. Costs of a general
nature are allocated using the Number of Customers Ratio.
4. Employee Services - Includes Human Resources which establishes and
administers policies and oversees compliance with regulations in the areas of
employment, compensation and benefits, processes payroll and administers
corporate training. Also includes employee communications, facilities
management and mail services. Costs of a general nature are allocated using the
Payroll Ratio.
5. Corporate Compliance - Oversees compliance with all laws, regulations
and policies applicable to all of LG&E Energy Corp.'s businesses and directs
compliance training. Costs of general nature are allocated using the Payroll
Ratio.
6. Purchasing - Provides procurement services. Costs of a general nature
are allocated using the Three-Factor Formula.
7. Financial Services - Provides treasury, accounting, tax, financial
planning, regulatory and auditing services. Costs of a general nature are
allocated using the Three-Factor Formula.
8. Risk Management - Provides insurance, claims, security, and safety
services. Costs of a general nature allocated using the Three-Factor Formula.
<PAGE>
9. Public Affairs - Maintains relationships with government policy
makers, conducts lobbying activities and provides community relations functions.
Costs of a general nature are allocated using the Three-Factor Formula.
10. Legal Services - Provides various legal services and general legal
oversight; handles claims. Costs of a general nature are allocated using the
Three-Factor Formula.
11. Investor Relations - Maintains relationships with the financial
community and provides shareholder services. Costs of a general nature are
allocated using the Three-Factor Formula.
12. Telecommunications - Provides telecommunications services, primarily
the use of telephone equipment. Costs are allocated using the Telecommunications
Chargeback Rates.
13. Gas Supply and Capacity Management - Provides gas supply and capacity
management services. Costs of a general nature are allocated using the Gas
Sales Ratio.
14. Transmission, Substation Construction, Maintenance & Operations -
Provides management services for transmission and substation construction,
maintenance and operations areas. Costs of a general nature are allocated using
the Transmission Construction Expenditures Ratio.
15. Meter Reading, Repair and Maintenance - Provides services related to
meter reading and the repair and maintenance of meters. Costs of a general
nature are allocated using the Number of Customers Ratio.
16. Design Engineering - Designs and monitors construction of electric
transmission and distribution lines and substations. Costs of a general nature
are allocated using the Transmission Construction Expenditures Ratio or the
Distribution Construction Expenditures Ratio, whichever is appropriate.
17. Substation Engineering and Support - Provides management support
services to the Substation Engineering and Support organizations of the
Operating Companies. Costs of a general nature are allocated using the
Substation Construction Expenditures Ratio.
18. Resource Acquisition and Analysis - Procures coal, natural gas and oil
for the generation facilities of Client Entities. Also ensures compliance with
price and quality provisions of fuel contracts and arranges for transportation
of fuel to the desired location, and completes analyses as required on all fuel
used for generation. Costs of a general nature are allocated using the Electric
MWh Generation Ratio.
19. Purchased Power and Electric Trading - Purchases power and provides
electric trading services to the operating companies electric generation systems
and all other trading functions. Costs of a general nature are allocated using
the Electric Sales Ratio.
<PAGE>
20. Strategic Planning - Develops corporate strategies and business plans.
Costs of a general nature are allocated using the Three-Factor Formula.
21. Executive - Provides executive and general administrative services.
Costs of a general nature are allocated using the Three-Factor Formula.
22. Environmental Affairs - Performs analyses and advocacy of regulatory
and legislative issues in the areas of environment. Communicates final
regulatory requirements to operating groups. Provides assistance, support and
compliance review in meeting those requirements. Oversees hazardous substance
site investigations and remediation activities. Costs of a general nature are
allocated using the Three-Factor Formula.
23. Energy Supply - Coordinates the use of the generating, transmission
and interconnection facilities to provide economical and reliable energy. Costs
of a general nature are allocated using the Electric MWh Generation Ratio.
24. Transportation - Operates transportation fleet for the operating
companies and affiliates. Provides engineering, support, mechanical servicing of
vehicles, and procurement of vehicles. Costs of a general nature are allocated
using the Transportation Ratio.
25. Media Relations - Performs all media relations with local and national
media organizations according to established policies and procedures. Costs of
a general nature are allocated using the Three Factor Formula.
<PAGE>
FORM OF INITIAL SERVICE REQUEST
The undersigned request all of the services listed in Exhibit A from LG&E
Energy Services, Inc., except for _______________________________. The services
requested hereunder shall commence on _________________________ and be provided
through ______________________.
[Subsidiary]
By:_____________________________________
Name:
Title:
<PAGE>
EXHIBIT B-3
COMPOSITE CONFORMED COPY
(incorporating amendments made on 14th April, 2000)
AGREEMENT
Dated 27/th/ February, 2000
U.S.$4,000,000,000
TERM AND REVOLVING CREDIT FACILITY
for
POWERGEN US HOLDINGS LIMITED
POWERGEN PLC
arranged by
DEUTSCHE BANK AG LONDON
DRESDNER KLEINWORT BENSON
HSBC INVESTMENT BANK plc
J.P. MORGAN SECURITIES LTD.
and
WARBURG DILLON READ
(a division of UBS AG)
with
HSBC INVESTMENT BANK plc
as Agent and Swingline Agent
ALLEN & OVERY
London
<PAGE>
INDEX
<TABLE>
<CAPTION>
Clause Page
<S> <C>
1. Interpretation............................................................................. 1
2. The Facilities............................................................................. 24
3. Purpose.................................................................................... 26
4. Conditions Precedent....................................................................... 27
5. Advances................................................................................... 28
6. Repayment.................................................................................. 31
7. Prepayment and Cancellation................................................................ 32
8. Interest................................................................................... 37
9. Payments................................................................................... 40
10. Taxes...................................................................................... 43
11. Market Disruption.......................................................................... 46
12. Increased Costs............................................................................ 47
13. Illegality and Mitigation.................................................................. 48
14. Guarantee.................................................................................. 49
15. Representations and Warranties............................................................. 51
16. Undertakings............................................................................... 56
17. Default.................................................................................... 65
18. The Agents and the Arrangers............................................................... 69
19. Fees....................................................................................... 74
20. Expenses................................................................................... 75
21. Stamp Duties............................................................................... 75
22. Indemnities................................................................................ 75
23. Evidence and Calculations.................................................................. 76
24. Amendments and Waivers..................................................................... 77
25. Changes to the Parties..................................................................... 78
26. Disclosure of Information.................................................................. 81
27. Set-off.................................................................................... 82
28. Pro Rata Sharing........................................................................... 82
29. Severability............................................................................... 83
30. Counterparts............................................................................... 83
31. Notices.................................................................................... 83
32. Language................................................................................... 85
33. Governing Law.............................................................................. 85
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Schedule Page
<S> <C>
1. Part I - Banks and Commitments............................................................. 86
Part II - Swingline Banks and Swingline Commitments........................................ 87
2. Conditions Precedent Documents............................................................. 88
Part I - To be Delivered before the First Utilisation...................................... 88
Part II - To be Delivered by an Additional Borrower........................................ 90
Part III - To be Delivered by an Additional Guarantor...................................... 91
3. Calculation of the Mandatory Cost.......................................................... 93
4. Form of Request............................................................................ 96
5. Forms of Accession Documents............................................................... 98
Part I - Novation Certificate.............................................................. 98
Part II - Borrower Accession Agreement..................................................... 100
Part III - Guarantor Accession Agreement................................................... 101
Part IV - Form of Borrower Novation Agreement.............................................. 102
6. Form of Confidentiality Undertaking........................................................ 104
7. Approved Investment Guidelines............................................................. 105
8. Libra Foreign Utility Companies............................................................ 106
Signatories......................................................................................... 107
</TABLE>
<PAGE>
Exhibit 99.B-3
THIS AGREEMENT is dated 27th February, 2000 and made BETWEEN:
(1) POWERGEN US HOLDINGS LIMITED (Registered number 3757718) (the "Company")
and POWERGEN plc (Registered number (3586615) as original borrowers (the
"Original Borrowers");
(2) POWERGEN plc (Registered number3586615) and POWERGEN US HOLDINGS LIMITED
(Registered number 3757718) as original guarantors (the "Original
Guarantors");
(3) DEUTSCHE BANK AG LONDON, DRESDNER KLEINWORT BENSON, HSBC INVESTMENT BANK
plc, J.P. MORGAN SECURITIES LTD. and WARBURG DILLON READ (a division of
UBS AG) as arrangers (in this capacity the "Arrangers");
(4) THE FINANCIAL INSTITUTIONS listed in Schedule 1 as Banks;
(5) HSBC INVESTMENT BANK plc as agent (in this capacity the "Agent"); and
(6) HSBC INVESTMENT BANK plc as swingline agent (in this capacity the
"Swingline Agent").
IT IS AGREED as follows:
1. Interpretation
1.1 Definitions
In this Agreement:
"Acquisition"
means the acquisition directly or indirectly (whether by one transaction
or by a series of related transactions) of any interest whatsoever in
the share capital (or equivalent) or the business or undertaking
(including without limitation, any franchise rights) or assets
constituting a separate business or undertaking or interest in a
business or undertaking of any company or other person.
"Additional Borrower"
means any wholly-owned Subsidiary of the Company approved in writing by
all the Banks which becomes a Borrower in accordance with Clause 25.4
(Additional Borrowers).
"Additional Guarantor"
means a member of the Group which becomes a Guarantor in accordance with
Clause 25.5 (Additional Guarantors).
"Advance"
means a Tranche A Advance (including a Term-out Advance), a Tranche B
Advance, a Swingline Advance or a Tranche C Advance.
<PAGE>
2
"Affiliate"
means a Subsidiary or a Holding Company 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 U.S. Dollars at or about 11 a.m. on a particular
day.
"Agreed Percentage"
means in relation to a Bank and a Swingline Advance, the amount of its
Tranche B Commitment expressed as a percentage of the Tranche B Total
Commitments.
"Anniversary"
means an anniversary of the Signing Date.
"Approved Investment Guidelines"
means the investment guidelines set out in Schedule 7.
"Asset Disposal"
means any single disposal of any assets on arm's length terms (including
but not limited to a disposal of any Subsidiary or Affiliate and any
issue of equity share capital by a member of the Group) by any member of
the Group after the Signing Date other than a disposal of assets
permitted under paragraphs (a), (b), (e), (f), (g) or (h) of Clause 16.8
(Disposals). An issue of equity share capital by a member of the Group
will not be counted as an Asset Disposal if the issue is:
(a) by the Parent to a person who is not a wholly owned member of the
Group; or
(b) in consideration of a transfer of assets to the member of the
Group issuing the shares; or
(c) by a non wholly owned Subsidiary of the Parent where the shares
are offered to all the shareholders in the Subsidiary in
proportion to their respective shareholdings at the date of the
offer.
"Banks"
means those financial institutions listed in Schedule 1 and their
respective successors and assigns which are for the time being
participating in the Facilities.
"Borrower"
means:
(a) in relation to Tranche A and Tranche C, the Company; and
<PAGE>
3
(b) in relation to Tranche B, an Original Borrower or an Additional
Borrower.
"Borrower Accession Agreement"
means a letter substantially in the form of Part II of Schedule 5 with
such amendments as the Agent may approve or reasonably require.
"Borrowers' Agent"
means the Company (registered no.3757718).
"Borrowings"
means any indebtedness in respect of the following:
(a) moneys borrowed and debit balances at banks and other financial
institutions;
(b) the Secretary of State dated 2nd November, 1990 relating to
certain clawback rights arising on certain disposals of property
by PowerGen UK plc within a specified period), bond, note, loan
stock or other security;
(c) any acceptance under any acceptance credit facility opened by a
bank or other financial institution;
(d) the sale or discounting of receivables (except to the extent that
such sale or discounting is on a non-recourse basis);
(e) any lease which the Parent accounts for as a finance lease as
such term is described in the Statement of Standard Accounting
Practices No. 21 (or any successor statement);
(f) any fixed or minimum premium payable on the repayment or
redemption of any instrument referred to in sub-paragraph (b)
above;
(g) for the purposes of Clause 17.5 (Cross-default) only, interest
rate swaps, currency swaps (including spot and forward exchange
contracts), caps, collars, floors and similar obligations (but,
for the avoidance of doubt, excluding any Contracts for
Differences); and
(h) any guarantee, indemnity and/or other form of assurance against
financial loss by any member of the Group in respect of any
indebtedness of any person of a type referred to in sub-
paragraphs (a) to (g) above (in the case of (g), for the purposes
of Clause 17.5 only),
and any amount outstanding in a currency other than U.S. Dollars is to
be taken into account at its U.S. Dollar equivalent calculated on the
basis of the Agent's Spot Rate of Exchange on the day the relevant
amount falls to be calculated. However:
(i) in the case of Borrowings evidenced or issued by way of deep
discount debentures or instruments only an amount attributable to
the principal element thereof shall be taken as a Borrowing
which, if such debenture or instrument fell to be repayable at
the relevant time, would be repayable;
<PAGE>
4
(ii) indebtedness owing by one member of the Group to another member
of the Group shall not be taken into account as Borrowings;
(iii) indebtedness incurred in connection with the securitisation of
lease receivables of any member of the Group whose principal
business is the provision of leasing services shall not be taken
into account as Borrowings; and
(iv) (for all purposes of this Agreement (other than Clause 17.5
(Cross-default)) except to the extent otherwise included in sub-
paragraphs (a) to (h) above), Borrowings of any member of the
Group will include an amount equal to any Borrowings incurred by
any entity in order to finance a securitisation of assets of that
member of the Group.
"Business Day"
means:
(a) a day (other than a Saturday or Sunday) on which banks are open
for general interbank business in:
(i) London in relation to the day any Request (other than for
Swingline Advances) is made and, unless (b) below
applies, for any other purpose; and
(ii) if a payment is required in an Optional Currency (except
euros or Sterling) or U.S. Dollars the principal
financial centre of the country of such Optional Currency
or, as the case may be, New York;
(b) in relation to a payment or rate fixing in or other matter
relating to euros, a day on which the Trans-European Automated
Real-Time Gross Settlement Express Transfer System (TARGET) is
operating.
"Capital Markets Issue"
means any Borrowing by or guaranteed by any member of the PowerGen US
Group by way of the issue of bonds, notes, debentures or other similar
securities (whether or not convertible) raised in the international or
domestic capital markets, but excluding:
(a) any issue made by a member of the Libra Group;
(b) any issue which is convertible into equity of the Parent only
upon completion of an Acquisition and, pending such completion,
any proceeds of that issue are deposited in an account kept
separate from the assets of the relevant issuer; and
(c) any issuance of U.S or euro commercial paper.
"Cash Disposal"
means an Asset Disposal, the consideration for which is substantially
cash or cash equivalent consideration, payable upon completion of the
disposal, where substantially all of such cash or cash equivalent
consideration is used to finance prepayments under this Agreement in
<PAGE>
5
accordance with Clause 7.5 (Mandatory reduction from Cash Disposals and
Capital Market Issues).
"Clean-up Period"
means the period starting on the Libra Merger Completion Date and ending
on the day which is 90 days after the Libra Merger Completion Date.
"Commitment"
means, in respect of a Bank, the aggregate of its Tranche A Commitment,
its Tranche B Commitment (including its Swingline Commitment, if
applicable) and, its Tranche C Commitment, in each case to the extent
not cancelled or reduced under this Agreement.
"Contracts for Differences"
means any contract which provides for the payment of the difference in
relation to a specified quantity of electricity between a price
specified in the contract and the price specified for electricity in
accordance with the pool rules (as determined in accordance with the
Pooling and Settlement Agreement or any other similar agreement).
"Controlled Group"
"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 and
whether alone or in combination with any other substance) which, taking
into account the concentrations and quantities present and the manner in
which it is being used or handled, it is reasonably foreseeable will
cause harm to man or any other living organism or damage to the
Environment including any controlled, special, hazardous, toxic,
radioactive or dangerous waste.
"Default"
means an Event of Default or an event which, with the giving of notice,
determination of materiality or expiry of any grace period specified in
Clause 17 (Default) (or any combination of the foregoing), would
constitute an Event of Default.
"Drawdown Date"
means the date for the making of an Advance.
"Electricity Act"
means the Electricity Act 1989 and, unless the context so requires, all
subordinate legislation made pursuant thereto.
<PAGE>
6
"EMU"
means Economic and Monetary Union as contemplated by the Treaty.
"EMU legislation"
means legislative measures of the European Council in relation to EMU.
"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 the Parent or any of its Subsidiaries carries
on business at any time.
"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 it
relates to the protection or impairment of the Environment or the
control of Dangerous Substances (whether or not in force at the date of
this Agreement) which are capable of enforcement in any applicable
jurisdiction by legal process.
"ERISA"
means the United States Employee Retirement Income Security Act of 1974,
as amended.
"ERISA Affiliate"
means each trade or business, whether or not incorporated, that would be
treated as a single employer with any Obligor under section 414 of the
United States Internal Revenue Code of 1986, as amended. When any
provision of this Agreement relates to a past event, the term "ERISA
Affiliate" includes any person that was an ERISA Affiliate of an Obligor
at the time of that past event.
"euro" or "euros"
means the single currency of the Participating Member States.
<PAGE>
7
"euro unit"
means a unit of the euro as defined in EMU legislation.
"Event of Default"
means an event specified as such in Clause 17 (Default).
"Facility"
means any of the facilities to draw Tranche A Advances, Tranche B
Advances, Swingline Advances or Tranche C Advances referred to in sub-
clauses 2.1(a), (b), (c) and (d) (Facilities) respectively.
"Facility Office"
means the office(s) notified by a Bank to the Agent:
(a) on or before the date it becomes a Bank; or
(b) by not less than five Business Days' notice,
as the office(s) through which it will perform all or any of its
obligations under this Agreement.
"Federal Funds Rate"
means, on any day, the rate per annum determined by the Swingline Agent
to be the Federal Funds Rate (as published by the Federal Reserve Bank
of New York) at or about 1.00 p.m. (New York City time) on that day.
"Fee Letters"
means each letter dated the Signing Date:
(a) between the Agent and the Company; and
(b) between the Arrangers, the Company and the Parent,
in each case setting out the amount of various fees referred to in
Clause 19 (Fees).
"FICO"
means Financial Intermediaries and Claims Office of the Inland Revenue
in the United Kingdom.
"Final Maturity Date"
means the fifth Anniversary, subject to Clause 7 (Prepayment and
Cancellation).
"Finance Document"
means this Agreement, a Fee Letter, a Novation Certificate, a Borrower
Accession Agreement, a novation agreement entered into as contemplated
by Clause 7.6(b)(iii)
<PAGE>
8
(Changes to Borrowers), a Guarantor Accession Agreement or any other
document designated as such by the Agent and the Borrowers' Agent.
"Finance Party"
means an Arranger, a Bank, the Agent or the Swingline Agent.
"First Drawdown Date"
means the date the first Advance is drawn down under this Agreement
(other than an Advance made under Clause 4.1(b) (Documentary Conditions
Precedent)).
"GPEC"
means Gujarat PowerGen Energy Corporation (a Subsidiary of the Parent
incorporated in India).
"Group"
means the Parent and its Subsidiaries.
"Guarantor"
means an Original Guarantor or an Additional Guarantor.
"Guarantor Accession Agreement"
means a deed substantially in the form of Part III of Schedule 5 with
such amendments as the Agent may approve or reasonably require.
"Holding Company"
means, in relation to a person, an entity of which that person is a
Subsidiary.
"Interest Date"
means the last day of an Interest Period.
"Interest Period"
in respect of a Tranche C Advance or a Term-out Advance, has the meaning
given to it in Clause 8.1 (Selection of Interest Periods for Tranche C
Advances and Term-out Advances) or, in respect of overdue amounts,
Clause 8.4 (Default interest).
"LIBOR"
means in relation to any Advance (other than a Swingline Advance) or
unpaid sum, the rate determined by the Agent to be:
(a) the rate per annum of the offered quotation for deposits in the
currency of the relevant Advance or unpaid sum for a period equal
or comparable to the required period in an amount comparable to
the Advance or unpaid sum which appears on Telerate Page 3750 or
Telerate Page 3740 (as appropriate) at or about 11.00 a.m. on the
applicable Rate Fixing Day; or
<PAGE>
9
(b) if the rate cannot be determined under paragraph (a) above, or in
the case of an Advance (or Advances drawn down or rolled over on
the same day) exceeding U.S.$3,000,000,000 or equivalent (other
than Advances made on the First Drawdown Date), the rate
expressed as a percentage determined by the Agent to be the
arithmetic mean (rounded upwards, if necessary, to the nearest
four decimal places) of the respective rates notified to the
Agent by each of the Reference Banks quoting (provided that at
least two Reference Banks are quoting) as the rate at which it is
offering deposits in the currency of the Advance or unpaid sum
and for the required period in an amount comparable to the
Advance or unpaid sum to prime banks in the London interbank
market at or about 11.00 a.m. on the Rate Fixing Day for such
period,
and for the purpose of this definition:
(i) "required period" means the applicable Interest Period for a
Tranche C Advance or Term-out Advance, the Term of such Advance
for Tranche A Advances (except Term-out Advances) and Tranche B
Advances, or the period in respect of which LIBOR falls to be
determined in relation to such unpaid sum; 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).
"Libra "
means LG & E Energy Corp.
"Libra Group"
means Libra and its Subsidiaries.
"Libra Merger Completion Date"
means the date specified in the certificate in relation to the Merger
delivered to the Agent as referred to in paragraph 5(c) of Part 1 of
Schedule 2 (Condition Precedent Documents).
"Licence"
means each licence or other similar authorisation granted by any
relevant U.S. or UK authority to a member of the Group carrying on
business in the United Kingdom or United States pursuant to any Energy
Law or otherwise to permit it to carry out generation, transmission,
distribution or supply of electricity.
<PAGE>
10
"Majority Banks"
means, at any time, Banks the sum of the aggregate Original Dollar
Amount of whose Advances and undrawn Commitments at that time aggregate
more than 66 2/3 per cent. of the sum of the aggregate Original Dollar
Amount of all Advances then outstanding and the then undrawn Total
Commitments (or if the Total Commitments have been reduced to zero and
there are no Advances then outstanding, whose Commitments aggregated
more than 66 2/3 per cent. of the Total Commitments immediately before
the reduction).
"Mandatory Cost"
means in relation to an Advance (other than a Swingline Advance), the
cost (if any) of compliance with the cash ratio deposit requirements of
the Bank of England and the amount of fees (if any) payable to the
Financial Services Authority during its Term or Interest Period,
determined in accordance with Schedule 3.
"Margin"
means at any time the percentage rate per annum determined at such time
to be the Margin in accordance with Clause 8.6 (Margin and commitment
fee).
"Maturity Date"
means:
(a) in relation to an Advance (other than a Tranche C Advance or a
Term-out Advance) the last day of the Term of that Advance; and
(b) in relation to a Term-out Advance, the date falling 30 months
after the Signing Date.
"Merger"
means the merger of an indirect wholly owned Subsidiary of the Company
(to be formed and incorporated in Kentucky) with and into Libra pursuant
to the Merger Agreement as a result of which the Parent will indirectly
acquire all the common stock of Libra.
"Merger Agreement"
means the Agreement and Plan of Merger between, inter alia, the Parent
and Libra in substantially the form provided to the Agent prior to
signing this Agreement.
"Moody's"
means Moody's Investors' Services, Inc.
"Multi-Employer Plan"
means a "multiemployer plan" within the meaning of section 3(37) or
4001(a)(3) of ERISA.
"national currency unit"
means the unit of currency (other than a euro unit) of a Treaty Country.
<PAGE>
11
"Net Available Proceeds"
means:
(a) in relation to any Cash Disposal or Capital Markets Issue, such
part of the Net Cash Proceeds or, as the case may be, Net Capital
Market Proceeds as any Borrower is able lawfully to apply in
prepayment of Advances and, in the case of any such disposal or
issue effected by any member of the Group other than a Borrower,
such part of the Net Cash Proceeds thereof as:
(i) such member of the Group would be able to make available
in accordance with all applicable laws and regulations,
directly or indirectly, to any Borrower to enable it to
make such application;
(ii) that the Borrower is able lawfully to so apply; and
(iii) in the case of a disposal or issue outside the United
Kingdom or the United States, the Parent has determined
in good faith can be repatriated to a Borrower in order
to apply the same in prepayment of Advances 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 or,
as the case may be, Net Capital Market 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 or, as the case
may be, Net Capital Market Proceeds available for this purpose;
or
(b) in relation to any Asset Disposal other than a Cash Disposal, an
amount equal to the fair market value (as certified by two senior
officers of the Parent) of the relevant asset disposed of.
"Net Capital Market Proceeds"
means, in relation to any one or more Capital Markets Issues, the cash
proceeds (net of all fees and expenses) of such Capital Markets Issue
actually received by the member of the PowerGen US Group concerned.
"Net Cash Proceeds"
means, in relation to any Cash Disposal, the cash 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:
<PAGE>
12
(a) all legal, title, registration and recording taxes and expenses,
commissions, costs, fees and expenses incidental to, incurred on
and fairly attributable to, that Asset Disposal;
(b) such amount as the auditors to the Parent 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 Asset Disposal as certified to the Agent by those
auditors;
(c) in the case of a disposal effected by a Subsidiary of the Parent,
such provision as the Parent 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 Borrowings
related to the assets the subject of the Asset Disposal which are
required to be repaid in order to complete the Asset Disposal),
but if the Majority Banks require such provision to be reviewed
by the auditors of the Parent 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 the Parent
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 the Parent, the pro rata share of such cash
proceeds attributable to the minority interests in that
Subsidiary.
"New York Business Day"
means a day (other than a Saturday or Sunday) on which banks are open
for business in New York.
"Novation Certificate"
has the meaning given to it in Clause 25.3(a)(i) (Procedure for
novations).
"Obligor"
means a Borrower or a Guarantor.
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13
"Optional Currency"
means, in relation to any Advance or proposed Advance (other than a
Swingline Advance), Sterling, Yen, euros and any currency other than
U.S. Dollars which is readily available and freely transferable in the
London foreign exchange market in sufficient amounts to fund that
Advance.
"Original Group Accounts"
means the audited consolidated accounts of the Group for the year ended
3rd January, 1999.
"Original Dollar Amount"
means:
(a) the principal amount of an Advance denominated in U.S Dollars; or
(b) the principal amount of an Advance denominated in any other
currency, translated into U.S. Dollars on the basis of the
Agent's Spot Rate of Exchange on the date of receipt by the Agent
of the Request for that Advance.
"Parent"
means PowerGen plc (Registered Number3586615).
"Party"
means a party to this Agreement.
"PBGC"
means the Pension Benefit Guaranty Corporation referred to and defined
in ERISA, or any successor.
"Permitted Security Interest"
means:
(a) any Security Interest created or outstanding with the prior
written consent of the Majority Banks or securing amounts
outstanding under the Finance Documents; or
(b) any lien arising by operation of law or contained in a contract
for the sale of goods or supply of services entered into in the
ordinary course of trade of the company creating the same; or
(c) any Security Interest created in favour of a plaintiff or
defendant in any action of the court or tribunal before whom such
action is brought as security for costs or expenses where any
member of the Group is prosecuting or defending such action in
the bona fide interests of the Group; or
<PAGE>
14
(d) any Security Interest created pursuant to any order of
attachment, distraint, garnishee order or injunction restraining
disposal of assets or similar legal process arising in connection
with court proceedings; or
(e) any Security Interest which arises in connection with any cash
management or netting arrangements made between any banks or
financial institution and any member or members of the Group; or
(f) any Security Interest arising out of title retention provisions
in a supplier's standard conditions of supply of goods acquired
by a member of the Group in the ordinary course of its business;
or
(g) any Security Interest over any assets (or documents of title
thereto) acquired by a member of the Group after the date of this
Agreement (or over the assets of any person that is acquired by
and becomes a member of the Group after the Signing Date)
provided that:
(i) any such Security Interest is in existence before such
acquisition and is not created in contemplation of such
acquisition; and
(ii) the amount secured by such Security Interest does not
exceed, at any time, the maximum amount secured or agreed
to be secured thereby (in accordance with the terms, as
in force at the date of the acquisition of the asset or
person concerned, on which such Security Interest was
created) as at the date of acquisition; and
(iii) such Security Interest is discharged within six months of
the acquisition in question.
"Plan"
means an "employee benefit plan" within the meaning of section 3(3) of
ERISA maintained by an Obligor or any ERISA Affiliate currently or at
any time within the last five years, or to which an Obligor or any ERISA
Affiliate is required to make payments or contributions or has made
payments or contributions within the past five years.
"Pooling and Settlement Agreement"
means an agreement dated 30th March, 1990 (as subsequently amended) made
by PowerGen UK plc with The National Grid Company plc and others for the
supply of electricity.
"PowerGen UK Group"
means PowerGen UK plc and its Subsidiaries, or if any other entity
becomes (a) a Holding Company of PowerGen UK plc and (b) a Subsidiary of
the Parent, but not (c) a Holding Company of the Company, that entity
and its Subsidiaries.
"PowerGen UK plc"
means PowerGen UK plc (Registered number (2366970)).
<PAGE>
15
"PowerGen US Group"
means the Parent and its Subsidiaries excluding any member of the
PowerGen UK Group.
"Primary Syndication Period"
means the period ending on the earlier of:
(i) the date the Arrangers notify the Borrowers' Agent that general
syndication of the Facilities is completed; and
(ii) 30th June, 2000.
"Prime Rate"
means the prime commercial lending rate for U.S. Dollars from time to
time announced by the Swingline Agent. Each change in the interest rate
on a Swingline Advance which results from a change in the Prime Rate
becomes effective on the day on which the change in the Prime Rate
becomes effective.
"Principal Subsidiary"
means:
(a) PowerGen UK plc; or
(b) PowerGen Energy plc (formerly called East Midlands Electricity
plc) (Registered number 2366923) for so long as it is a member of
the Group; or
(c) any other Subsidiary of the Parent (except GPEC):
(i) whose net profits (before taxation and before
extraordinary items and any taxation relating thereto)
are 10 per cent. or more of the consolidated net profits
of the Group (before taxation and before extraordinary
items and any taxation relating thereto); or
(ii) whose gross assets are 10 per cent. or more of the
consolidated gross assets of the Group; or
(iii) whose Net Assets are 10 per cent. or more of the
consolidated Net Assets of the Group, or
(d) any other Subsidiary of Libra:
(i) whose net profits (before taxation and before
extraordinary items and any taxation relating thereto)
are 10 per cent. or more of the consolidated net profits
of the Libra Group (before taxation and before
extraordinary items and any taxation relating thereto);
<PAGE>
16
(ii) whose gross assets are 10 per cent. or more of the consolidated
gross assets of the Libra Group; or
(iii) whose Net Assets are 10 per cent. or more of the consolidated
Net Assets of the Libra Group,
all as shown (in the case of any Subsidiary) in its most recent annual
accounts and (in the case of the Group or the Libra Group) in the most
recent annual consolidated accounts of the Group or the Libra Group
(as the case may be) after, for this purpose, deducting from each set
of figures amounts attributable to minorities and for this purpose
"Net Assets" in relation to any Subsidiary means its total assets less
its total liabilities and in relation to the Group or the Libra Group
means the total assets of the Group or the Libra Group (as the case
may be) less its total liabilities.
"Project Finance Borrowing"
means any Borrowing to finance a project:
(a) which is made by a single purpose company (whether or not a member of
the Group) whose principal assets and business are constituted by
that project and whose liabilities in respect of the Borrowing
concerned are not directly or indirectly the subject of a guarantee,
indemnity or any other form of assurance, undertaking or support from
any member of the Group (exceeding in all cases in aggregate
(Pounds)25,000,000 or its equivalent for any one project) except
security over the shares in that company or as expressly referred to
in paragraph (b)(iii) below; or
(b) in respect of which the person or persons making such Borrowing
available to the relevant borrower (whether or not a member of the
Group) have no recourse whatsoever to any member of the Group
(exceeding in all cases in aggregate (Pounds)25,000,000 or its
equivalent for any one project) for the repayment of or payment of
any sum relating to such Borrowing other than:
(i) recourse to the borrower for amounts limited to the
aggregate cash flow or net cash flow (other than historic
cash flow or historic net cash flow) from such project;
and/or
(ii) recourse to the borrower for the purpose only of enabling
amounts to be claimed in respect of that Borrowing in an
enforcement of any Security Interest given by the borrower
over the assets comprised in the project (or given by any
shareholder in the borrower over its shares in the borrower)
to secure that Borrowing or any recourse referred to in
(iii) below, provided that (A) the extent of such recourse
to the borrower is limited solely to the amount of any
recoveries made on any such enforcement, and (B) such person
or persons are not entitled, by virtue of any right or claim
arising out of or in connection with such Borrowing, to
commence proceedings for the winding up or dissolution of
the borrower or to appoint or procure the appointment of any
receiver, trustee or similar person or official in respect
of the borrower or any of its assets (save for the assets
the subject of such Security Interest); and/or
<PAGE>
17
(iii) recourse to such borrower generally, or directly or
indirectly to a member of the Group under any form of
completion guarantee, 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 is made by GPEC (whether or not any other member of the Group
provides any guarantee or other support for or in respect of GPEC's
obligations) provided the aggregate principal amount of Borrowings by
GPEC does not exceed (Pounds)240,000,000 or its equivalent; or
(d) which the Majority Banks shall have agreed in writing to treat as a
Project Finance Borrowing for the purposes of the Finance Documents.
"PTR Scheme"
means the Provisional Treaty Relief Scheme operated by FICO since September
1999 and includes any modifications or republications thereof from time to
time.
"PUHCA"
means United States of America Public Utility Holding Company Act of 1935,
as amended.
"Qualifying Bank"
means a bank or financial institution which is:
(a) a bank as defined in Section 840A of the Income and Corporation Taxes
Act 1988 which 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) 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 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.
<PAGE>
18
"Rate Fixing Day"
means:
(a) the Drawdown Date for an Advance denominated in Sterling; or
(b) the second Business Day before the Drawdown Date for an Advance
denominated in an Optional Currency (or, in the case of a Tranche C
Advance or Term-out Advance, the second Business Day before the first
day of each applicable Interest Period).
"Reference Banks"
means, subject to Clause 25.6 (Reference Banks), the principal London
offices of Dresdner Bank AG, HSBC Bank plc and UBS AG.
"Regulations T, U and X"
means, respectively, regulations T, U and X of the Board of Governors of
the Federal Reserve System of the United States (or any successor).
"Reportable Event"
means any of the events set forth in section 4043 of ERISA or the related
regulations.
"Request"
means a request made by a Borrower to utilise a Facility, substantially in
the form of Schedule 4 (or in such other form as may be agreed by the
Agent).
"Requested Amount"
means the Original Dollar Amount of an Advance requested in a Request.
"Reserve Asset Costs"
means:
(a) in relation to any Advance for any period, Mandatory Cost;
(b) in relation to any Advance for any period, the cost, if any,
certified in reasonable detail by a Bank to the Agent as the cost to
it of complying with the reserve asset and other regulatory
requirement of the European Central Bank in relation to that Advance
or any class of loans of which that Bank's participation in that
Advance forms part;
(c) in relation to any Advance denominated in U.S. Dollars to a Borrower
incorporated in the United States made available by a Bank
incorporated in the United States or lending through a Facility
Office located in the United States or by a branch in the United
States of a non-United States incorporated Bank, the cost, if any,
notified by that Bank to the Agent as the cost to it attributable to
such Advance of complying with Regulation D of the Board of Governors
of the Federal Reserve;
<PAGE>
19
(d) in relation to an Advance denominated in any currency (other than
Sterling), the cost, if any, certified in reasonable detail by any
Bank as the cost to it of complying with any applicable regulatory or
central bank requirement relating to participations in Advances in
that currency made through a branch in the jurisdiction of the
relevant currency,
but no Bank is entitled to receive an amount under more than one of the
above paragraphs in respect of the same Advance for the same period unless
there is a change in, or introduction of, any relevant law or regulation
after the Signing Date.
"Rollover Advance"
means any Tranche A Advance or Tranche B Advance requested under this
Agreement:
(a) in respect of which the Drawdown Date is the last day of the Term in
respect of any outstanding Tranche A Advance or Tranche B Advance;
(b) which is denominated in the same or a legally equivalent currency as
that outstanding Tranche A Advance or Tranche B Advance; and
(c) the amount of which is equal to or less than the amount of that
outstanding Tranche A Advance or Tranche B Advance.
"S&P"
means Standard & Poor's Corporation.
"SEC"
means the United States Securities and Exchange Commission.
"Security Interest"
means any mortgage, pledge, lien, charge, assignment by way of security or
subject to a proviso for redemption, hypothecation or other security
interest.
"Signing Date"
means the date of this Agreement.
"Subsidiary"
means:
(a) a subsidiary within the meaning of Section 736 of the Companies Act
1985, as amended by Section 144 of the Companies Act 1989; and
(b) unless the context otherwise requires, a subsidiary undertaking
within the meaning of Section 258 of the Companies Act 1985 (as
inserted by Section 21 of the Companies Act 1989).
<PAGE>
20
"Swingline Advance"
means an advance made or to be made to a Borrower under the Swingline
Facility.
"Swingline Affiliate"
means, in relation to a Bank, any Swingline Bank that is an Affiliate of
that Bank and which is notified to the Agent and the Swingline Agent by
that Bank in writing to be its Swingline Affiliate.
"Swingline Bank"
means, subject to Clause 25.2 (Transfers by Banks), a Bank listed in Part
II of Schedule 1.
"Swingline Commitment"
means in respect of a Swingline Bank, the amount in U.S. Dollars set
opposite its name in Part II of Schedule 1 to the extent not cancelled,
reduced or transferred under or in accordance with this Agreement.
"Swingline Facility"
means the committed U.S. Dollar swingline facility, forming part of Tranche
B, referred to in Clause 2.1(c) (Facilities).
"Swingline Rate"
means, on any day, the higher of:
(a) the Prime Rate; and
(b) the aggregate of the Federal Funds Rate and 0.50 per cent. per annum,
on that day.
"Swingline Total Commitments"
means the aggregate for the time being of the Swingline Commitments, being
U.S.$400,000,000 at the date of this Agreement.
"Term"
means the period selected by a Borrower in a Request for which the relevant
Tranche A Advance (except a Term-out Advance), Tranche B Advance or
Swingline Advance is to be outstanding.
"Term-out Advance"
means a Tranche A Advance, if any, drawn under Clause 6.1(b) (Repayment of
Tranche A Advances).
<PAGE>
21
"Total Commitments"
means the aggregate of the Tranche A Total Commitments, Tranche B Total
Commitments (including the Swingline Total Commitments) and Tranche C Total
Commitments from time to time.
"Tranche A Advance"
means an advance made to the Company under Tranche A.
"Tranche A Availability Period"
means in relation to a Bank the period from the Signing Date up to and
including the date which is one year less one day after the Signing Date or
such later date as that Bank may agree under Clause 5.9 (Extension of
Tranche A Availability Period).
"Tranche A Commitment"
means, in respect of a Bank, the amount in U.S. Dollars set opposite the
name of that Bank in Column 1 of Part I of Schedule 1 to the extent not
cancelled, reduced or transferred under or in accordance with this
Agreement.
"Tranche A Term Date"
means the last day of the Tranche A Availability Period applicable to a
Bank or, if that day is not a Business Day, the preceding Business Day.
"Tranche A Term-out Option"
means the option available to the Company to draw Term-out Advances under
Tranche A pursuant to Clause 6.1(b) (Repayment of Tranche A Advances).
"Tranche A Total Commitments"
means the aggregate for the time being of the Tranche A Commitments, being
U.S.$1,500,000,000 at the date of this Agreement.
"Tranche B Advance"
means an advance made to a Borrower under Tranche B.
"Tranche B Availability Period"
means the period from and including the Signing Date to and including the
Final Maturity Date.
"Tranche B Commitment"
means, in respect of a Bank, the amount in U.S. Dollars set opposite the
name of that Bank in Column 2 of Part I of Schedule 1 to the extent not
cancelled, reduced or transferred under or in accordance with this
Agreement.
<PAGE>
22
"Tranche B Total Commitments"
means the aggregate for the time being of the Tranche B Commitments, being
U.S.$1,000,000,000 at the date of this Agreement (up to U.S.$400,000,000 of
which is available under the Swingline Facility).
"Tranche C Advance"
means an advance made to the Company under Tranche C.
"Tranche C Commitment"
means, in respect of a Bank, the amount in U.S. Dollars set opposite the
name of that Bank in Column 3 of Part I of Schedule 1 to the extent not
cancelled, reduced or transferred under or in accordance with this
Agreement.
"Tranche C Commitment Period"
means the period from and including the Signing Date to and including the
second Anniversary.
"Tranche C Total Commitments"
means the aggregate for the time being of the Tranche C Commitments, being
U.S.$1,500,000,000 at the date of this Agreement.
"Treaty"
means the Treaty Establishing the European Community being the Treaty of
Rome of 25th March, 1957, as amended by the Single European Act 1986 and
the Maastricht Treaty (which was signed at Maastricht on 7th February, 1992
and came into force on 1st November, 1993), as amended from time to time.
"Treaty Country"
means each state described as a participating Member State in any EMU
legislation, whether in the first wave or subsequently.
"UK" or "United Kingdom"
means the United Kingdom of Great Britain and Northern Ireland.
"U.S." or "United States"
means the United States of America.
"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.
"U.S. Obligor"
means any Obligor which is incorporated in the United States.
<PAGE>
23
"U.S. Regulated Entity"
means Louisville Gas and Electric Company or Kentucky Utilities
Company.
"U.S. Regulated Group"
means a U.S. Regulated Entity and its Subsidiaries.
1.2 Construction
(a) In this Agreement, unless the contrary intention appears, a reference
to:
(i) "assets" includes properties, revenues and rights of every
description;
an "authorisation" includes an authorisation, consent,
approval, resolution, licence, exemption, filing, registration
and notarisation;
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, 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 "regulation" includes any regulation, rule, official
directive, request or guideline (whether or not having the
force of law) of any governmental or supranational body,
agency, department or regulatory, self-regulatory or other
authority or organisation; and
a reference to the currency of a country is to the lawful
currency of that country for the time being, "(Pounds)" and
"Sterling" is a reference to the lawful currency of the United
Kingdom for the time being and "U.S.$" and "U.S. Dollars" is a
reference to the lawful currency of the United States of
America for the time being;
(ii) a provision of a law is a reference to that provision as
amended or re-enacted;
(iii) the terms "Director", "Secretary of State" and "securities"
shall have the same meaning in this Agreement as 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 and assigns;
(vi) a Finance Document or another document is a reference to that
Finance Document or that other document as amended, novated or
supplemented; and
(vii) a time of day is a reference to London time.
(b) Where an amount is to be applied to "reduce the Facilities" then, with
effect on or before the date the Facilities are to be reduced,
Commitments must be cancelled by that amount and, to the extent the
outstanding amount of Advances under the relevant Commitments would
otherwise exceed the Commitments as so reduced, Advances must be
permanently repaid or
<PAGE>
24
prepaid. Where any facility is to be reduced, the Commitments of each
Bank participating in that Facility shall be reduced pro rata (and
where applicable, prepayments or repayments of an Advance will be
applied pro rata against participations of the Banks in that Advance).
(c) 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.
(d) The index to and the headings in this Agreement are for convenience
only and are to be ignored in construing this Agreement.
2. The Facilities
2.1 Facilities
The Banks grant to the Borrowers the following facilities:
(a) a committed U.S. Dollar revolving facility available for one
year less one day, with an option to draw Term-out Advances, to
be designated as Tranche A, under which a Bank will, when
requested by the Company, participate in cash advances in U.S.
Dollars to the Company on a revolving basis during the Tranche
A Availability Period applicable to that Bank;
(b) a committed U.S. Dollar multicurrency revolving credit
facility, to be designated as Tranche B, under which the Banks
will, when requested by a Borrower, make cash advances in U.S.
Dollars or Optional Currencies to that Borrower on a revolving
basis during the Tranche B Availability Period;
(c) a committed swingline advance facility (which is a sub-division
of Tranche B) under which the Swingline Banks will, when
requested by a Borrower, make to that Borrower Swingline
Advances in U.S. Dollars during the Tranche B Availability
Period; and
(d) a committed U.S. Dollar term loan facility, to be designated as
Tranche C, under which the Banks will, when requested by the
Company, make cash advances in U.S. Dollars to the Company
during the Tranche C Commitment Period,
in all cases subject to the terms of this Agreement.
2.2 Overall facility limits
(a) The aggregate Original Dollar Amount of all outstanding Advances:
(i) under Tranche A, shall not at any time exceed the Tranche A
Total Commitments at that time;
(ii) under Tranche B and the Swingline Facility, shall not at any
time exceed the Tranche B Total Commitments at that time;
(iii) under the Swingline Facility, shall not at any time exceed the
Swingline Total Commitments at that time;
<PAGE>
25
(iv) under Tranche C, shall not at any time exceed the Tranche C
Total Commitments at that time; and
(v) under all the Facilities, shall not at any time exceed the
Total Commitments.
(b) The aggregate Original Dollar Amount of:
(i) participations of a Bank in Tranche A Advances shall not at any
time exceed its Tranche A Commitment at that time;
(ii) participations of a Bank in Tranche B Advances (including
Swingline Advances) plus that Bank's and, if applicable, that
Bank's Swingline Affiliate's participations in outstanding
Swingline Advances shall not at any time exceed its Tranche B
Commitment at that time;
(iii) participations of a Swingline Bank in Swingline Advances shall
not at any time exceed its Swingline Commitment at that time;
and
(iv) participations of a Bank in Tranche C Advances shall not at any
time exceed its Tranche C Commitment at that time.
2.3 Number of Requests and Advances
(a) No more than one Request (other than Requests for Swingline Advances
only) may be delivered on any one day but that Request may specify any
number of Advances from Tranche A, Tranche B, the Swingline Facility,
Tranche C or all of them.
(b) Unless the Agent agrees otherwise, no more than 25 Advances may be
outstanding at any one time.
2.4 Primary Syndication Period
(a) Subject to paragraph (b) below, but otherwise notwithstanding any
provision of this Agreement, no Borrower will deliver a Request or
interest period selection notice during the Primary Syndication Period
specifying a Term or an Interest Period other than up to 5 Business
Days for Swingline Advances or, in any other case, one week, two or
three weeks.
(b) Each selection notice or Request for Advances 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 on the same
date and, if there are Advances then outstanding, ending on the same
date as such other Advances. This paragraph (b) shall not apply to
Swingline Advances.
2.5 Nature of a Finance Party's rights and obligations
(a) The obligations of a Finance Party under the Finance Documents are
several. Failure of a Finance Party to carry out those obligations
does not relieve any other Party of its obligations under the Finance
Documents. No Finance Party is responsible for the obligations of any
other Finance Party under the Finance Documents.
<PAGE>
26
(b) The rights of a Finance Party under the Finance Documents are divided
rights. A Finance Party may, except as otherwise stated in the Finance
Documents, separately enforce those rights.
2.6 Borrowers' Agent
Each Obligor irrevocably authorises and instructs the Borrowers' Agent
to give and receive as agent on its behalf all notices (including
Requests) and sign all documents in connection with the Finance
Documents on its behalf (including Novation Agreements under Clause
7.6(b) (Changes to Borrowers)) 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
the Borrowers' Agent under or in connection with the Finance
Documents.
2.7 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 the Borrowers' Agent;
(b) the Borrowers' Agent acting (or purporting to act) in any
respect outside any authority conferred upon it by any Obligor;
or
(c) the failure (or purported failure) by or inability (or
purported inability) of the Borrowers' Agent to inform any
Obligor of receipt by it of any notification under this
Agreement.
3. Purpose
(a) Each Advance will be applied:
(i) in the case of Tranche A, in or towards providing finance for
the PowerGen US Group including, but not limited to, finance
pending capital markets fund raising and asset disposals and
for general working capital purposes;
(ii) in the case of Tranche B (including the Swingline Facility), in
or towards refinancing existing borrowings and financing future
borrowings of the Libra Group, and for general corporate
purposes of the PowerGen US Group (provided that a Swingline
Advance may not be applied in or towards refinancing another
Swingline Advance); and
(iii) in the case of Tranche C, in or towards financing the Merger
pursuant to the Merger Agreement (plus related fees, costs and
expenses).
(b) Without affecting the obligations of any Borrower in any way, no
Finance Party is bound to monitor or verify the application of the
proceeds of any Advance.
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27
4. Conditions Precedent
4.1 Documentary conditions precedent
(a) Subject to paragraph (b) below, the obligations of each Finance Party
to any Borrower under this Agreement are subject to the condition
precedent that the Agent has notified the Borrowers' Agent and the
Banks that it has received all of the documents set out in Part I of
Schedule 2 in form and substance satisfactory to the Agent.
(b) If the condition precedent referred to in paragraph 5(c) of Part I of
Schedule 2 is not met on or before the date that is 20 days prior to
the expiry of any Tranche A Availability Period then the Company may
nonetheless exercise its option under Clause 6.1(b) (Repayment of
Tranche A Advances) to draw a Term-Out Advance from the Banks whose
Tranche A Availability Period expires on the relevant Tranche A Term
Date. The Company will ensure that the proceeds of any Term-Out
Advance drawn in accordance with this paragraph:
(i) are paid into an account kept separate from its other assets;
and
(ii) are invested only in accordance with the Approved Investment
Guidelines, and are not used for any other purpose,
and, in each case, will create first ranking fixed security over such
account and investments in favour of the Agent (and in form and
substance satisfactory to the Agent) as agent and trustee for the
Banks participating in the relevant Term-out Advance. Provided the
Borrowers' Agent certifies to the Agent that no Default has occurred
which is continuing, such security shall be automatically released
(and the Agent is thereupon authorised by all the Banks to execute
such confirmation or evidence of release as the Borrowers' Agent may
reasonably request) when the Agent confirms to the Borrowers' Agent
that all documentary conditions precedent referred to in paragraph (a)
above have been satisfied or waived. Pending such satisfaction, the
Company will (unless a Default has occurred and is continuing) be
entitled to withdraw all interest and other income from the charged
account and investments.
4.2 Further conditions precedent
The obligations of each Finance Party to participate in an Advance are
subject to the further conditions precedent that on the date of the
Request for the Advance and on the relevant Drawdown Date:
(a) the representations and warranties in Clause 15
(Representations and Warranties) to be repeated on those dates
are correct and will be correct immediately after the relevant
Advance is made;
(b) no Default (or, in the case of a Rollover Advance, no Event of
Default) is outstanding or would result from the making of the
relevant Advance; and
(c) the making of the relevant Advance would not cause Clause 2.2
(Overall facility limits) to be contravened.
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28
5. Advances
5.1 Receipt of Requests
(a) A Borrower may borrow Advances under Tranche A, Tranche B or Tranche C
if the Agent receives, not later than 4.30 p.m. on the third Business
Day before the proposed Drawdown Date, or, in the case of Advances in
Sterling, not later than 4.30 p.m. on the Business Day before the
proposed Drawdown Date, a duly completed Request, copied (in the case
of a Request for a Tranche B Advance) to the Swingline Agent (if the
Swingline Agent is different from the Agent).
(b) A Borrower may borrow Swingline Advances if the Swingline Agent
receives, not later than 11.00 a.m. (New York City time) on the
proposed Drawdown Date, a duly completed Request, copied to the Agent
(and to HSBC Bank USA in accordance with 31.2(c) (Addresses for
notices)).
5.2 Completion of Requests for Tranche A and Tranche B Advances
A Request for Tranche A and/or Tranche B Advances will not be regarded
as having been duly completed unless:
(a) the Drawdown Date is a Business Day falling during the Tranche
A Availability Period applicable to a Bank (in respect of a
Tranche A Advance) or Tranche B Availability Period (in respect
of a Tranche B Advance);
(b) only one currency is specified for each separate Advance (being
U.S. Dollars in the case of any Tranche A Advance) and the
Requested Amount for each separate Advance is in a minimum
Original Dollar Amount of U.S.$40,000,000 (rounded to the
nearest convenient 100,000 units in the case of currencies
other than U.S. Dollars);
(c) only one Term or, in the case of a Term-out Advance, Interest
Period for each separate Advance is specified which:
(i) does not overrun the Tranche A Term Date (in respect of
Tranche A Advances (other than Term-out Advances)) or
the Final Maturity Date (in respect of Tranche B
Advances) or the Maturity Date for the relevant Term-
out Advance; and
(ii) (subject to Clause 2.4 (Primary Syndication Period)) is
a period of 7 days (in respect of Tranche B Advances),
one month, two, three or six months (or such other
period as all the Banks participating in the relevant
Facility may previously have agreed for the purposes of
such Advances); and
(d) the payment instructions comply with Clause 9.1 (Place of
payment).
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29
5.3 Completion of Requests for Swingline Advances
A Request for Swingline Advances will not be regarded as having been
duly completed unless:
(a) the Drawdown Date is a New York Business Day falling before the
Final Maturity Date;
(b) it is specified that each separate Swingline Advance is to be
made in U.S. Dollars under the Swingline Facility;
(c) the Requested Amount is a minimum Original Dollar Amount of
U.S.$15,000,000 or such other amount as the Swingline Agent and
the relevant Borrower may agree;
(d) only one Term is specified, which:
(i) does not overrun the Final Maturity Date; and
(ii) is a period not exceeding 5 Business Days; and
(e) the payment instructions comply with Clause 9.1 (Place of
payment).
5.4 Completion of Requests for Tranche C Advances
A Request for Tranche C Advances will not be regarded as having been
duly completed unless:
(a) the Drawdown Date is a Business Day during the Tranche C
Commitment Period;
(b) the Requested Amount for each separate Tranche C Advance is in
a minimum Original Dollar Amount of U.S.$40,000,000 and the
currency of each such Tranche C Advance is U.S. Dollars;
(c) only one Interest Period for each separate Tranche C Advance is
specified which:
(i) does not overrun the Final Maturity Date; and
(ii) (subject to Clause 2.4 (Primary Syndication Period)) is
a period of one month, two, three or six months (or, in
any case, such other period as all the Banks
participating in Tranche C may previously have agreed
for the purposes of such Advances); and
(d) the payment instructions comply with Clause 9.1 (Place of
payment).
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30
5.5 Amount of each Bank's participation
The Original Dollar Amount of a Bank's or, as the case may be,
Swingline Bank's participation in an Advance will be the proportion of
the Requested Amount which:
(a) in the case of a Tranche A Advance and subject to Clause 5.9
(Extension of Tranche A Availability Period) and Clause 6.1
(Repayment of Tranche A Advances), its Tranche A Commitment
bears to the Tranche A Total Commitments;
(b) in the case of a Tranche B Advance, its Tranche B Commitment
bears to the Tranche B Total Commitments;
(c) in the case of a Swingline Advance, its Swingline Commitment
bears to the Swingline Total Commitments; and
(d) in the case of a Tranche C Advance, its Tranche C Commitment
bears to the Tranche C Total Commitments,
in each case on the date of receipt of the relevant Request.
5.6 Notification of the Banks
The Agent (or, in the case of a Swingline Advance, the Swingline
Agent) shall promptly notify each Bank (or, as the case may be,
Swingline Bank) of the details of the requested Advance(s) and the
amount of its participation(s) in the Advance(s).
5.7 Payment of proceeds
Subject to the terms of this Agreement, each Bank (or, as the case may
be, Swingline Bank) shall make its participation in an Advance
available to the Agent (or, in the case of Swingline Advances, the
Swingline Agent) for the Borrower concerned for value on the relevant
Drawdown Date.
5.8 Amount of Optional Currencies
If an Advance is to be made in an Optional Currency, the amount of
that Advance will be determined by converting into that Optional
Currency the Original Dollar Amount of that Advance on the basis of
the Agent's Spot Rate of Exchange on the date of receipt of the
Request for that Advance.
5.9 Extension of Tranche A Availability Period
(a) Subject to paragraphs (e) and (f) below, not more than 60 nor less
than 30 days prior to the original Tranche A Term Date, the Borrowers'
Agent may, by notice to the Agent, request that the availability of
the Tranche A Commitments be extended to a date falling no later than
one year less one day after the original Tranche A Term Date.
(b) Each Bank participating in Tranche A shall notify the Agent no later
than 21 days prior to the original Tranche A Term Date whether or not
it agrees to the availability of its Tranche A Commitment being
extended as requested. If no notice is received by the Agent from a
Bank
<PAGE>
31
by the date falling 21 days prior to the original Tranche A Term Date,
the availability of such Bank's Tranche A Commitment shall not be
extended.
(c) As soon as practicable after it establishes which of the relevant
Banks (if any) agree to the availability of their Tranche A
Commitments being so extended, the Agent shall, by notice to the
Borrowers' Agent and each Bank participating in Tranche A, confirm
those Banks which have agreed to extend the Tranche A Availability
Period and those which have not.
(d) If any Request (other than a Request for Term-out Advances) for a
Tranche A Advance specifies a Maturity Date after the Tranche A
Availability Period applicable to a Bank, that Bank's Tranche A
Commitment shall be excluded from the calculations of "Tranche A
Commitment" and "Tranche A Total Commitments" in Clause 5.5 (Amount of
each Bank's Advance) in relation to that Request.
(e) No Bank is under any obligation to extend the Tranche A Availability
Period applicable to its Tranche A Commitment. No Tranche A
Availability Period may be extended beyond the second Anniversary.
(f) The Borrowers' Agent may not give a notice under this Clause 5.9 in
respect of a Tranche A Commitment of a Bank if the Borrowers' Agent
has elected to draw any Term-out Advances from that Bank.
6. Repayment
6.1 Repayment of Tranche A Advances
(a) The Company shall repay each Tranche A Advance made to it in full on
its Maturity Date to the Agent for the relevant Banks, but, since
Tranche A is available on a revolving basis, amounts repaid may be
reborrowed subject to the terms of this Agreement. Subject to
paragraph (b) below, no Tranche A Advance may be outstanding after the
Tranche A Term Date.
(b) At any time prior to the Tranche A Term Date applicable to a Bank, the
Company may, by delivery of a duly completed Request to the Agent
under Clause 5 (Advances) (who shall send a copy of the same to the
Banks), elect to draw a single Tranche A Advance (a "Term-out
Advance") from each Bank whose Tranche A Term Date coincides with that
Tranche A Term Date. No Term-out Advance, once repaid or prepaid, may
be reborrowed.
(c) For the purposes of Clause 5.2 (Completion of Requests for Tranche A
and Tranche B Advances), the Tranche A Commitment of any Bank whose
Tranche A Term Date does not coincide with the relevant Tranche A Term
Date shall be excluded from the calculation of Tranche A Commitment
and Tranche A Total Commitments in relation to determining the amount
of any Term-out Advance.
(d) No Term-out Advance (if any) may be outstanding after the date falling
30 months after the Signing Date.
6.2 Repayment of Tranche B Advances
Each Borrower shall repay each Tranche B Advance made to it in full on
its Maturity Date to the Agent for the relevant Bank but since Tranche
B is available on a revolving basis amounts
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32
repaid may be reborrowed subject to the terms of this Agreement. No
Tranche B Advance may be outstanding after the Final Maturity Date.
6.3 Repayment of Swingline Advances
(a) Each Borrower shall repay each Swingline Advance made to it on its
Maturity Date to the Swingline Agent for the relevant Swingline Bank.
No Swingline Advance may be outstanding after the Final Maturity Date.
(b) Each Swingline Advance shall be repaid on its Maturity Date in
accordance with paragraph (a) above. In the event that a Swingline
Advance is not so repaid each Bank will within four Business Days of a
demand to that effect from the Swingline Agent pay to the Swingline
Agent on behalf of the Swingline Banks an amount equal to its Agreed
Percentage of the principal of such Swingline Advance and accrued
interest (including default interest) thereon to the date of actual
payment by such Bank. The relevant Borrower shall forthwith reimburse
the Banks (through the Agent) in full for each payment made by the
Banks under this paragraph (b). Each amount the relevant Borrower is
required to reimburse to the Banks under this paragraph (b) shall be
deemed to be an overdue amount (as defined in Clause 8.4(a) (Default
interest)) which fell due for payment by the relevant Borrower on the
day on which the payment by the Banks giving rise to the reimbursement
obligation was made and shall accrue default interest under Clause 8.4
(Default interest) accordingly.
6.4 Repayment of Tranche C Advances
(a) The Borrowers shall repay the Tranche C Advances in three instalments.
The first and second instalments shall each be in an amount of
U.S.$300,000,000 and shall be repaid on the third and fourth
Anniversaries respectively. The final instalment shall be the balance
of the Tranche C Advances and shall be repaid on the Final Maturity
Date.
(b) The repayments set out in paragraph (a) above shall be applied against
such Tranche C Advances as may be designated by the Borrowers' Agent
not less than five Business Days prior to the relevant repayment and
in such proportions as the Borrowers' Agent may so designate or, in
the absence of any such designation, against such Tranche C Advances
as may be designated by the Agent pro rata.
7. Prepayment and Cancellation
7.1 Automatic cancellation of the Commitments
(a) Except to the extent of its participation in a Term-Out Advance drawn
under Clause 6.1(b) (Repayment of Tranche A Advances), the Tranche A
Commitment of each Bank shall be automatically cancelled at the close
of business in London on the last day of the Tranche A Availability
Period applicable to that Bank. Thereafter that Bank's Tranche A
Commitment shall be cancelled by the amount of each prepayment and
repayment of that Advance received by it on the date of such receipt.
(b) The Tranche B Commitment of each Bank (including the Swingline
Commitments of the Swingline Banks) shall be reduced to zero at the
close of business in London on the Final Maturity Date.
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33
(c) The undrawn Tranche C Commitment of each Bank shall be automatically
cancelled on the last day of the Tranche C Commitment Period. Thereafter,
the Tranche C Commitment of each Bank will be automatically cancelled by
the amount of each prepayment and repayment of Tranche C Advances received
by it on the date of such receipt.
(d) The Total Commitments shall automatically be cancelled at close of business
in London on the day on which the Agent is notified in writing by the
Borrowers' Agent that the Merger Agreement has terminated for any reason
or, if earlier and no Advance has then been made (other than a Term-out
Advance under Clause 4.1(b) (Documentary Conditions Precedent)), the second
Anniversary (and, in either case, any outstanding Term-out Advance shall be
prepaid in full on the date of cancellation).
7.2 Voluntary cancellation
(a) The Borrowers' Agent may, by giving not less than five Business Days' prior
notice to the Agent, cancel the unutilised portion of the Tranche A Total
Commitments and/or Tranche B Total Commitments and/or Tranche C Total
Commitments in whole or in part (but, if in part, in an aggregate minimum
amount of U.S.$40,000,000). Any cancellation in part shall be applied
against the Tranche A Commitment or, as the case may be, the Tranche B
Commitment or the Tranche C Commitment of each Bank pro rata.
(b) Whenever part of the Tranche B Total Commitments is cancelled, the
Swingline Commitments shall not be cancelled unless (i) the amount of the
Swingline Total Commitments would exceed the Tranche B Total Commitments
after such cancellation or (ii) the Swingline Commitment of any Swingline
Bank would exceed its Tranche B Commitment after such cancellation. In any
such case, the Swingline Total Commitments shall, at the same time as the
cancellation of the Tranche B Total Commitments takes effect, be cancelled
by such amount as is necessary to ensure that after the relevant
cancellation of the Tranche B Total Commitments the Swingline Total
Commitments do not exceed the Tranche B Total Commitments and the Swingline
Commitment of each Swingline Bank does not exceed its Tranche B Commitment.
7.3 Voluntary prepayment
(a) Any Borrower may, by giving not less than five Business Days' prior notice
to the Agent, prepay the whole or any part of the Advances made to it under
Tranches A, B or C (but if in part in an aggregate minimum Original Dollar
Amount, taking all prepayments made by all the Borrowers on the same day
together, of U.S.$40,000,000).
(b) Any voluntary prepayment made under paragraph (a) above will:
(i) be applied against Tranche A, Tranche B or Tranche C in such
proportions as may be specified by the Borrowers' Agent in the notice
of prepayment or, if not specified, against Tranche C; and
(ii) be applied against all the Advances in the relevant Tranche(s) pro
rata (or against such Advances in the relevant Tranche(s) as the
Borrowers' Agent may designate in the notice of prepayment and in the
proportions which the Borrowers' Agent shall designate in that notice)
and pro rata between the participations of the Banks in such
Advances).
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34
7.4 Mandatory prepayment by Borrowers
If any Borrower ceases to be a Subsidiary of the Parent it shall forthwith
prepay all Advances made to it and thereupon cease to be a Borrower.
7.5 Mandatory reduction from Asset Disposals and Capital Market Issues
(a) Subject to paragraph (c) below, the Borrowers' Agent will notify the Agent
not later than five Business Days after the date of receipt (a "Receipt
Date") (which, in the case of an Asset Disposal other than a Cash Disposal
will be the date of the relevant disposal) by any member of the Group of
any Net Available Proceeds of Asset Disposals or Capital Market Issues
specifying the amount (the "U.S. Dollar Equivalent Proceeds") of the
relevant Net Available Proceeds (notionally converted into U.S. Dollars at
the Agent's Spot Rate of Exchange two Business Days prior to the date of
that notice) whereupon:
(i) in the case of an Asset Disposal of all or any part of the PowerGen
US Group, 100 per cent of the U.S. Dollar Equivalent Proceeds to the
extent the aggregate U.S. Dollar Equivalent Proceeds of all such
Asset Disposals during the financial year of the Group in which the
relevant Asset Disposal occurs exceed U.S.$100,000,000; and
(ii) in the case of an Asset Disposal of all or any part of the PowerGen
UK Group, 50 per cent of the U.S. Dollar Equivalent Proceeds to the
extent the aggregate U.S. Dollar Equivalent Proceeds of all such
Asset Disposals during the financial year of the Group in which the
relevant Asset Disposal occurs exceed U.S.$100,000,000; and
(iii) in the case of any Capital Market Issue, 100 per cent. of the U.S.
Dollar Equivalent Proceeds,
shall be applied (subject to paragraphs (d), (e) and (f) below) by the
Borrowers in reduction of the Facilities in the manner set out in paragraph
(b) below.
(b) Any application to reduce the Facilities required under paragraph (a)
above will be made no later than the tenth Business Day after the Receipt
Date by application of an Original Dollar Amount equal to the relevant
proportion of the U.S. Dollar Equivalent Proceeds to reduce the Facilities
in the following order:
(i) Tranche A;
(ii) Tranche C; and
(iii) Tranche B.
(c) For the purposes of paragraph (a) above any Asset Disposal where the Net
Cash Proceeds from, or fair market value of, that Asset Disposal and any
related series of Asset Disposals are less than U.S.$10,000,000 (or its
equivalent in other currencies) shall be excluded.
(d) (i) Net Available Proceeds which would otherwise be required to be
applied in reduction of the Facilities pursuant to paragraph (a)
above shall not be required to be so applied to the extent that:
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35
(1) in the case of paragraph (a)(i) above, they are applied to prepay
permanently Borrowings of the Libra Group;
(2) in the case of paragraph (a)(ii) above, they are applied to
prepay permanently Borrowings of the PowerGen UK Group; or
(3) in the case of paragraph (a)(iii) above, they are invested in the
Libra Group,
and in each case, within 10 Business Days of the Receipt Date
applicable to such Net Available Proceeds, the Borrowers' Agent
notifies the Agent that (in the case of (1) and (3) above) the limit
on Borrowings by members of the Libra Group (the "Libra Limit") in
Clause 16.10(vi) (Restriction on Borrowings) and (in the case of (2)
above) each limit on Borrowings by members of the PowerGen UK Group in
Clause 16.10(v) is to be reduced by an amount equal to the relevant
prepayment or investment, whereupon the relevant limit will be so
reduced.
(ii) If the Libra Limit is reduced as contemplated by sub-paragraph
(d)(i)(3) above following a Capital Markets Issue as contemplated by
paragraph (a)(iii) above and that Capital Markets Issue is
subsequently repaid, the Libra Limit will be reinstated by an amount
equal to the relevant repayment on the date of receipt by the Agent of
a notice from the Borrowers' Agent specifying the date when the
repayment was made, the amount of the repayment and that the Libra
Limit is to be reinstated pursuant to this sub-paragraph.
(e) This Clause 7.5 shall cease to apply on and after the date on which the
Original Dollar Amount of the Total Commitments is equal to or less than
U.S.$2,000,000,000 except that it will apply at all times to any disposal
after which either U.S. Regulated Entity would cease to be a member of the
PowerGen US Group or which would result in substantially all of the assets
of either U.S. Regulated Group ceasing to be owned by a member of the
PowerGen US Group.
(f) If any voluntary cancellation or prepayment under Clause 7.2 (Voluntary
Cancellation) or 7.3 (Voluntary Prepayment) is applied to reduce the
Facilities in the order specified in paragraph (b) above, the Borrower's
obligations to apply Net Available Proceeds in accordance with paragraph
(a) above in respect of subsequent Asset Disposals shall (except to the
extent any such prepayment has been applied against a prior repayment
instalment under Tranche C) be reduced to the extent of the relevant
cancellation or prepayment.
7.6 Changes to Borrowers
(a) Any Borrower (other than the Borrowers' Agent) in respect of which no
Advance is outstanding hereunder (including any other amounts outstanding
in relation thereto) may, at the request of the Borrowers' Agent, cease to
be a Borrower by entering into a supplemental agreement to this Agreement
in such form as the Agent may reasonably require which shall discharge that
Borrower's obligations hereunder.
(b) Any Borrower (other than the Borrowers' Agent) (the "Existing Borrower")
may be released from its obligations under this Agreement as a Borrower
provided that another Borrower (the "Substitute Borrower") assumes the
obligations in respect thereof of the Existing Borrower and provided
further that:
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36
(i) any such substitution shall take effect on and from the later of the
day upon which the Agent notifies the Borrowers' Agent in writing
that it is satisfied with the compliance with the matters set out in
paragraph (iii) below and the date for substitution specified in the
relevant notice under paragraph (ii) below;
(ii) notice of the proposed substitution has been delivered by the
Borrowers' Agent to the Agent not less than 14 days prior to the
proposed substitution; and
(iii) the Substitute Borrower enters into a novation agreement with the
Existing Borrower, the Borrowers' Agent and the Agent on behalf of
the Banks in the form of Part IV of Schedule 5 together with such
amendments as the Agent may reasonably require.
Each Bank authorises the Agent to sign on its behalf any novation agreement
entered into in accordance with this paragraph (b).
7.7 Right of prepayment and cancellation
If any Borrower is required to pay or is notified by any Bank in writing
that it will be required to pay any amount to a Bank under Clause 10
(Taxes) or Clause 12 (Increased Costs), or if circumstances exist such that
a Borrower will be required to pay any amount to a Bank under Clause 10
(Taxes), the Borrowers' Agent may, whilst the circumstances giving rise or
which will give 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) each Borrower shall prepay all of that Bank's participations in
outstanding Advances; and
(b) the Bank's Tranche A Commitment, Tranche B Commitment (including its
Swingline Commitments (if any)) and Tranche C Commitment shall be
permanently cancelled on the date of service of the notice.
7.8 Miscellaneous provisions
(a) Any notice of prepayment and/or cancellation under this Agreement is
irrevocable. 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 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 22.2(c) (Other indemnities) if not made on an
Interest Date for the relevant Tranche C Advance or Term-out Advance or on
the Maturity Date of the relevant Tranche A Advance, Tranche B Advance or
Swingline Advance).
(c) No prepayment or cancellation is permitted except in accordance with the
express terms of this Agreement.
(d) No amount repaid in respect of Tranche C or a Term-out Advance may
subsequently be re-borrowed. Subject to the terms of this Agreement, any
amount prepaid under Clause 7.3
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37
(Voluntary prepayment) (but not Clause 7.5 (Mandatory reduction from Asset
Disposals and Capital Market Issues)) in respect of Tranche A or Tranche B
may be reborrowed. No amount of the Tranche A Total Commitments, Tranche B
Total Commitments (including the Swingline Total Commitments) or Tranche C
Total Commitments cancelled under this Agreement may subsequently be
reinstated.
(e) Any prepayment of Tranche C Advances in part shall be applied against
outstanding instalments for the repayment of Tranche C Advances under
Clause 6.4 (Repayment of Tranche C Advances) in chronological order (or, in
the case of a prepayment under Clause 7.7 (Right of prepayment and
cancellation) or 13.1 (Illegality), pro rata).
(f) If at any time some Banks have agreed to extend the Tranche A Availability
Period but not others and those who did not extend (but not those who did
extend) have made Term-out Advances:
(i) the Borrowers may only prepay those Term-out Advances if at the same
time they cancel Tranche A Commitments in such a manner as ensures the
combined exposure of Banks by way of Term-out Advances and/or undrawn
Tranche A Commitments is reduced pro rata; and
(ii) if further Term-out Advances are subsequently drawn the Borrowers'
Agent will ensure the first Interest Period for those Term-out
Advances is co-terminous with the then current Interest Periods for
existing Term-out Advances (so as to ensure all Banks with outstanding
Term-out Advances have a pro rata participation in all Term-out
Advances rolling over on the same day thereafter).
8. Interest
8.1 Selection of Interest Periods for Tranche C Advances and Term-out Advances
The life of each Tranche C Advance and each Term-out Advance is divided
into successive periods (each an "Interest Period") for the calculation of
interest. The first Interest Period of each Advance will be the period
selected in the Request for that Tranche C Advance or, subject to Clause
7.8(f) (Miscellaneous Provisions), Term-out Advance (as the case may be).
Each subsequent Interest Period will be the period selected by the relevant
Borrower by notice to the Agent received not later than 4.30pm on the third
Business Day before the end of the then current Interest Period (being,
subject to Clause 2.4 (Primary Syndication Period), one month, two, three
or six months or in any case such other period as the Borrowers' Agent and
all the Banks may agree from time to time which, in the case of a Term-out
Advance, does not overrun the date falling 30 months after the Signing
Date) or, if no notice from the relevant Borrower is received by the Agent,
one month.
8.2 Interest rate for all Advances
(a) The rate of interest on each Tranche A Advance (except a Term-out Advance)
and Tranche B Advance (except a Swingline Advance) for its Term and for
each Tranche C Advance and Term-out Advance for each of its Interest
Periods is the rate per annum determined by the Agent to be the aggregate
of:
(i) the applicable Margin;
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38
(ii) LIBOR; and
(iii) Reserve Asset Costs.
(b) The rate of interest on each Swingline Advance during its Term is the rate
per annum determined by the Swingline Agent to be the aggregate of the
Swingline Rate for each day during its Term plus any applicable Reserve
Asset Costs.
8.3 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 Tranche A Advance (other than a Term-out Advance), a
Tranche B Advance or a Swingline Advance, on its Maturity Date; and
(b) in the case of a Tranche C Advance or Term-out Advance, on each
Interest Date applicable to that Tranche C Advance or Term-out
Advance,
and also, in the case of any Advance with an Interest Period or a Term
longer than six months, at six monthly intervals after its Drawdown Date
for so long as the Interest Period or Term is outstanding.
8.4 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 or, as the
case may be, the Swingline Agent, pay interest on the overdue amount from
the due date up to the date of actual payment, both before and after
judgment, at a rate (the "default rate") determined by the Agent or, as the
case may be, the Swingline Agent to be one per cent. per annum above the
higher of:
(i) the rate on the overdue amount under Clause 8.2 (Interest rate for all
Advances) immediately before the due date (in the case of principal);
and
(ii) the rate which would have been payable if the overdue amount had,
during the period of non-payment, constituted a Tranche C Advance at
the highest Margin applicable at the time in the currency of the
overdue amount for such successive Interest Periods or Terms of such
duration as the Agent may determine (each a "Designated Term").
(b) The default rate will be determined on each Business Day or the first day
of, or two Business Days before the first day of, the relevant Designated
Term, as appropriate.
(c) If the Agent or, as the case may be, the Swingline 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 or, as the case may be, the Swingline Agent from
whatever sources it selects after consultation with the Reference Banks.
(d) Default interest will be compounded at the end of each Designated Term.
<PAGE>
39
(e) The Agent shall notify the Borrowers' Agent of the duration of each
Designated Term.
8.5 Notification of rates of interest
The Agent or, as the case may be, the Swingline Agent will promptly notify
each relevant Party of the determination of a rate of interest under this
Agreement.
8.6 Margin and commitment fee
(a) The Margin will be:
(i) 1.10 per cent. per annum until the earlier of the date either Moody's
or S&P assigns to the Company a long term credit rating or the date
falling one month after the First Drawdown Date; and
(ii) thereafter calculated in accordance with the following provisions of
this Clause.
(b) The Margin (expressed as a percentage per annum) will be set in accordance
with paragraphs (c) and (d) below to the percentage rate specified in the
table below set opposite the long term credit rating assigned by the
Rating Agencies to the Company and according to the amount of the Total
Commitments, as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
Moody's/other Total Commitments
Rating Agency
Rating
- ----------------------------------------------------------------------------------------------------------
Less than Equal to or more than More than
U.S.$1,250,000,000 U.S.$1,250,000,000 up U.S.$2,000,000,000
to and including
U.S.$2,000,000,000
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
A3/A- or higher 0.55 0.70 0.85
- ----------------------------------------------------------------------------------------------------------
Baa1/BBB+ 0.65 0.80 0.95
- ----------------------------------------------------------------------------------------------------------
Baa2/BBB 0.80 0.95 1.10
- ----------------------------------------------------------------------------------------------------------
Baa3/BBB- or lower 1.00 1.15 1.30
- ----------------------------------------------------------------------------------------------------------
</TABLE>
(c) For the purposes of paragraph (b) above:
(i) the Margin applicable to a Tranche A Advance, (other than a Term-out
Advance) or a Tranche B Advance throughout the whole of its Term will
be determined according to the long term credit rating assigned to the
Company and the amount of the Total Commitments as at the Drawdown
Date of the Advance; and
(ii) the Margin applicable to each Interest Period for a Tranche C Advance
or a Term-out Advance (throughout the whole of that Interest Period)
will be determined according to the long term credit rating assigned
to the Company and the amount of the Total Commitments as at the first
day of the Interest Period.
<PAGE>
40
(d) Promptly after becoming aware of the same, the Company shall inform the
Agent in writing if it is given a long term credit rating or, after having
a long term credit rating, any change in the long term credit rating
assigned to the Company occurs or the circumstances contemplated by
paragraph (e)(v) below arise.
(e) For the purposes of this Clause 8.6:
(i) "Rating Agency" means any of Moody's, S&P, Fitch IBCA and Duff &
Phelps;
(ii) the "long term credit rating assigned to the Company", means at any
time, the solicited long term unsecured credit rating assigned at
that time to the Company by a Rating Agency;
(iii) if at any time there is a difference in the long term credit rating
assigned to the Company by the Rating Agencies the Margin will, be
determined on the basis of the second highest rating;
(iv) if only one Rating Agency assigns to the Company a long term credit
rating, unless sub-paragraph (v) below applies, the Margin will be
determined on the basis of the rating of that Rating Agency; and
(v) if at any time after the date falling one month after the First
Drawdown Date, there is no long term credit rating assigned to the
Company by either Moody's or S&P, the Margin will be determined as
if Moody's and S&P had assigned to the Company long term credit
ratings of Baa3 and BBB- and respectively.
(f) The commitment fee referred to in Clause 19.1 (Commitment fee) shall be on
each day:
(i) (in respect of Tranche A) 0.20 per cent. per annum;
(ii) (in respect of Tranches B and C) 0.35 per cent. per annum until and
including the First Drawdown Date and thereafter, 50 per cent. of
the Margin which would be applicable to a Tranche B Advance or a
Tranche C Advance, as the case may be, if such Advance were drawn on
such day.
9. Payments
9.1 Place of payment
All payments by an Obligor or a Bank under this Agreement shall be made to
the Agent or (if the payment relates to the Swingline Facility) the
Swingline Agent to its account at such office or bank in the principal
financial centre of the country of the currency concerned (or, in the case
of euros, the financial centre of such of the Treaty Countries or London)
as it may notify to the Obligor or Bank for this purpose.
9.2 Funds
Payments under this Agreement to the Agent or, as the case may be, the
Swingline Agent shall be made for value on the due date at such times and
in such funds as the Agent or, as the
<PAGE>
41
case may be, the Swingline 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.
9.3 Distribution
(a) Each payment received by the Agent or, as the case may be, the Swingline
Agent under this Agreement for another Party shall, subject to paragraphs
(b) and (c) below, be made available by the Agent or, as the case may be,
the Swingline Agent to that Party by payment (on the date of value of
receipt 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, in the principal financial centre of
the Treaty Countries or London) as it may notify to the Agent or, as the
case may be, the Swingline Agent for this purpose by not less than five
Business Days' prior notice.
(b) The Agent or, as the case may be, the Swingline 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 or, as the case
may be, the Swingline Agent for the account of another Party, the Agent or,
as the case may be, the Swingline Agent is not obliged to pay that sum to
that Party until it has established that it has actually received that sum.
The Agent or, as the case may be, the Swingline Agent may, however, 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 or, as the
case may be, the Swingline Agent has paid a corresponding amount to another
Party, that Party shall forthwith on demand refund the corresponding amount
to the Agent or, as the case may be, the Swingline Agent together with
interest on that amount from the date of payment to the date of receipt,
calculated at a rate reasonably determined by the Agent or, as the case may
be, the Swingline Agent to reflect its cost of funds.
9.4 Currency
(a) (i) Any 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 U.S. Dollars.
(b) (i) Any Advance to be made in the currency of a Treaty Country will be
made in the euro unit; and
<PAGE>
42
(ii) any amount payable by the Agent to the Banks under this Agreement in
the currency of a Treaty Country will be paid in the euro unit.
(c) If and to the extent that any EMU legislation provides that an amount
denominated either in the euro unit or in the national currency unit of a
given Treaty Country and payable within that Treaty Country by crediting an
account of the creditor can be paid by the debtor either in the euro unit
or in that national currency unit, each Party shall be entitled to pay or
repay that amount either in the euro unit or in the national currency unit.
(d) If a change in any currency of a country occurs, this Agreement will be
amended to the extent the Agent and the Parent 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.
9.5 Set-off and counterclaim
All payments made by an Obligor under this Agreement shall be made without
set-off or counterclaim.
9.6 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).
(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.
9.7 Partial payments
(a) If the Agent or, as the case may be, the Swingline Agent receives a payment
insufficient to discharge all the amounts then due and payable by an
Obligor under this Agreement, the Agent or, as the case may be, the
Swingline Agent shall apply that payment towards the obligations of the
Obligors under this Agreement in the following order:
(i) first, in or towards payment pro rata of any unpaid costs, fees and
expenses of the Agent and the Swingline Agent under this Agreement;
(ii) secondly, in or towards payment pro rata of any accrued fees due but
unpaid under Clause 19 (Fees);
(iii) thirdly, in or towards payment pro rata of any 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.
<PAGE>
43
(b) The Agent or, as the case may be, the Swingline Agent, shall, if so
directed by all the Banks, vary the order set out in sub-paragraphs
(a)(ii) to (v) above. The Agent or, as the case may be, the Swingline
Agent, shall notify the Borrowers' Agent of any such variation.
(c) Paragraphs (a) and (b) above shall override any appropriation made by any
Obligor.
10. Taxes
10.1 Gross-up
(a) All payments by an Obligor under the Finance Documents shall be made free
and clear of and without deduction for or on account of any taxes, except
to the extent that the Obligor is required by law to make payment subject
to any taxes. Subject to paragraph (b) below and Clause 10.4 (Qualifying
Banks), if any tax or amounts in respect of tax must be deducted or
withheld from any amounts payable or paid by an Obligor, or paid or
payable by the Agent or, as the case may be, the Swingline Agent, to a
Finance Party under the Finance Documents, the Obligor shall pay such
additional amounts as may be necessary to ensure that the relevant
Finance Party receives a net amount equal to the full amount which it
would have received had payment not been made subject to tax.
(b) An Obligor is not obliged to pay any additional amount pursuant to
paragraph (a) above in respect of any deduction that would not have been
required if the relevant Bank had complied with its obligations under
Clause 10.2(b).
10.2. Provisional Treaty Relief Scheme
(a) The Banks hereby appoint the Agent as their agent for the purposes of
completing all documents and doing all acts matters and things in
connection with the PTR Scheme.
(b) The Obligors and the Banks hereby agree to provide such information as
the Agent may properly require in connection with all information that it
needs to provide to FICO in connection with the PTR Scheme including
(without limitation) completion of form PTR-SM1.
(c) The Agent will provide to FICO in timely fashion (subject to the Obligors
and the Banks complying with their obligations under paragraph (b) above)
the details of each of the Banks and of the terms of the relevant
Facility in such form as FICO may require for the purpose of the PTR
Scheme including completing form PTR-SM1 and the Agent will also inform
FICO of any changes in the identity of the Banks or in the terms of the
relevant Facility which may affect the availability of treaty relief and
such other information as FICO may from time to time require (and the
Banks and the Obligors hereby give their consent to the Agent providing
such information to FICO).
(d) If the Agent receives written confirmation from FICO on form PTR-SM2
agreeing to allow provisional treaty relief on interest payments made by
the Obligors the Agent will provide a copy of the form to the relevant
Banks and the Obligors.
(e) If FICO issues form PTR-SM2 the Obligors will make all payments under the
terms of this Agreement either without any deduction or withholding on
account of taxes or subject to deduction of tax at such rate as is
specified in the form PTR-SM2.
<PAGE>
44
(f) If the outcome of an application by any Bank pursuant to the Double
Taxation Relief (Taxes on Income) (General) Regulations 1970 made in
relation to this Agreement is that treaty relief is refused, or if tax
should have been deducted at a rate lower than the usual rate, and
accordingly tax should have been deducted from payments of interest while
the PTR Scheme was in operation, the Obligors will pay all such tax and
interest as may be properly due to the Inland Revenue and will indemnify
the Agent and the Banks (on a full after tax basis) against all
liabilities, costs, charges, losses and expenses as may be incurred by them
as a result of or in connection with the PTR Scheme having been operated
including any tax required to be paid by the Agent or the Banks to the
Inland Revenue.
(g) If the outcome of an application by any Bank pursuant to the Double
Taxation Relief (Taxes on Income) (General) Regulations 1970 made in
relation to this Agreement is that treaty relief is granted, the Obligors
shall send to the Agent a copy of the direction issued under the said
regulations.
10.3 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 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 any relevant tax receipts) that the
payment has been duly remitted to the appropriate authority.
10.4 Qualifying Banks
If:
(a) on the Signing Date, any Bank which is a Party on the Signing Date is
not a Qualifying Bank; or
(b) after the Signing Date, a Bank ceases to be a Qualifying Bank, other
than as a result of the introduction, suspension, withdrawal or
cancellation of, or change in, 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 UK Inland Revenue or any other
relevant taxing or fiscal authority in any jurisdiction with which the
relevant Bank has a connection, occurring after the Signing Date or,
if later, the date on which that Bank becomes a Party; or
(c) on the date of any novation under Clause 25 (Changes to the Parties) a
New Bank (as such term is defined in that Clause) is not a Qualifying
Bank,
then no Obligor resident in the UK for the purposes of UK taxation shall be
liable to pay to that Bank under Clause 10.1 (Gross-up) any amount in
respect of taxes levied or imposed by the UK or any taxing authority of or
in the UK in excess of the amount (if any) it would have been obliged to
pay if that Bank had been, or had not ceased to be, a Qualifying Bank.
10.5 Tax Credit
(a) If an Obligor makes a payment pursuant to Clause 10.1 (Gross-up) for the
account of any Finance Party and such Finance Party has received or been
granted a credit against, or relief
<PAGE>
45
or remission or repayment of, any tax paid or payable by it (a "Tax
Credit") which is attributable to that payment or the corresponding payment
under the Finance Documents such Finance Party shall, to the extent that it
can do so without prejudice to the retention of the amount of such credit,
relief, remission or repayment, pay to the Obligor concerned such amount as
the Finance Party shall have reasonably determined to be attributable to
such payments and which will leave the Finance Party (after such payment)
in no better or worse position than it would have been if the Obligor
concerned had not been required to make any deduction or withholding.
(b) Nothing in this Clause 10.5 shall interfere with the right of a Finance
Party to arrange its tax affairs in whatever manner it thinks fit and
without limiting the foregoing no Finance Party shall be under any
obligation to claim a Tax Credit or to claim a Tax Credit in priority to
any other claims, relief, credit or deduction available to it. No Finance
Party shall be obliged to disclose any information relating to its tax
affairs or any computations in respect thereof. Unless it would in a
Bank's reasonable judgement be prejudicial to its interests, such Bank
shall seek any Tax Credit available to it consequent upon any deductions
for tax being made from any payment to it under Clause 10.1 (Gross-up).
(c) If any Finance Party makes any payment to an Obligor pursuant to paragraph
(a) above and that Finance Party 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 Finance Party to the extent (but not exceeding the
relevant payment by that Finance Party 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 Finance Party.
10.6 Collecting Agents Rules
Each Bank represents to the Agent on the date it becomes a Party as a Bank
that, in relation to the Facilities, it is:
(a) either:
(i) not resident in the United Kingdom for United Kingdom tax
purposes; or
(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 date it becomes a Bank, shall forthwith notify the
Agent if either representation ceases to be correct.
<PAGE>
46
11. Market Disruption
11.1 Market disturbance
Notwithstanding anything to the contrary herein contained, if and each time
that prior to or on a Drawdown Date relative to an Advance to be made (or
the first day of any Interest Period in the case of an outstanding Tranche
C Advance or Term-out Advance):
(a) if LIBOR is to be determined in accordance with sub-paragraph (b) of
the definition of LIBOR, only one or no Reference Bank supplies a rate
for the purposes of determining LIBOR; or
(b) the Agent is notified by Banks whose Commitments represent 35 per
cent. or more of the Total Commitments that deposits in the currency
of that Advance are not in the ordinary course of business available
in the London Interbank Market for a period equal to the Interest
Period or Term concerned in amounts sufficient to fund the
participations in the relevant Advance to be made by them; or
(c) the Agent (after consultation with the Reference Banks) shall have
determined (which determination shall be conclusive and binding upon
all Parties) that by reason of circumstances affecting the London
Interbank Market generally, adequate and fair means do not exist for
ascertaining the LIBOR applicable to such Advance during its Interest
Period or Term or LIBOR does not adequately represent the cost of
funding to the Banks,
the Agent shall promptly give written notice of such determination or
notification to the Borrowers' Agent and to each of the Banks.
11.2 Alternative Rates
If the Agent gives a notice under Clause 11.1 (Market disturbance):
(a) the Borrowers' Agent and the Banks may (through the Agent) agree that
(in the case of a Tranche A Advance (except the Term-out Advance) or a
Tranche B Advance) the Advance concerned shall not be borrowed; or
(b) in the absence of such agreement (and in any event in the case of
Tranche C Advances and Term-out Advances):
(i) the Interest Period or Term of the Advance concerned shall be
one month;
(ii) in the case of Clause 11.1(b) (Market disturbance) the Advance
shall be made in U.S. Dollars in an amount equal to the
Original Dollar Amount of the Advance concerned; and
(iii) during the Interest Period or Term of each Advance the rate of
interest applicable to such Advance shall be the applicable
Margin plus applicable Reserve Asset Costs plus the rate per
annum notified by each Bank concerned to the Agent before the
last day of such Interest Period or Term to be that which
expresses as a percentage rate per annum the cost to such Bank
<PAGE>
47
of funding its participation in the relevant Advance from
whatever sources it may reasonably select.
11.3 Non-availability of currency
If any Bank notifies the Agent before 10.00 a.m. (London time) two
Business Days prior to the proposed Drawdown Date of an Advance to be made
in an Optional Currency, that it is unable for any reason to fund its
participation in such Advance in the Optional Currency concerned, the
Agent shall notify the Borrowers' Agent and such Bank shall make its
participation in such Advance available in U.S. Dollars for the period in
question.
11.4 Change in circumstances
If before 9.00 a.m. (London time) on the proposed Drawdown Date of an
Advance which is to be denominated in an Optional Currency there occurs
any change in national or international financial, political or economic
conditions, currency availability, currency exchange rates or exchange
controls, which in the opinion of the Agent renders the making of the
Advances in such currency impracticable:
(a) the Agent shall give notice to each of the Banks and the Borrowers'
Agent to that effect as soon as practicable but in any event before
11.00 a.m. (London time) on the proposed Drawdown Date;
(b) unless the Borrowers' Agent and the Banks agree otherwise, the
Advance shall be made in U.S. Dollars and the Rate Fixing Day for the
first Interest Period or the Term of the Advance shall be the
Drawdown Date; and
(c) the relevant Borrower shall pay to the Agent on behalf of the Bank
any amount claimed in accordance with Clause 22.2 (Other
indemnities).
12. Increased Costs
12.1 Increased costs
(a) Subject to Clause 12.2 (Exceptions), the Borrowers' Agent shall forthwith
on demand by a Finance Party pay that Finance Party the amount of any
increased cost incurred by it or any of its holding companies as a result
of any change in or introduction of any law or regulation (including any
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 any of its holding
companies as a result of it performing, maintaining or funding its
obligations under, this Agreement; or
(ii) that portion of an additional cost incurred by a Finance Party or any
of its holding companies 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
<PAGE>
48
(iii) a reduction in any amount payable to a Finance Party or the effective
return to a Finance Party under this Agreement or on its capital (or
the capital of any of its holding companies); or
(iv) the amount of any payment made by a Finance Party, or the amount of
interest or other return foregone by a Finance Party, calculated by
reference to any amount received or receivable by a Finance Party
from any other Party under this Agreement.
12.2 Exceptions
Clause 12.1 (Increased costs) does not apply to any increased cost:
(a) compensated for by the payment of the Reserve Asset Costs;
(b) attributable to any tax or amounts in respect of tax which must be
deducted from any amounts payable or paid by a Borrower or paid or
payable by the Agent to a Finance Party under the Finance Documents or
in respect of which additional amounts have been paid under Clause
10.1 (Gross-up) (above); or
(c) which is, or is attributable to, any tax on the overall net income,
profits or gains of a Finance Party or any of its holding companies
(or the overall net income, profits or gains of a division or branch
of the Finance Party or any of its holding companies) or any branch
profit tax with respect to such division or branch.
13. Illegality and Mitigation
13.1 Illegality
If it 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
its participation in any Advance, then the Bank may notify the Borrowers'
Agent through the Agent accordingly and thereupon:
(a) each Borrower shall, upon request from that Bank to the extent
required and within the period allowed or if no period is allowed,
forthwith, repay the participation of that Bank in any Advances made
to it by that Bank together with all other amounts payable by it to
that Bank under this Agreement;
(b) the Bank's Tranche A Commitment, Tranche B Commitment and Tranche C
Commitment shall be cancelled.
13.2 Mitigation
Notwithstanding the provisions of Clauses 10 (Taxes), 12 (Increased Costs)
and 13.1 (Illegality), if in relation to a Bank or (as the case may be) the
Agent circumstances arise which would result in:
(a) any deduction, withholding or payment of the nature referred to in
Clause 10 (Taxes); or
(b) any increased cost of the nature referred to in Clause 12 (Increased
Costs); or
<PAGE>
49
(c) a notification pursuant to Clause 13.1 (Illegality),
then without in any way limiting, reducing or otherwise qualifying the
rights of such Bank or the Agent, such Bank shall promptly upon becoming
aware of the same notify the Agent thereof (whereupon the Agent shall
promptly notify the Borrowers' Agent) and such Bank shall use reasonable
endeavours to transfer its participation in the Facility and its rights
hereunder and under the Finance Documents to another financial institution
or Facility Office not affected by the circumstances having the results set
out in (a), (b) or (c) above and shall otherwise take such reasonable steps
as may be open to it to mitigate the effects of such circumstances provided
that such Bank shall not be under any obligation to take any such action
if, in its opinion, to do so would or would be likely to have a material
adverse effect upon its business, operations or financial condition or
would involve it in any unlawful activity or any activity that is contrary
to its policies or any request, guidance or directive of any competent
authority (whether or not having the force of law) or (unless indemnified
to its satisfaction) would involve it in any significant expense or tax
disadvantage.
14. Guarantee
14.1 Guarantee
Each Guarantor jointly and severally irrevocably and unconditionally:
(a) as principal obligor, guarantees to each Finance Party prompt
performance by each Borrower of all its obligations under the Finance
Documents;
(b) undertakes with each Finance Party that whenever a Borrower does not
pay any amount when due under or in connection with any Finance
Document, such Guarantor shall forthwith on demand by the Agent pay
that amount as if that Guarantor instead of the relevant Borrower were
expressed to be the principal obligor; and
(c) indemnifies each Finance Party on demand against any loss or liability
suffered by it if any obligation guaranteed by any Guarantor is or
becomes unenforceable, invalid or illegal.
14.2 Continuing guarantee
This guarantee is a continuing guarantee and will extend to the ultimate
balance of all sums payable by the Borrowers under the Finance Documents,
regardless of any intermediate payment or discharge in part.
14.3 Reinstatement
(a) Where any discharge (whether in respect of the obligations of any Borrower
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 the
Guarantors under this Clause 14 shall continue as if the discharge or
arrangement had not occurred (but only to the extent that such payment,
security or other disposition is avoided or restored).
<PAGE>
50
(b) Each Finance Party may concede or compromise any claim that any payment,
security or other disposition is liable to avoidance or restoration.
14.4 Waiver of defences
The obligations of the Guarantors under this Clause 14 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 14 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 Borrower 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 Borrower 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 a Borrower 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 14 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 the Guarantors' obligations under this
Clause 14 shall remain in full force and its guarantee be construed
accordingly, as if there were no unenforceability, illegality or
invalidity; and
(f) any postponement, discharge, reduction, non-provability or other
similar circumstance affecting any obligation of any Borrower 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 the Guarantors'
obligations under this Clause 14 shall be construed as if there were
no such circumstance.
14.5 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 14.
14.6 Appropriations
Until all amounts which may be or become payable by the Borrowers 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:
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(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 any moneys received from any Guarantor or
on account of that Guarantor's liability under this Clause 14,
without liability to pay interest on those moneys.
14.7 Non-competition
Until all amounts which may be or become payable by the Borrowers under or
in connection with the Finance Documents have been paid in full, no
Guarantor shall, after a claim has been made or by virtue of any payment
or performance by it under this Clause 14:
(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 14;
(b) claim, rank, prove or vote as a creditor of any Borrower 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 Borrower, or exercise any right of
set-off as against any Borrower.
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 14.7.
14.8 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.
14.9 Removal of Guarantors
Any Guarantor which is not a Borrower (other than the Parent and the
Company) may, at the request of the Borrowers' Agent and if no Default is
continuing, cease to be a Guarantor by entering into a supplemental
agreement to this Agreement at the cost of the Borrowers' Agent in such
form as the Agent may reasonably require which shall discharge that
Guarantor's obligations as a Guarantor under this Agreement.
15. Representations and Warranties
15.1 Representations and warranties
Each Obligor makes the representations and warranties set out in this
Clause 15 to each Finance Party (but in the case of an Obligor other than
the Parent only in respect of itself).
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15.2 Status
(a) It is a duly incorporated and validly existing corporation 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.
15.3 Powers 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 and the Merger Agreement to which it is or will be a
party and the transactions contemplated by those Finance Documents and the
Merger Agreement (subject, in the case of the Merger Agreement, to
obtaining the shareholders resolution referred to in paragraph 5(b) of
Schedule 2, Part I (Conditions Precedent Documents)).
15.4 Legal validity
Each Finance Document and the Merger Agreement 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 enforceable in
accordance with its terms subject, as to matters of law, to the
qualifications contained in the legal opinions referred to in Schedule 2.
15.5 Non-conflict
The entry into and performance by it of, and the transactions contemplated
by, the Finance Documents and the Merger Agreement do not and will not
conflict with:
(a) any law or regulation or judicial or official order; or
(b) the constitutional documents of any member of the Group; or
(c) any document which is binding upon any member of the Group or any
asset of any member of the Group,
in any such case to an extent or in a manner which would have a material
adverse effect on the ability of the Obligors taken together to perform
their obligations under this Agreement.
15.6 No Default
(a) No Default is outstanding or is reasonably likely to result from any
Advance; and
(b) no other event is outstanding which constitutes (or, with the giving of
notice, 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 ability of the Obligors taken together to perform
their obligations under this Agreement.
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53
15.7 Authorisations
All authorisations required in connection with the entry into,
performance, validity and enforceability of, and the transactions
contemplated by, the Finance Documents have been obtained or effected (as
appropriate) and are in full force and effect (subject, in the case of the
Merger only, to obtaining all approvals required under the Merger
Agreement).
15.8 Licences
(a) A member of the Group is duly licensed by the Secretary of State under
Section 6(1)(a) of the Electricity Act;
(b) a member of the Group is duly licensed by the Secretary of State under
Section 6(1)(c) of the Electricity Act and, if changes to separate supply
and distribution functions are implemented, is duly licensed for both
supply and distribution to any premises in that member's authorised area
and for supply in any other areas in which it is making a supply of
electricity to the extent that such licences are required for that Group
member's business at that time; and
(c) after Libra becomes a member of the Group, each member of a U.S. Regulated
Group is duly licensed by the relevant authorities under Energy Laws
applicable to it to the extent required for its business.
15.9 Compliance with Licences and regulations
None of PowerGen UK plc or PowerGen Energy plc or, following the Libra
Merger Completion Date, any member of any U.S. Regulated Group is in
breach of any of its obligations (if any) under its Licences, the
Electricity Act or any other Energy Law in any such case applicable to it
to an extent or in a manner which would be reasonably likely to have a
material adverse effect on the ability of the Obligors (taken as a whole)
to perform their obligations under this Agreement.
15.10 Accounts
(a) In the case of the Parent, 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) 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.
(b) There has been no material adverse change in the business, assets or the
consolidated financial condition of the Group since the date to which the
Original Group Accounts were drawn up which would be reasonably likely to
have a material adverse effect on the ability of the Obligors taken
together to perform their obligations under this Agreement.
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54
(c) In the case of each Obligor (other than the Parent), its audited accounts
most recently delivered to the Agent:
(i) have been prepared in accordance with accounting principles and
practices generally accepted in its jurisdiction of incorporation
consistently applied; and
(ii) give a true and fair view of its financial condition as at the date
to which they were drawn up.
15.11 Litigation
No litigation, arbitration or administrative proceedings in relation to
any member of the Group are current or, to its knowledge, pending or
threatened, which would, in the opinion of the Directors of the Parent,
have a material adverse effect on the ability of the Obligors taken
together to perform their obligations under this Agreement.
15.12 Information
(a) The factual information in relation to the Group in the Information
Package is to the best of the Parent's knowledge and belief true and
accurate in all material respects, 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
as at the date of which the Information Package speaks and all such
factual information, opinions and assumptions were provided in good faith
and after due enquiry as to their accuracy. Although the Parent has not
verified all the information in the Information Package relating to the
Libra Group it has no reason to believe that any factual statement in the
Information Package relating to the Libra Group is incorrect in any
respect which is material in the context of the Facilities.
(b) The Information Package did not omit at its date any information which
made misleading in any material respect any information in the Information
Package.
(c) In this Clause 15.12 "Information Package" means:
(i) the Information Memorandum to be prepared and delivered to the Banks
in connection with the primary syndication of the Facilities; and
(ii) the financial model in relation to the Group as expanded consequent
upon the acquisition of Libra dated on or about the Signing Date
prepared by the Parent and initialled for identification by the
Parent and the Arrangers on or before the Signing Date (and including
the assumptions on which such model was based).
15.13 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
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55
law with respect to each Plan except where such non-compliance could
reasonably be expected not to have a material adverse effect on the
ability of the Obligors taken together to perform their obligations under
this Agreement.
(c) No Reportable Event has occurred with respect to any Plan maintained by
the U.S. Obligor or any member of the Controlled Group, and no steps have
been taken to reorganise or terminate any such Plan or by that Obligor or
any member of the Controlled Group to effect a complete or partial
withdrawal from any Multi-Employer Plan except where such non-compliance,
Reportable Event, reorganisation, termination or withdrawal could
reasonably be expected not to have a material adverse effect on the
ability of the Obligors taken together to perform their obligations under
this Agreement.
(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 or
ERISA other than a liability to the PBGC for premiums under Section
4007 of ERISA.
15.14 U.S. Obligors
(a) Each Obligor 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.
(b) None of the proceeds of any Advance will be used, directly or indirectly
by any Borrower, and whether immediately, ultimately or incidentally, for
any purpose which results in a violation by any Obligor of the provisions
of Regulations T, U or X.
(c) Neither the Parent nor any of its Subsidiaries is at the Signing Date
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 Libra Merger Completion Date, the
Company will be a "holding company" and each of its Subsidiaries will be
"subsidiary companies" within the meaning of PUHCA. Without limiting
Clause 15.7 (Authorisations), the Parent 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 Advance will result in any breach or failure to
comply with the applicable provisions of PUHCA and any applicable rules,
regulations and orders issued thereunder.
15.15 Ownership of the Company
The Company is a wholly-owned Subsidiary of the Parent.
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15.16 Times for making representations and warranties
The representations and warranties set out in this Clause 15:
(a) in the case of each Obligor which is a Party on the date of this
Agreement, are made on the date of this Agreement and, in the case of
Clause 15.12 (Information), on the last day of the Primary
Syndication Period;
(b) (except in the case of Clauses 15.10(b) (Accounts) and 15.12
(Information)) in the case of an Obligor which becomes a Party after
the date of this Agreement, will 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
(c) are deemed to be repeated by each Obligor on:
(i) except in the case of Clauses 15.10(b) (Accounts) and 15.12
(Information), the date of each Request;
(ii) except in the case of Clauses 15.6 (No Default), 15.10(b)
(Accounts), 15.11 (Litigation) and 15.12 (Information), the
first day of each Interest Period or Term, as the case may be;
and
(iii) except in the case of Clauses 15.10(b) (Accounts) and 15.12
(Information), each Drawdown Date with reference to the facts
and circumstances then existing.
16. Undertakings
16.1 Duration
The undertakings in this Clause 16 (Undertakings) will remain in force
from the Signing Date for so long as any amount is or may be outstanding
under this Agreement or any Commitment is in force.
16.2 Financial information
The Parent 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 the financial years of each member of the Group
specified in this paragraph (a)):
(i) in the case of the Parent, the audited consolidated accounts of
the Group for that financial year;
(ii) the audited consolidated accounts for that financial year of
the Libra Group and the PowerGen UK Group; and
(iii) in the case of each other Obligor, its audited accounts for
that financial year;
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(b) in the case of the Parent, as soon as the same are available (and in
any event within 90 days of the end of the first half-year of each of
its financial years) the unaudited consolidated accounts of the Group
for that half-year;
(c) in the case of the Parent, together with the accounts specified in
paragraphs (a) and (b) above, a certificate signed by two of its
senior officers on its behalf:
(i) setting out in reasonable detail computations establishing
compliance with Clause 16.18 (Financial covenants) as at the
date to which those accounts were drawn-up;
(ii) identifying the Principal Subsidiaries, if any, on the basis of
those accounts; and
(iii) 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.
16.3 Information - Miscellaneous
The Parent shall supply to the Agent:
(a) all documents despatched by it to its shareholders (or any class of
them) or its creditors generally (or any class of them) at the same
time as they are despatched;
(b) promptly upon becoming aware of them, details of any litigation,
arbitration or administrative proceedings which are current,
threatened or pending, and which would, in the opinion of the
Directors of the Parent, if adversely determined, have a material
adverse effect on the ability of the Parent to perform its obligations
under this Agreement; and
(c) promptly, 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,
in sufficient copies for all of the Banks, if the Agent so requests.
16.4 Notification of Default
The Parent shall notify the Agent of any Default (and the steps, if any,
being taken to remedy it) promptly upon becoming aware of it.
16.5 Authorisations
Each Obligor shall promptly:
(a) obtain, maintain and comply with the terms of; and
(b) if requested, supply certified copies to the Agent of,
any authorisation required under any law or regulation to enable it to
perform its obligations under, or for the validity or enforceability of,
any Finance Document.
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16.6 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, except for obligations which from time
to time are mandatorily preferred by law applying to companies generally.
16.7 Negative pledge
No Obligor shall, and the Parent shall procure that no other member of the
PowerGen US Group (other than any member of the Libra Group) will, create
or permit to subsist any Security Interest on any of its assets other than
any Permitted Security Interests.
16.8 Disposals
No Obligor shall, and the Parent 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 of all or any part of its
assets other than:
(a) a disposal made in the ordinary course of business of the disposing
entity; or
(b) disposals of assets or businesses in exchange for other assets or
businesses to the extent two directors of the Parent have certified
to the Agent that, in their view, the assets or businesses acquired
are comparable or superior as to value or earnings generation
provided that where any such exchange includes a cash adjustment
payable to the Group, the exchange element shall be permitted under
this paragraph (b) but the cash adjustment shall be treated as the
Net Available Proceeds of a Cash Disposal (and any non-cash
adjustment shall be treated as an Asset Disposal within paragraph (b)
of the definition of Net Available Proceeds); or
(c) Asset Disposals to the extent the appropriate proportion of the Net
Available Proceeds is applied in reduction of the Facilities in
accordance with Clause 7.5 (Mandatory reduction from Asset Disposals
and Capital Market Issues); or
(d) Asset Disposals to the extent that, pursuant to paragraphs (c), (d),
(e) or (f) of Clause 7.5 (Mandatory reduction from Asset Disposals
and Capital Market Issues), the Net Available Proceeds thereof are
not required to be applied in reduction of the facilities; or
(e) a disposal of assets to any other member of the Group except that no
member of the PowerGen US Group may make any disposal to a member of
the PowerGen UK Group other than disposals by members of the Libra
Group of shares in companies specified in Schedule 8 (Libra Foreign
Utility Companies); or
(f) a disposal of assets on arm's length terms pursuant to a
securitisation (provided that any Borrowings of any entity incurred
to finance that securitisation are included in Borrowings of the
member of the Group making the relevant disposal, as contemplated by
sub-paragraph (iv) of the definition of "Borrowings"); or
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(g) (i) any non-cash disposal on arm's length terms by a member of the
PowerGen UK Group where the assets disposed of are transferred
to a joint venture in which the Parent has an ownership interest
(direct or indirect) of not less than 50 per cent.; or
(ii) any issue of shares for cash by a member of the PowerGen UK
Group where the Parent retains at least 50 per cent. ownership
(direct or indirect) in the issuer and the proceeds of such
issue are invested in the business of the issuer,
provided that to the extent the aggregate book value (expressed in
Sterling at the rate of exchange used in the accounts in (l) below)
of all assets disposed of under (i) above and, without double
counting, the assets of any member of the PowerGen UK Group which has
issued shares under (ii) exceeds 20 per cent. of the aggregate of (1)
the total assets of the Group (as determined from the audited
consolidated accounts of the Group for the year ended 2nd January,
2000) and (2) the total assets of the Libra Group (as determined from
the audited consolidated accounts of the Libra Group for the year
ended 31st December, 1999), then an amount equal to the excess shall
be deemed to be an Asset Disposal and must be applied in reduction of
the Facilities in accordance with Clause 7.5 (Mandatory reduction
from Asset Disposals and Capital Markets Issues) ; or
(h) any disposal on arm's length terms made by a member of a U.S.
Regulated Group to the extent that an amount equal to the net
proceeds of such disposal are invested in new assets of a member of a
U.S. Regulated Group within six months of the relevant disposal; or
(i) a disposal to which the Majority Banks have agreed in writing,
provided that no disposal may be made under this Clause 16.8 if, after
such disposal:
(A) both U.S Regulated Entities would not be members of the PowerGen
US Group; or
(B) substantially all of the assets of both U.S Regulated Groups
would have been disposed of outside the PowerGen US Group,
unless, on or before the completion date of any such disposal, the Total
Commitments have been cancelled and all outstandings under the Facilities
have been repaid in full.
16.9 Change of business
The Parent shall procure that the energy business shall at all times
continue to be the main part of the business of the Group.
16.10 Restriction on Borrowings
The Parent shall procure that no member of the Group shall create, assume,
incur, guarantee or otherwise be liable in respect of or have outstanding
any Borrowings other than:
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(i) any Borrowings under this Agreement; or
(ii) any Borrowings incurred by the Parent, or the Company; or
(iii) any Borrowings of any Subsidiary of the Parent which has no
material assets other than loans to the Parent or the Company
(either directly or indirectly through members of the Group with no
material assets other than those loans); or
(iv) intra-Group Borrowings permitted under Clause 16.12 (Intra-Group
Borrowing);
(v) any Borrowings incurred by any member of the PowerGen UK Group
provided that the Total Consolidated Net Borrowings of the PowerGen
UK Group, do not (subject to Clause 7.5(d)) exceed
(Pounds)4,000,000,000 until 31st December, 2000,
(Pounds)3,500,000,000 from 1st January 2001 to 30th June, 2003 and
(Pounds)4,000,000,000 thereafter; or
(vi) any Borrowings incurred by any member of the Libra Group provided
that the Total Consolidated Net Borrowings of the Libra Group do
not (subject to Clause 7.5(d)) exceed U.S.$3,250,000,000.
In this Clause 16.10, "Total Consolidated Net Borrowings" has the same
meaning as in Clause 16.18 (Financial covenants), save that references to
the Group are references to the PowerGen UK Group and Libra Group (as
appropriate).
16.11 Intra-Group guarantees
The Parent shall procure that no member of the Group gives any guarantees
of any Borrowings of any other member of the Group provided that this
restriction shall not apply to any guarantees given:
(a) by any member of the PowerGen UK Group in respect of any other
member of the PowerGen UK Group; or
(b) by any member of the Libra Group in respect of any other member of
the Libra Group; or
(c) by the Parent or the Company in respect of Borrowings by the Parent
and/or the Company or any Subsidiary referred to in Clause
16.10(iii); or
(d) to the Finance Parties of obligations under the Finance Documents.
16.12 Intra-Group Borrowing
The Parent shall procure that no member of the Group will have any
Borrowings from any other member of the Group other than Borrowings:
(a) by a member of the PowerGen UK Group from any other member of the
PowerGen UK Group;
(b) by a member of the PowerGen US Group from any other member of the
PowerGen US Group;
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(c) by the Parent or the Company from any member of the PowerGen UK
Group; and
(d) by a member of the PowerGen UK Group from the Parent provided that
such Borrowings may not exceed at any time the aggregate of (i)
distributable reserves of the Parent at such time plus (ii)
(without double counting any amount included in (i)) an amount
equal to the total net proceeds of all equity issues made by the
Parent after the Signing Date.
16.13 Licence
The Parent shall, or shall procure that any member of the Group holding a
Licence shall:
(a) comply in all respects with the terms of the Licence to the extent
that non-compliance would have (whether immediately or in the course
of time) a material adverse effect on the ability of the Obligors
taken together to perform their obligations under this Agreement;
and
(b) not consent, without the prior written consent of the Majority
Banks, to any revocation of the Licence or to any material
modification of the terms thereof if such modification would have
(whether immediately or in the course of time) a material adverse
effect on the ability of the Obligors taken together to perform
their obligations under this Agreement.
16.14 Insurance
Each Obligor will, and the Parent shall procure that each of its
Subsidiaries will, effect insurances over and in respect of its assets
and business against such risks and to such extent and in such a manner
as is usual for companies carrying on such a business in the country
concerned.
16.15 Environmental undertakings
(a) Each Obligor will not, and the Parent will procure that no other member
of the Group will, other than when duly licensed by the appropriate
regulatory authorities, use, generate, store, handle, transport, dump,
release, deposit, bury, emit, abandon or place any Dangerous Substance
at, on, from or under any property which it owns or occupies if 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.
(b) Each Obligor will, and the Parent will procure that each other member of
the Group will, comply in all respects (consistently with the manner in
which similar businesses operating in the relevant jurisdiction comply)
with:
(i) all applicable Environmental Laws; and
(ii) the terms of all Environmental Approvals necessary for the ownership
and operation of its facilities and businesses as owned and operated
from time to time,
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if 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.
16.16 Hedging
The Parent will (or will procure that other members of the Group will),
no later than three months after the Signing Date, effect and thereafter
maintain interest rate hedging so as to pay fixed rates on a percentage
of a notional principal amount of not less than 60 per cent. of the
amount of Total Consolidated Net Borrowings of the Group from time to
time projected by the Parent to be outstanding during the period up to
and including the date which is 30 months after the Signing Date (but on
the first Anniversary that percentage will reduce from 60 per cent. to 45
per cent.).
16.17 The Merger
(a) The Parent shall keep the Arrangers informed as to the status and
progress of the Merger and shall promptly notify the Agent of any
material amendment or waiver of any term or condition of the Merger
Agreement (including, without limitation, any referral to, or any
correspondence of a material nature with, any applicable securities
regulatory authority except to the extent restricted by any
confidentiality obligation imposed by law).
(b) The Parent:
(i) will procure that no material changes are made to the Merger
Agreement which would result in:
(1) less than 100 per cent. of the issued share capital of Libra
being acquired by the Company directly or indirectly; or
(2) an increase in the consideration payable in connection with the
Merger; and
(ii) will not amend or waive any condition set out in Article VII,
Section 7.1(b) (Regulatory Consents) and 7.2(d) (PUHCA Approval) of
the Merger Agreement,
without the prior written consent of the Majority Banks.
16.18 Financial covenants
(a) In this Clause 16.18
"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
foreign currencies);
(ii) marketable obligations of any sovereign issuer which has a long term
sovereign debt rating of at least A2 with Moody's or A with S&P; and
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(iii) marketable obligations, maturing within six months, of issuers with
a short term debt rating of at least P-3 with Moody's or A-3 with
S&P or a long term debt rating of at least Baa3 with Moody's or BBB-
with S&P,
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 Permitted Security Interests.
"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
amortisation of goodwill and excluding (i) any Exceptional Items and (ii)
non-cash lease payment receipts arising from the disposal of generation
assets but including profits and losses from associated companies) of the
Group for that period based on the latest accounts supplied to the Agent
pursuant to Clause 16.2(a)(i) or 16.2(b) (Financial information).
"EBITDA"
means, in respect of any period, Consolidated Profits Before Interest and
Tax for that period after adding back depreciation and (without double
counting) amortisation of goodwill.
"Exceptional Items"
has the meaning given to it in FRS3 issued by the Accounting Standards
Board.
"Interest Payable"
means, in respect of any financial period, all interest, discount and all
other continuing, regular or periodic costs, charges and expenses in the
nature of interest (whether paid, payable or capitalised) or treated for
accounting purposes as interest, incurred by the Group in effecting,
servicing or maintaining consolidated Borrowings of the Group during that
period.
"Interest Receivable"
means, in respect of any financial period, interest and amounts in the
nature of interest received during that period by the Group from persons
outside the Group.
"Net Interest Payable"
means, in respect of any financial period, Interest Payable during that
period less Interest Receivable during that period.
"Total Consolidated Net Borrowings"
means the aggregate principal amount (or amounts equivalent to principal,
howsoever described) comprised in the Borrowings of the Group at the time
calculated on a consolidated basis minus Cash and Cash Equivalents held by
any member of the Group.
(b) All the terms used in paragraph (a) above are to be calculated in
accordance with the accounting principles applied in connection with the
Original Group Accounts.
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(c) If there is a dispute as to any interpretation of or computation for
paragraph (a) above, the interpretation or computation of the auditors for
the time being of the Parent will prevail.
(d) The Parent shall procure that:
(i) the ratio of average Total Consolidated Net Borrowings to EBITDA for
each period of 12 months ending on a date specified in Column 1 below
falling prior to the First Drawdown Date shall not exceed the ratio
specified opposite such date in Column 2 below:
Column 1 Column 2
30th June, 2000 4.00:1
31st December, 2000 4.25:1
30th June, 2001 4.25:1
31st December, 2001 4.25:1
and for each period of 12 months ending on each 30th June and 31st
December falling after the First Drawdown Date the ratio of average
Total Consolidated Net Borrowings to EBITDA shall not exceed 5.5:1,
and for the purposes of this sub-paragraph (i), "average Total
Consolidated Net Borrowings" for any period will be calculated as the
aggregate of the Total Consolidated Net Borrowings outstanding on the
last day of each accounting month during that period divided by the
number of months ending in that period (as shown in the Parent's
certificate for that period delivered under Clause 16.2(c) (Financial
information)).
(ii) the ratio of Consolidated Profits Before Interest and Tax to Net
Interest Payable for each period of 12 months ending on a date
specified in Column 1 below falling prior to the First Drawdown Date
shall not be less than the amount specified opposite such date in
Column 2 below:
Column 1 Column 2
30th June, 2000 2.50:1
31st December, 2000 2.25:1
30th June, 2001 2.25:1
31st December, 2001 2.50:1
and for each period of 12 months ending on each 30th June and 31st
December after the First Drawdown Date the ratio of EBITDA to Net
Interest Payable shall not be less than 2.1:1.
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(iii) Total Consolidated Net Borrowings do not at any time:
(1) (if the First Drawdown Date has not occurred) exceed (A)
(Pounds)4,000,000,000 on or prior to 31st December, 2000 and
(B) (Pounds)3,500,000,000 thereafter; or
(2) (if the First Drawdown Date has occurred), exceed
(Pounds)7,250,000,000.
17. Default
17.1 Events of Default
Each of the events set out in Clauses 17.2 (Non-payment) to 17.18 (Material
adverse change) (inclusive) is an Event of Default (whether or not caused
by any reason whatsoever outside the control of any Obligor or any other
person).
17.2 Non-payment
An Obligor does not pay within three Business Days of notification by the
Agent 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.
17.3 Breach of other obligations
An Obligor does not comply with any provision of the Finance Documents
(other than those referred to in Clause 17.2 (Non-payment)) and such
failure (if capable of remedy before the expiry of such period) continues
unremedied for a period of 28 days from the date on which the Agent gives
notice to the Borrowers' Agent requiring the same to be remedied.
17.4 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.
17.5 Cross-default
(a) Any Borrowings of a member of the Group are not paid when due or within any
applicable grace period provided in the documentation therefor; or
(b) any Borrowings of a member of the Group become prematurely due and payable
or capable of being declared prematurely due and payable or are placed on
demand in each case as a result of an event of default (howsoever
described) under the document relating to those Borrowings; or
(c) any Security Interest securing Borrowings over any asset of a member of the
Group becomes enforceable and the holder thereof shall commence proceedings
or appoint a receiver, manager or similar officer to take steps to enforce
the same,
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except that this Clause 17.5 shall not apply to:
(i) Borrowings of Group members the principal or settlement amounts of
which are in aggregate (Pounds)25,000,000 or less (other than any
individual Borrowing by any member of the Group the aggregate
principal or settlement amount of which exceeds (Pounds)20,000,000);
(ii) Project Finance Borrowings;
(iii) Borrowings liability for payment of which is being contested in good
faith by appropriate proceedings;
(iv) Borrowings of a type referred to in paragraph (g) of the definition
of Borrowings in Clause 1.1, unless such Borrowings have not been
repaid within three Business Days of becoming due; or
(v) during the Clean-up Period, Borrowings of any member of the Libra
Group outstanding as at the date it became a member of the Group.
17.6 Insolvency
(a) An Obligor or a Principal Subsidiary is, or is deemed for the purposes of
any law to be, unable to pay its debts (within the meaning of Section
123(1) or, in the case of the Parent only, 123(2) of the Insolvency Act
1986 but, for the purposes of this Clause 17.6, Section 123(1)(a) of the
Insolvency Act 1986 shall have effect as if for "(Pounds)750" there was
substituted "(Pounds)250,000" or such higher figure as the Majority Banks
may from time to time agree);
(b) an Obligor or a Principal Subsidiary 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
(c) an Obligor or a Principal Subsidiary by reason of financial difficulties,
begins negotiations with one or more of its creditors with a view to the
readjustment or rescheduling of any of its indebtedness.
17.7 Administration
(a) Any meeting of an Obligor or a Principal Subsidiary is convened for the
purpose of considering any resolution to present an application for an
administration order; or
(b) an Obligor or a Principal Subsidiary passes a resolution to present an
application for an administration order; or
(c) an application for an administration order in relation to an Obligor or a
Principal Subsidiary is presented to the court and either (i) the Parent or
such Principal Subsidiary does not apply to the court within 30 days after
the presentation of such petition requesting the court to refuse such
petition or (ii) it does so apply but such petition is not refused by such
court within 60 days after such application for the refusal of such
petition; or
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(d) an Obligor or a Principal Subsidiary has an administration order made in
relation to it.
17.8 Compositions etc.
An Obligor or a Principal Subsidiary has any voluntary arrangement
proposed in relation to it under Section 1 of the Insolvency Act 1986 or
enters into any other composition, scheme of arrangement, compromise or
arrangement involving an Obligor or an Principal Subsidiary and its
respective creditors generally (other than for the purposes of
reconstruction or amalgamation upon terms and within such period as may
previously have been approved in writing by the Majority Banks).
17.9 Winding up
(a) Any meeting of the shareholders of an Obligor or a Principal Subsidiary is
convened for the purpose of considering any resolution for (or to petition
for) its winding up (other than in connection with a reconstruction or
amalgamation upon terms and within such period as may previously have been
approved in writing by the Majority Banks); or
(b) an Obligor or a Principal Subsidiary passes any resolution for its winding
up other than a resolution previously approved in writing by the Majority
Banks (other than in connection with a reconstruction or amalgamation upon
terms and within such period as may previously have been approved in
writing by the Majority Banks); or
(c) a petition for the winding up of an Obligor or a Principal Subsidiary is
presented to the court and either (i) an Obligor or such Principal
Subsidiary does not apply to the court within 30 days after the
presentation of such petition requesting the court to refuse such
petition, or (ii) it does so apply but such petition is not refused by
such court within 60 days after such application for the refusal of such
petition; or
(d) an Obligor or a Principal Subsidiary becomes subject to a winding up
order.
17.10 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 an Obligor or a Principal Subsidiary or any
material part of its assets or undertaking; or
(b) the directors of an Obligor or a Principal Subsidiary request the
appointment of a liquidator, trustee in bankruptcy, judicial custodian,
compulsory manager, receiver, administrative receiver, administrator or
the like.
17.11 Creditors' process
Any attachment, sequestration, distress or execution affects any asset of
an Obligor or a Principal Subsidiary and is not discharged within 21 days.
17.12 Analogous proceedings
There occurs, in relation to an Obligor or a Principal Subsidiary, any
event anywhere which, in the opinion of the Majority Banks, appears to
correspond with any of those mentioned in Clauses 17.6 to 17.9
(inclusive).
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17.13 Unlawfulness
It is or becomes unlawful for any Obligor to perform any of its
obligations under the Finance Documents.
17.14 Guarantee
The guarantee of any Guarantor is not effective or is alleged by any
Obligor to be ineffective for any reason.
17.15 The Parent
Any single person, or group of persons (other than the Secretary of State
and the Treasury Solicitor) acting in concert (as defined in the City
Code on Take-overs and Mergers), acquires control after the date of this
Agreement (as defined in Section 416 of the Income and Corporation Taxes
Act 1988) of the Parent.
17.16 Revocation and modification of Licence
Other than changes arising from the current version of the UK Utilities
Bill as at the Signing Date, any Licence is:
(a) revoked or surrendered (or any notice of revocation is issued by any
regulatory authority); or
(b) modified,
in any manner or circumstances which would have a material adverse effect
on the ability of the Obligors taken together to perform their
obligations under this Agreement.
17.17 Pooling and Settlement Agreement
Any notice declaring an Event of Default (as defined in the Pooling and
Settlement Agreement) is given to any member of the Group under Clauses
66.1.1 or 66.2.1 of the Pooling and Settlement Agreement (or any
corresponding clauses in any agreement amending or replacing the Pooling
and Settlement Agreement).
17.18 Material adverse change
Any change in the financial condition of the Group taken as a whole which
materially and adversely affects the business, assets or consolidated
financial condition of the Group taken as a whole which is likely to have
a material adverse effect on the ability of the Obligors taken as a whole
to comply with their obligations under the Finance Documents.
17.19 Acceleration
On and at any time after the occurrence of an Event of Default while such
event is continuing the Agent may, and shall if so directed by the
Majority Banks, by notice to the Borrowers' Agent:
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(a) cancel the Total Commitments; and/or
(b) demand that all the Advances, together with accrued interest, and all
other amounts accrued under this Agreement be immediately due and
payable, whereupon they shall become immediately due and payable;
and/or
(c) demand that all the Advances be payable on demand, whereupon they
shall immediately become payable on demand.
18. The Agents and the Arrangers
18.1 Appointment and duties of the Agents
Each Finance Party (other than the Agent) irrevocably appoints the Agent to
act as its agent under and in connection with the Finance Documents and
each Swingline Bank appoints the Swingline Agent to act as its agent in
relation to the Swingline Facility, and each Finance Party irrevocably
authorises the Agent or, as the case may be, the Swingline Agent on its
behalf to 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 any other incidental rights,
powers and discretions. The Agent or, as the case may be, the Swingline
Agent shall have only those duties which are expressly specified in this
Agreement. Those duties are solely of a mechanical and administrative
nature.
18.2 Role of the Arrangers
Except as otherwise provided in this Agreement, no Arranger has any
obligations of any kind to any other Party under or in connection with any
Finance Document.
18.3 Relationship
The relationship between the Agent or, as the case may be, the Swingline
Agent and the other Finance Parties is that of agent and principal only.
Nothing in this Agreement constitutes the Agent or, as the case may be, the
Swingline Agent as trustee or fiduciary for any other Party or any other
person and the Agent or, as the case may be, the Swingline Agent need not
hold in trust any moneys paid to it for a Party or be liable to account for
interest on those moneys.
18.4 Majority Banks' directions
The Agent or, as the case may be, the Swingline 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 or, as the case may be, the
Swingline Agent may act as it considers to be in the best interests of all
the Banks.
18.5 Delegation
The Agent or, as the case may be, the Swingline Agent may act under the
Finance Documents through its personnel and agents.
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18.6 Responsibility for documentation
Neither the Agent, the Swingline 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.
18.7 Default
(a) The Agent or, as the case may be, the Swingline Agent is not obliged to
monitor or enquire as to whether or not a Default has occurred. Neither
the Agent nor the Swingline Agent will be deemed to have knowledge of the
occurrence of a Default. However, if the Agent or, as the case may be, the
Swingline Agent receives notice from a Party referring to this Agreement,
describing the Default and stating that the event is a Default, it shall
promptly notify the Banks.
(b) The Agent or, as the case may be, the Swingline 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 these proceedings or takes that
action.
18.8 Exoneration
(a) Without limiting paragraph (b) below, the Agent or, as the case may be, the
Swingline 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 its negligence or wilful misconduct.
(b) No Party may take any proceedings against any officer, employee or agent of
the Agent or, as the case may be, the Swingline Agent in respect of any
claim it might have against the Agent or, as the case may be, the Swingline
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.
18.9 Reliance
The Agent or, as the case may be, the Swingline 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;
(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
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(c) engage, pay for and rely on legal or other professional advisers
selected by it (including those in the Agent's or, as the case may be,
the Swingline Agent's employment and those representing a Party other
than the Agent or, as the case may be, the Swingline Agent).
18.10 Credit approval and appraisal
Without affecting the responsibility of any Borrower 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 Borrower 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, the Swingline Agent or the Arrangers in connection with any
Finance Document; and
(b) will continue to make its own independent appraisal of the
creditworthiness of each Borrower and its related entities while any
amount is or may be outstanding under the Finance Documents or any
Commitment is in force.
18.11 Information
(a) The Agent or, as the case may be, the Swingline Agent shall promptly
forward to the person concerned the original or a copy of any document
which is delivered to the Agent or, as the case may be, the Swingline
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), 25.4
(Additional Borrowers) or 25.5 (Additional Guarantors) upon the request
and at the expense of that Bank.
(c) Except where this Agreement specifically provides otherwise, the Agent or,
as the case may be, the Swingline 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 or, as the case may be, the Swingline
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 Borrower or any related entity of any Borrower whether
coming into its possession or that of any of its related entities
before, on or after the Signing Date; 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 Borrower.
18.12 The Agent and the Arrangers individually
(a) If it is also a Bank, each of the Agent, the Swingline Agent and the
Arrangers 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, the Swingline Agent or an Arranger.
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(b) Each of the Agent, the Swingline Agent and the Arrangers may:
(i) carry on any business with a Borrower or its related entities;
(ii) act as agent or trustee for, or in relation to any financing
involving, a Borrower 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.
18.13 Indemnities
(a) Without limiting the liability of any Obligor under the Finance Documents,
each Bank shall forthwith on demand indemnify the Agent or, as the case
may be, the Swingline Agent for its proportion of any liability or loss
incurred by the Agent or, as the case may be, the Swingline Agent in any
way relating to or arising out of its acting as the Agent or, as the case
may be, the Swingline Agent, except to the extent that the liability or
loss arises directly from the Agent's or, as the case may be, the
Swingline Agent's 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 Dollar Amount of its Advance(s)
bears to the Original Dollar Amount of all Advances outstanding on the
date of the demand. If, however, no Advances are outstanding on the date
of demand, then the proportion will be the proportion which its 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) The Borrowers' Agent shall forthwith on demand reimburse each Bank for any
payment made by it under paragraph (a) above except to the extent it
arises out of the Bank's negligence or default.
18.14 Compliance
(a) The Agent or, as the case may be, the Swingline 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 or, as the case may be,
the Swingline Agent, need not disclose any information relating to any
Borrower or any of its related entities if the disclosure might, in the
opinion of the Agent or, as the case may be, the Swingline 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.
18.15 Resignation of Agents
(a) Notwithstanding its irrevocable appointment, the Agent or, as the case may
be, the Swingline Agent, may resign by giving notice to the Banks and the
Borrowers' Agent, in which case the Agent or, as the case may be, the
Swingline Agent, may forthwith appoint one of its Affiliates as successor
Agent or, failing that, the Majority Banks may after consultation with the
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Borrowers' Agent appoint a successor Agent or, as the case may be,
successor Swingline Agent.
(b) If the appointment of a successor Agent or, as the case may be, successor
Swingline Agent is to be made by the Majority Banks but they have not,
within 30 days after notice of resignation, appointed a successor Agent or,
as the case may be, successor Swingline Agent which accepts the
appointment, the retiring Agent or, as the case may be, the retiring
Swingline Agent may, following consultation with the Borrowers' Agent,
appoint a successor Agent or, as the case may be, successor Swingline
Agent.
(c) The resignation of the retiring Agent or, as the case may be, retiring
Swingline Agent and the appointment of any successor Agent or, as the case
may be, successor Swingline Agent will both become effective only upon the
successor Agent or, as the case may be, successor Swingline Agent notifying
all the Parties that it accepts the appointment. On giving the
notification and receiving such approval, the successor Agent or, as the
case may be, successor Swingline Agent will succeed to the position of the
retiring Agent or, as the case may be, retiring Swingline Agent and the
term "Agent" or, as the case may be, "Swingline Agent" will mean the
successor Agent or, as the case may be, successor Swingline Agent.
(d) The retiring Agent or, as the case may be, retiring Swingline Agent shall,
at its own cost, make available to the successor Agent or, as the case may
be, successor Swingline Agent such documents and records and provide such
assistance as the successor Agent or, as the case may be, successor
Swingline Agent may reasonably request for the purposes of performing its
functions as the Agent or, as the case may be, the Swingline Agent under
this Agreement.
(e) Upon its resignation becoming effective, this Clause 18 shall continue to
benefit the retiring Agent or, as the case may be, retiring Swingline
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 or, as the
case may be, the Swingline Agent, and, subject to paragraph (d) above, it
shall have no further obligation under any Finance Document.
18.16 Banks
The Agent or, as the case may be, the Swingline Agent may treat each Bank
as a Bank, 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 by not less than five Business Days prior to the relevant
payment.
18.17 Chinese wall
In acting as Agent, Swingline Agent or Arranger, the agency and
syndications division of each of the Agent, the Swingline 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, the
Swingline Agent or any Arranger otherwise than in the capacity of Agent,
Swingline Agent or Arranger through its agency and syndications division
(whether as financial advisor to any member of the Group or otherwise) may
be treated as confidential by the Agent, Swingline Agent or Arranger and
shall not be deemed to be information possessed by the Agent, Swingline
Agent or Arranger in their capacity as such. Each Finance Party
acknowledges that the Agent, the Swingline 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, Swingline Agent nor any Arrangers will
be under any obligation to provide, or under any liability for failure to
provide, any such information.
19. Fees
19.1 Commitment fee
(a) The Company shall pay to the Agent for distribution to each Bank pro rata
to the proportion its:
(i) Tranche A Commitment bears to the Tranche A Total Commitments;
(ii) Tranche B Commitment bears to the Tranche B Total Commitments;
(iii) Tranche C Commitment bears to the Tranche C Total Commitments;
from time to time a commitment fee at the rate per annum specified in
Clause 8.6(f) (Margin and commitment fee) above in relation to the Tranche
concerned on any undrawn, uncancelled amount of the relevant Tranche A
Commitment, Tranche B Commitment or Tranche C Commitment on each day.
(b) Commitment fee is calculated and accrues on a daily basis and is payable
quarterly in arrear 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 Tranche A Commitment,
Tranche B Commitment or Tranche C Commitment, as the case may be, at the
time the cancellation takes effect.
19.2 Agent's fee
The Company shall pay to the Agent for its own account an agency fee in the
amounts and on the dates agreed in the relevant Fee Letter.
19.3 Front-end fees
The Company shall pay to the Agent for the Arrangers front-end fees in the
amounts and on the dates specified in the relevant Fee Letter.
19.4 VAT
Any fee referred to in this Clause 19 is exclusive of any United Kingdom
value added tax. If any value added tax is so chargeable, it shall be paid
by the Borrowers' Agent at the same time as it pays the relevant fee.
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20. Expenses
20.1 Initial and special costs
The Company shall forthwith on demand pay the Agent, the Swingline Agent
and the Arrangers the amount of all out-of-pocket costs and expenses
(including but not limited to legal fees) reasonably 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; and
(ii) any other Finance Document (other than a Novation Certificate)
executed after the date of this Agreement;
(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; and
(d) any other matter, not of an ordinary administrative nature, arising
out of or in connection with a Finance Document.
20.2 Enforcement costs
The Company shall forthwith on demand pay to each Finance Party the amount
of all costs and expenses (including legal fees) incurred by it:
(a) in connection with the enforcement of, or the preservation of any
rights under, any Finance Document; or
(b) following notice to the Borrowers' Agent, in investigating any
possible Default.
21. Stamp Duties
The Company shall pay and forthwith on demand indemnify each Finance Party
against any liability it incurs in respect of any stamp, registration or
similar tax which is or becomes payable in connection with the entry into,
performance or enforcement of any Finance Document other than a Novation
Certificate.
22. Indemnities
22.1 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, judgment 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:
<PAGE>
76
(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 that 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
(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.
22.2 Other indemnities
The Company 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 Clauses 9.4 (Currency), 17.19 (Acceleration) or 28
(Pro Rata Sharing);
(c) any payment of principal or an overdue amount being received from any
source otherwise than, in the case of Tranche A Advances (except the
Term-out Advance), Tranche B Advances or Swingline Advances, on its
Maturity Date (and, for the purposes of this paragraph (c), the
Maturity Date of an overdue amount is the last day of each Designated
Term (as defined in Clause 8.4 (Default interest)) and, in the case
of Tranche C Advances and Term-out Advances, on applicable Interest
Dates;
(d) the occurrence of a change described in, and the operation of Clause
11.4 (Change in circumstances) in relation to, an Optional Currency;
or
(e) (other than by reason of negligence or default by a Finance Party) an
Advance not being effected after a Borrower has delivered a Request
for that Advance.
The Company's liability in each case includes any 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.
23. Evidence and Calculations
23.1 Accounts
Accounts maintained by a Finance Party in connection with this Agreement
are prima facie evidence of the matters to which they relate.
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77
23.2 Certificates and determinations
Any certification or determination by a Finance Party of a rate or amount
under this Agreement is, in the absence of manifest error, conclusive
evidence of the matters to which it relates.
23.3 Calculations
Interest and the fee payable under Clause 19.1 (Commitment fee) accrue from
day to day and are calculated on the basis of the actual number of days
elapsed and a year of 360 days, or, in the case of interest at the
Swingline Rate and any interest payable on an amount denominated in
Sterling, 365 days.
24. Amendments and Waivers
24.1 Procedure
(a) Subject to Clause 24.2 (Exceptions), any term of the Finance Documents may
be amended or waived with the agreement of the Borrowers' Agent, the
Parent, the Majority Banks and 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.
24.2 Exceptions
An amendment or waiver which relates to:
(a) the definition of "Majority Banks" in Clause 1.1 (Definitions);
(b) an extension of the date for, or a decrease in an amount or a change
in the currency of, any payment under the Finance Documents;
(c) an increase in a Bank's Commitment;
(d) a change in the guarantee under Clause 14 (Guarantee) otherwise than
in accordance with Clause 25.5 (Additional Guarantors) or Clause 14.9
(Removal of Guarantors);
(e) the incorporation of Additional Borrowers otherwise than in accordance
with Clause 25.4 (Additional Borrowers);
(f) a term of a Finance Document which expressly requires the consent of
each Bank; or
(g) Clause 28 (Pro Rata Sharing) or this Clause 24,
may not be effected without the consent of each Bank.
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78
24.3 Waivers and remedies cumulative
The rights of each 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.
25. Changes to the Parties
25.1 Transfers by Obligors
No Obligor may assign, transfer, novate or dispose of any of, or any
interest in, its rights and/or obligations under this Agreement except in
accordance with Clause 7.6 (Changes to Borrowers).
25.2 Transfers by 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") provided that:
(i) in the case of a partial assignment, transfer or novation of rights
and/or obligations, a minimum amount of U.S.$10,000,000 in aggregate
(or, if less, the Existing Bank's aggregate Commitments or Commitment
under the relevant Tranche, as the case may be) (unless to an
Affiliate or to a Bank or the Agent agrees otherwise) must be
assigned, transferred or novated; and
(ii) in the case of an assignment, transfer or novation by a Swingline
Bank, a portion of that Swingline Bank's Swingline Commitment must
also be assigned, transferred or novated to the extent necessary (if
at all) to ensure that the Swingline Bank's Swingline Commitment does
not exceed its Tranche B Commitment after the assignment, transfer or
novation.
(b) A transfer of obligations will be effective only if either:
(i) the obligations are novated in accordance with Clause 25.3 (Procedure
for novations); or
(ii) the New Bank gives notice to the Borrowers' Agent and confirms to the
Agent and the Borrowers' Agent that it undertakes to be bound by the
terms of this Agreement as a Bank in form and substance satisfactory
to the Agent and the Borrowers' 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.
<PAGE>
79
(d) On each occasion an Existing Bank assigns, transfers or novates any of its
rights and/or obligations under this Agreement after the end 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 U.S.$1,500.
(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
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, 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 it under this Agreement and
its Commitment has been cancelled or reduced to nil.
25.3 Procedure for novations
(a) A novation is effected if:
(i) the Existing Bank and the New Bank deliver to the Agent a duly
completed certificate (a "Novation Certificate"), substantially in
the form of Part I of Schedule 5, with such amendments as the Agent
approves 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 (which the Agent shall promptly do).
<PAGE>
80
(b) Each Party (other than the Existing Bank and the New Bank) irrevocably
authorises the Agent to execute any duly completed Novation Certificate on
its behalf.
(c) To the extent that they are expressed to be the subject of the novation in
the Novation Certificate:
(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 insofar
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 insofar as
they are exercisable by or against the New Bank instead of the
Existing Bank,
all on the date of execution of the Novation Certificate by the Agent or,
if later, the date specified in the Novation Certificate.
(d) If the effective date of a novation is after the date a Request is received
by the Agent but before the date the requested Advance is disbursed to the
relevant Borrower, the Existing Bank shall be obliged to participate in
that Advance in respect of its discharged obligations notwithstanding that
novation, and the New Bank shall reimburse the Existing Bank for its
participation in that Advance and all interest and fees thereon up to the
date of reimbursement (in each case to the extent attributable to the
discharged obligations) within three Business Days of the Drawdown Date of
that Advance.
25.4 Additional Borrowers
(a) If the Parent wishes any of its wholly-owned Subsidiaries permitted by the
definition of "Additional Borrower" to become an Additional Borrower, then
it may deliver to the Agent the documents listed in Part II of Schedule 2.
(b) On delivery of a Borrower Accession Agreement, executed by the relevant
Subsidiary and the Parent, the Subsidiary concerned will become an
Additional Borrower. However, it may not submit a Request until the Agent
confirms to the other Finance Parties and the Parent 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 relevant
Subsidiary and the Parent, constitutes confirmation by that Subsidiary and
the Parent that the representations and warranties set out in Clause 15
(Representations and Warranties) to be made by them on the date of the
Borrower Accession Agreement are correct, as if made by them with reference
to the facts and circumstances then existing.
<PAGE>
81
25.5 Additional Guarantors
(a) (i) Subject to paragraph (b) below, a wholly owned Subsidiary of the
Parent may become an Additional Guarantor by delivering to the Agent
a Guarantor Accession Agreement, duly executed by that company.
(ii) Upon execution and delivery of a Guarantor Accession Agreement, the
relevant Subsidiary will become an Additional Guarantor.
(iii) The Parent 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 III
of Schedule 2, in each case in form and substance satisfactory to the
Agent.
(b) The execution of a Guarantor Accession Agreement constitutes confirmation
by the Subsidiary concerned that the representations and warranties set out
in Clause 15 (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.
25.6 Reference Banks
If a Reference Bank (or, if a Reference Bank is not a Bank, the Bank of
which it is an Affiliate) ceases to be a Bank, the Agent shall (in
consultation with the Borrowers' Agent) appoint another Bank or an
Affiliate of a Bank which is not a Reference Bank to replace that Reference
Bank.
25.7 Register
The Agent shall keep a register of all the Parties including in the case of
Banks the details of their Facility Office notified to the Agent from time
to time, and shall supply any other Party (at that Party's expense) with a
copy of the register on request.
26. Disclosure of Information
A Bank may disclose to one of its Affiliates or any 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; and
(b) 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 the
Borrowers' Agent substantially in the form of Schedule 6 or such other form
as the Borrowers' Agent may approve.
<PAGE>
82
27. Set-off
After an Event of Default which is continuing, 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.
28. Pro Rata Sharing
28.1 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 9
(Payments) (a "recovery"), then:
(a) the recovering Finance Party shall, within three 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 9 (Payments);
(c) subject to Clause 28.3 (Exception), the recovering Finance Party
shall, within three Business Days of demand by the Agent, pay to the
Agent an amount (the "redistribution") equal to the excess;
(d) the Agent shall treat the redistribution as if it were a payment by
the Obligor concerned under Clause 9 (Payments) and shall pay the
redistribution to the Finance Parties (other than the recovering
Finance Party) in accordance with Clause 9.7 (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.
28.2 Reversal of redistribution
If under Clause 28.1 (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 three Business Days of demand by the
recovering Finance Party through the Agent, reimburse the recovering
Finance Party all or the appropriate portion
<PAGE>
83
of the redistribution paid to that Finance Party. Thereupon the subrogation
in Clause 28.1(e) (Redistribution) will operate in reverse to the extent of
the reimbursement.
28.3 Exception
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 Clause 28.1(e)
(Redistribution).
29. 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.
30. 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.
31. Notices
31.1 Giving of notices
(a) All notices or other communications under or in connection with this
Agreement shall be given in writing or by facsimile. Any such notice will
be deemed to be given as follows:
(i) if in writing, when delivered; and
(ii) if by facsimile, when received.
However, a notice given in accordance with the above but received on a non-
working day or after business hours in the place of receipt will only be
deemed to be given on the next working day in that place. Facsimile
Requests are to be confirmed by the relevant Borrower in writing (but may
be relied upon by the Agent and the Banks irrespective of receipt of such
confirmation).
(b) Any Party may agree with any other Party to give and receive notices by
telex in which case the notice will be deemed given when the correct
answerback is received.
31.2 Addresses for notices
(a) The address and facsimile number of each Party (other than the Agent, the
Swingline Agent and the Borrowers' Agent) for all notices under or in
connection with this Agreement are:
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84
(i) that notified by that Party for this purpose to the Agent on or before
it becomes a Party; or
(ii) any other notified by that Party for this purpose to the Agent by not
less than five Business Days' notice.
(b) The address and facsimile numbers of the Agent are:
HSBC Investment Bank plc
Vintners Place
68 Upper Thames Street
London EC4V 3BJ
Contact: Syndicated Finance Execution and Agency
Telephone: +44 (0) 20 7336 9294
Facsimile: +44 (0) 20 7336 9293/9302
or such other as the Agent may notify to the other Parties by not less than
five Business Days' notice.
(c) The address and facsimile numbers of the Swingline Agent are:
HSBC Investment Bank plc
Vintners Place
68 Upper Thames Street
London EC4V 3BJ
Contact: Syndicated Finance Execution and Agency
Telephone: + 44 (0) 20 7336 9294
Facsimile: + 44 (0) 20 7336 9293/9302
With a copy to:
HSBC Bank USA
Special Lending Department
26/th/ Floor
One HSBC Centre
Buffalo, NY 14203
U.S.A.
<PAGE>
85
Contact: Edward C. Huebert/Donna Riley
Telephone: + 1 716 841 7360/4178
Facsimile: + 1 716 841 0269/5683
or such other as the Swingline Agent may notify to the other Parties by not
less than five Business Days' notice.
(d) The addresses and facsimile numbers of the Borrowers' Agent are:
PowerGen US Holdings Limited
53 New Broad Street
London EC2M 1SL
Telephone: + 44 207 826 2846
Facsimile: + 44 207 826 2860
or such other as the Borrowers' Agent may notify to the other Parties by
not less than five Business Days' notice.
(e) The Agent shall, promptly upon request from any Party, give to that Party
the address, telex number or facsimile number of any other Party applicable
at the time for the purposes of this Clause.
32. Language
Any notice given and all other documents provided under or in connection
with any Finance Document shall be in English.
33. Governing Law
This Agreement is governed by, and shall be construed in accordance with,
English law.
THIS AGREEMENT has been entered into on the date stated at the beginning of this
Agreement.
<PAGE>
86
SCHEDULE 1
PART I
BANKS AND COMMITMENTS
<TABLE>
<CAPTION>
Column 1 Column 2 Column 3
Bank Tranche A Tranche B Tranche C
Commitments Commitments Commitments
U.S.$ U.S.$ U.S.$
<S> <C> <C> <C>
Deutsche Bank AG 300,000,000 200,000,000 300,000,000
London
Dresdner Bank AG 300,000,000 200,000,000 300,000,000
London Branch
HSBC Bank plc 300,000,000 200,000,000 300,000,000
Morgan Guaranty 300,000,000 200,000,000 300,000,000
Trust Company of
New York
UBS AG 300,000,000 200,000,000 300,000,000
------------------ ------------------ ------------------
Total U.S.$1,500,000,000 U.S.$1,000,000,000 U.S.$1,500,000,000
================== ================== ==================
</TABLE>
<PAGE>
87
PART II
SWINGLINE BANKS AND SWINGLINE COMMITMENTS-
<TABLE>
<CAPTION>
Swingline Bank Swingline Commitments
U.S.$
<S> <C>
Deutsche Bank AG London 80,000,000
Dresdner Bank AG London Branch 80,000,000
HSBC Bank plc 80,000,000
Morgan Guaranty Trust Company of New York 80,000,000
UBS AG 80,000,000
----------------
Total U.S.$400,000,000
================
</TABLE>
<PAGE>
88
SCHEDULE 2
CONDITIONS PRECEDENT DOCUMENTS
PART I
TO BE DELIVERED BEFORE THE FIRST ADVANCE
1. All Obligors
A copy of the memorandum and articles of association and certificate of
incorporation (or equivalent constitutional documents) of each Obligor.
2. Parent
(a) A copy of a resolution of a committee of the board of directors of the
Parent (and a copy of the resolution of the board of directors constituting
that committee):
(i) approving the terms of, and the transactions contemplated by, the
Finance Documents and resolving that it execute and, where
applicable, deliver the Finance Documents to which it is a party;
(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/or despatch all documents and notices to be signed and/or
despatched by it under or in connection with the Finance Documents;
(b) a specimen of the signature of each person authorised by the resolution
referred to in paragraph (a) above;
(c) a certificate of a director of the Parent confirming that the borrowing of
the Total Commitments in full would not cause any borrowing limit binding
on any Obligor to be exceeded; and
(d) a certificate of an Authorised Signatory of the Parent 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 Signing Date.
3. Company
(a) A copy of a resolution of the board of directors (or equivalent) of the
Company:
(i) approving the terms of, and the transactions contemplated by, the
Finance Documents and resolving that it execute and, where applicable,
deliver the Finance Documents to which it is a party;
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89
(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/or despatch all other documents and notices (including, in the
case of the Company, Requests) to be signed and/or despatched by it
under or in connection with the Finance Documents;
(b) a copy of a resolution, signed by all the holders of the issued or allotted
shares in the Company approving the terms of, and the transactions
contemplated by, the Finance Documents;
(c) a copy of a resolution of the board of directors of each corporate
shareholder in the Company:
(i) approving the terms of the resolution referred to in paragraph (b)
above for the Company; and
(ii) authorising a specified person or persons to sign the resolution on
its behalf;
and
(d) a specimen of the signature of each person authorised by the resolutions
referred to in paragraphs (a) and (c) above.
4. Legal opinion
(a) A legal opinion of Allen & Overy in relation to English law.
(b) A legal opinion of U.S. advisers approved by the Agent in relation to the
application of PUHCA to the Facilities.
5. Merger Documents
(a) A copy of the executed Merger Agreement and any ancillary documents
relating to the Merger Agreement.
(b) A copy of a resolution in a form previously approved by the Agent passed by
the shareholders of the Parent approving the Merger.
(c) A certificate from two Directors of the Parent (or one Director and the
secretary of the Parent) dated no earlier than five Business Days before
the date of completion of the Merger to the effect that:
(A) a specified indirect wholly owned Subsidiary of the Company
incorporated in Kentucky is to merge with and into Libra to complete
the Merger on a specified date; and
(B) all conditions to the completion of the Merger, including all SEC and
regulatory consents, have been, or will on the date specified in
paragraph (A) above be, satisfied or waived in compliance with this
Agreement.
(d) A copy of the circular to the shareholders of the Parent to be distributed
in connection with the acquisition of Libra.
<PAGE>
90
PART II
TO BE DELIVERED BY AN ADDITIONAL BORROWER
1. A Borrower Accession Agreement, duly executed by the Additional Borrower
and the Parent.
2. A copy of the memorandum and articles of association and certificate of
incorporation of the Additional Borrower.
3. A copy of a resolution of the board of directors 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/or despatch all other documents and notices (including Requests)
to be signed and/or despatched by it under or in connection with this
Agreement.
4. A copy of any other authorisation or other document, opinion or assurance
which the Agent reasonably 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 and enforceability of any
Finance Document.
5. A specimen of the signature of each person authorised by the resolution
referred to in paragraph 3 above.
6. The latest audited accounts of the Additional Borrower (if any).
7. A legal opinion of Allen & Overy, legal advisers to the Agent and, if
applicable, other lawyers approved by the Agent in the place of
incorporation of the Additional Borrower, addressed to the Finance Parties.
8. A certificate of an Authorised Signatory of the Additional Borrower
certifying that each copy document specified in Part II of this 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.
<PAGE>
91
PART III
TO BE DELIVERED BY AN ADDITIONAL GUARANTOR
1. A Guarantor Accession Agreement, duly executed under seal by the Additional
Guarantor.
2. A copy of the memorandum and articles of association and certificate of
incorporation (or other equivalent constitutional documents) of the
Additional Guarantor.
3. 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 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.
4. If the lawyers referred to in paragraph 10 below advise it to be necessary
or desirable, 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.
5. 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 4
above; and
(ii) authorising a specified person or persons to sign the resolution on
its behalf.
6. A certificate of a director of the Additional Guarantor certifying that the
borrowing of the Total Commitments in full would not cause any borrowing
limit binding on it to be exceeded.
7. A copy of any other authorisation or other document, opinion or assurance
which the Agent considers to be necessary or desirable in connection with
the entry into and performance of, and the transactions contemplated by,
the Guarantor Accession Agreement or for the validity and enforceability of
any Finance Document.
8. A specimen of the signature of each person authorised by the resolutions
referred to in paragraphs 3 and 5 above.
9. A copy of the latest audited accounts of the Additional Guarantor.
10. A legal opinion of Allen & Overy, legal advisers to the Agent, and, if
applicable, other lawyers approved by the Agent in the place of
incorporation of the Additional Guarantor addressed to the Finance Parties.
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92
11. A certificate of an Authorised Signatory of the Additional Guarantor
certifying that each copy document specified in Part III 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.
<PAGE>
93
SCHEDULE 3
CALCULATION OF THE MANDATORY COST
1. The Mandatory Cost for an Advance (other than a Swingline Advance) is an
addition to the interest rate to compensate Banks for the cost of
compliance with the requirements of the Bank of England and/or the
Financial Services Authority (or, in either case, any other authority which
replaces all or any of its functions).
2. On the first day of each Term or, as the case may be, each Interest Period
for an Advance (or as soon as possible thereafter) the Agent shall
calculate, as a percentage rate, a rate (the "Mandatory Cost Rate") for
each Bank, in accordance with the paragraphs set out below. The Mandatory
Cost will be calculated by the Agent as a weighted average of the Banks'
Mandatory Cost Rates (weighted in proportion to the percentage
participation of each Bank in the relevant Advance) and will be expressed
as a percentage rate per annum.
3. The Mandatory Cost Rate for any Bank lending from a Facility Office in the
UK will be calculated by the Agent as follows:
(a) in relation to a Sterling Advance:
AB + C(B - D) + E x 0.01
------------------------per cent. per annum
100 - (A + C)
(b) in relation to an Advance in any currency other than sterling:
E x 0.01
--------per cent. per annum.
300
Where:
A is the percentage of Eligible Liabilities (assuming these to be in
excess of any stated minimum) which that Bank is from time to time
required to maintain as an interest free cash ratio deposit with the
Bank of England to comply with cash ratio requirements.
B is the percentage rate of interest (excluding the Margin and the
Mandatory Cost) payable on the Advance for the relevant Term or
Interest Period (as applicable) of the Advance.
C is the percentage (if any) of Eligible Liabilities which that Bank is
required from time to time to maintain as interest bearing Special
Deposits with the Bank of England.
D is the percentage rate per annum payable by the Bank of England to
that Bank on interest bearing Special Deposits.
E is the rate of charge payable by that Bank to the Financial Services
Authority pursuant to the Fees Regulations (but, for this purpose,
ignoring any minimum fee
<PAGE>
94
required pursuant to the Fees Regulations) and expressed in pounds per
(Pounds)1,000,000 of the Fee Base of that Bank.
4. For the purposes of this Schedule:
"Eligible Liabilities" and "Special Deposits" have the meanings given to
them from time to time under or pursuant to the Bank of England Act 1998 or
(as may be appropriate) by the Bank of England;
"Fees Regulations" means the Banking Supervision (Fees) Regulations 1999 or
such other law or regulation as may be in force from time to time in
respect of the payment of fees for banking supervision; and
"Fee Base" has the meaning given to it, and will be calculated in
accordance with, the Fees Regulations.
5. In application of the above formulae, A, B, C and D will be included in the
formulae as percentages (i.e. 5 per cent. will be included in the formula
as 5 and not as 0.05). A negative result obtained by subtracting D from B
shall be taken as zero. The resulting figures shall be rounded to four
decimal places.
6. In addition to any notification required under Clause 8.2(c) (Interest rate
for all Advances), each Bank shall supply any information required by the
Agent for the purpose of calculating its Mandatory Cost Rate. In
particular, but without limitation, each Bank shall supply the following
information in writing on or prior to the date on which it becomes a Bank:
(a) its jurisdiction of incorporation and the jurisdiction of its Facility
Office; and
(b) any other information that the Agent may reasonably require for such
purpose.
Each Bank shall promptly notify the Agent in writing of any change to the
information provided by it pursuant to this paragraph.
7. The percentages or rates of charge of each Bank for the purpose of A, C and
E above shall be determined by the Agent based upon the information
supplied to it pursuant to paragraph 6 above and on the assumption that,
unless a Bank notifies the Agent to the contrary, each Bank's obligations
in relation to cash ratio deposits, Special Deposits and the Fees
Regulations are the same as those of a typical bank from its jurisdiction
of incorporation with a Facility Office in the same jurisdiction as its
Facility Office.
8. The Agent shall have no liability to any person if such determination
results in a Mandatory Cost Rate which over or under compensates any Bank
and shall be entitled to assume that the information provided by any Bank
pursuant to paragraph 6 above is true and correct in all respects.
9. The Agent shall distribute the additional amounts received as a result of
the Mandatory Cost to the Banks on the basis of the Mandatory Cost Rate for
each Bank based on the information provided by each Bank pursuant to
paragraph 6 above.
<PAGE>
95
10. Any determination by the Agent pursuant to this Schedule in relation to a
formula, the Mandatory Cost, a Mandatory Cost Rate or any amount payable to
a Bank shall, in the absence of manifest error, be conclusive and binding
on all Parties.
11. The Agent may from time to time, after consultation with the Borrowers'
Agent and the Banks, determine and notify to all Parties any amendments
which are required to be made to this Schedule in order to comply with any
change in law, regulation or any requirements from time to time imposed by
the Bank of England or the Financial Services Authority (or, in any case,
any other authority which replaces all or any of its functions) and any
such determination shall, in the absence of manifest error, be conclusive
and binding on all Parties.
<PAGE>
97
SCHEDULE 4
FORM OF REQUEST
To: [ ] as [Agent/Swingline Agent*]
From: [BORROWER]
Date: [ ]
PowerGen US Holdings Limited - U.S.$4,000,000,000 Term and Revolving Credit
Agreement
dated [ ] February, 2000
1. We wish to utilise Tranche A* and/or*/Tranche B* and/or Tranche C* and/or
the Swingline Facility* by way of Advances* and/or Swingline Advances* as
follows:
(a) Drawdown Date: Tranche A: [_______]*
Tranche B: [_______]*
Tranche C: [_______]*
Swingline Facility: [_______]*
(b) Requested Amount (including currency
in the case of Tranche B): Tranche A: [_______]*
Tranche B: [_______]*
Tranche C: [_______]*
Swingline Facility: [_______]*
(c) Interest Period: Tranche A: [_______]*
Term/*/ Tranche B: [_______]*
Tranche C: [_______]*
Swingline Facility: [_______]*
(d) Purpose: Tranche A: [_______]*
Tranche B: [_______]*
Tranche C: [_______]*
Swingline Facility: [_______]*
(e) Payment Instructions: Tranche A: [_______]*
Tranche B: [_______]*
Tranche C: [_______]*
Swingline Facility: [_______]*
(f) Initial Interest Period: Tranche A: [_______]*
(for Term-out Advances only)*
(g) Maturity Date Tranche A: 30 months after
(for Term-out Advances only)* the Signing Date
_______________
* Delete as appropriate.
<PAGE>
97
2. We confirm that each condition specified in Clause 4.2 (Further conditions
precedent) is satisfied on the date of this Request and this Advance would
not cause any borrowing limit binding on us to be exceeded.
By:
[BORROWER]
Authorised Signatory
<PAGE>
98
SCHEDULE 5
FORMS OF ACCESSION DOCUMENTS
PART I
NOVATION CERTIFICATE
To: [ ] as Agent
From: [THE EXISTING BANK] and [THE NEW BANK] Date: [ ]
PowerGen US Holdings Limited - U.S.$4,000,000,000 Term and Revolving Credit
Agreement dated [ ] February, 2000
We refer to Clause 25.3 (Procedure for novations).
1. We [ ] (the "Existing Bank") and [ ] (the "New Bank")
agree to the Existing Bank and the New Bank novating all the Existing
Bank's rights and obligations referred to in the Schedule in accordance
with Clause 25.3 (Procedure for novations).
2. The specified date for the purposes of Clause 25.3(c) (Procedure for
novations) is [date of novation].
3. The Facility Office and address for notices of the New Bank for the
purposes of Clause 31.2 (Addresses for notices) are set out in the
Schedule.
4. This Novation Certificate is governed by English law.
<PAGE>
99
THE SCHEDULE
Rights and obligations to be novated
[Details of the rights and obligations of the Existing Bank to be novated].
[New Bank]
[Facility Office Address for notices]
[Existing Bank] [New Bank] [ ]
By: By: By:
Date: Date: Date:
<PAGE>
PART II
BORROWER ACCESSION AGREEMENT
To: [ ] as Agent
From: [PROPOSED BORROWER] and Powergen US Holdings Limited
[Date]
PowerGen US Holdings Limited - U.S.$4,000,000,000 Term and Revolving Credit
Agreement dated
[ ] February, 2000 (the "Credit Agreement")
We refer to Clause 25.4 (Additional Borrowers).
[Name of company] of [Registered Office] (Registered no. [ ]) (the "Proposed
Borrower") agrees to become an Additional Borrower and to be bound by the terms
of the Credit Agreement as an Additional Borrower in accordance with Clause 25.4
(Additional Borrowers).
The address for notices of the Proposed Borrower for the purposes of Clause 31.2
(Addresses for notices) is:
[
]
This Agreement is governed by English law.
By:
[PROPOSED BORROWER]
Authorised Signatory
By:
POWERGEN plc
Authorised Signatory
<PAGE>
PART III
GUARANTOR ACCESSION AGREEMENT
To: [ ] as Agent
From: [PROPOSED GUARANTOR]
Date: [ ]
PowerGen US Holdings Limited - U.S.$4,000,000,000 Term and Revolving Credit
Agreement dated
[ ] February, 2000 (the "Credit Agreement")
We refer to Clause 25.5 (Additional Guarantors).
We, [name of company] of [Registered Office] (Registered no. [ ]) agree to
become an Additional Guarantor and to be bound by the terms of the Credit
Agreement as an Additional Guarantor in accordance with Clause 25.5 (Additional
Guarantors).
Our address for notices for the purposes of Clause 31.2 (Addresses for notices)
is:
[
]
This Deed is governed by English law.
Executed as a deed by ) Director
[PROPOSED GUARANTOR] )
acting by ) Director/Secretary
and )
<PAGE>
PART IV
FORM OF BORROWER NOVATION AGREEMENT
A NOVATION AGREEMENT dated [ ]
BETWEEN:
(1) [ ] (the "Existing Borrower");
(2) [ ] (the "Substitute Borrower");
(3) POWERGEN plc (the "Parent");
(4) [ ] on behalf of itself and each Obligor (as defined in the Credit
Agreement referred to below) other than the Parent (the "Borrowers'
Agent"); and
(5) [ ] as agent (the "Agent") on behalf of itself and the Banks
(as defined in the Agreement referred to below),
and is supplemental to the Term and Revolving Credit Agreement dated [ ], 2000
and made between, among others, the Borrowers' Agent, [ ] as Agent and the
financial institutions listed in Schedule 1 thereto (the "Credit Agreement").
IT IS AGREED:
1. Novation
In consideration of a payment made by the Existing Borrower to the
Substitute Borrower and the release of the Existing Borrower from its
obligations and liabilities (actual or contingent) specified in the
schedule hereto under the Credit Agreement the Substitute Borrower hereby
undertakes to observe and perform all the obligations and liabilities
(actual or contingent) of the Existing Borrower under the Credit Agreement
in respect of the Advances specified in the Schedule.
2. Integration
This Novation Agreement shall be read as one with the Credit Agreement so
that any reference therein to "this Agreement", "hereunder" and similar
shall include and be deemed to include this Novation Agreement.
3. Continuing liability
The Parent and the Borrowers' Agent (on behalf of itself and each other
Guarantor) acknowledges and confirms that the Guarantors' obligations under
Clause 14 (Guarantee) of the Credit Agreement apply to the obligations and
liabilities assumed by the Substitute Borrower hereunder.
<PAGE>
4. Governing law
This Agreement shall be governed by, and construed in accordance with, the
laws of England.
SCHEDULE
[
]
IN WITNESS whereof the parties hereto have caused this Novation Agreement to be
duly executed on the date first written above.
.........................................
For and on behalf of
[The Existing Borrower]
.........................................
For and on behalf of
[The Substitute Borrower]
.........................................
For and on behalf of the Parent
.........................................
For and on behalf of each other
Guarantor, each Borrower and the
Borrowers' Agent
.........................................
For and on behalf of each
Bank and the Agent
<PAGE>
SCHEDULE 6
FORM OF CONFIDENTIALITY UNDERTAKING
To: [Bank]
PowerGen US Holdings Limited
Dear Sirs,
We refer to the U.S.$4,000,000,000 Credit Agreement dated [ ] February, 2000
(the "Credit Agreement") between, among others, PowerGen US Holdings Limited and
HSBC Investment Bank plc as Agent.
This is a confidentiality undertaking referred to in Clause 26 (Disclosure of
Information) of the Credit Agreement. A term defined in the Credit Agreement
has the same meaning in this undertaking.
We are considering entering into contractual relations with [insert name of
Bank] (the "Bank") and understand that it is a condition of our receiving
information about the PowerGen plc 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, who shall be advised of and
agree to those confidentiality obligations) without the prior written consent of
the Borrowers' Agent.
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 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. 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
you with respect to the Information.
Yours faithfully,
<PAGE>
SCHEDULE 7
APPROVED INVESTMENT GUIDELINES
Permitted Investment Instruments
Money market or bank deposits
Certificates of deposit
Sterling commercial paper
Gilt edged securities
Euro and U.S. commercial paper
US Treasuries
Money Market funds
Maturities
Less than one year remaining to maturity.
Credit Quality Criteria
In the case of commercial paper, at least A1/P1 short term credit rating from
S&P / Moody's; and
In all other cases, A/A2 or better long term credit rating from S&P / Moody's.
<PAGE>
SCHEDULE 8
LIBRA FOREIGN UTILITY COMPANIES
LG&E Power International Inc.
LG&E Centro, S.A.
Invergas, S.A.
LG&E Power Argentina I
LG&E Power Argentina II
LG&E Power Argentina III
LG&E Power Spain Inc.
Inversora de Gas del Centro S.A.
Inversora de Gas Cuyana S.A.
Distribuidora de Gas del Centro S.A.
Distribuidora de Gas Cuyana S.A.
K.W. Tarifa, S.A.
Gas Natural Ban, S.A.*
* owned indirectly through Invergas SA
<PAGE>
SIGNATORIES
Original Borrowers and Original Guarantors
POWERGEN US HOLDINGS LIMITED
By: PATRICK BOURKE
POWERGEN plc
By: P C F HICKSON
Arrangers:
DEUTSCHE BANK AG LONDON
By: SEAN MALONE MICHAEL STARMER-SMITH
DRESDNER KLEINWORT BENSON
By: C D A MORGAN EDMOND ROBINSON
HSBC INVESTMENT BANK plc
By: EDWARD FLANDERS
J.P MORGAN SECURITIES LTD.
By: C D A MORGAN (as Attorney)
WARBURG DILLON READ (a division of UBS AG)
By: VALERIO FORTE D SHAW
<PAGE>
Banks
DEUTSCHE BANK AG LONDON
By: SEAN MALONE MICHAEL STARMER-SMITH
DRESDNER BANK AG LONDON BRANCH
By: C D A MORGAN EDMOND ROBINSON
HSBC BANK plc
By: DAVID PHILLIPS
MORGAN GUARANTY TRUST COMPANY OF NEW YORK
By: C D A MORGAN (as Attorney)
UBS AG
By: VALERIO FORTE D SHAW
Agent and Swingline Agent
HSBC INVESTMENT BANK plc
By: D STENT
<PAGE>
EXHIBIT C-4
Explanation of Intercompany Debt and Funds Flow
(The following diagram sets out the ways in which funds
may leave each of the entities in the PowerGen group
and rationale for intercompany debt)
Rationale for intercompany debt Ways in which funds
may leave each company
|-----------------|
| PG plc |
|-----------------|
|
|
|
|-----------------| External debt and interest
Debt at this level --- | PGUSH | payments
ensures that UK tax on | |-----------------|
US$:(pound) movements is | |
minimized. This is Debt |
achieved by "matching", | |
for UK tax purposes, | |-----------------|
US$ borrowings with --- | PGUSIL | Dividends to PGUSH
US$ assets. The asset |-----------------|
of PGUSIL is the shares |
in PGL. |
(Note 1) |
|-----------------|
| PGL | Dividends to PGUSIL
|-----------------|
|
|
|
|-----------------| Dividends to PGL
Debt at this level | PGLH | Subscription for shares
ensures that surplus --- | PGLI | in PG plc subsidiary (used
funds of the utility | |-----------------| to fund loans to PGUSH)
subsidiaries can be | |
extracted from the US Debt |
with minimum tax cost, | |
can be repatriated to | |-----------------| Interest payments to PGLH
the UK (to service the --- | PGUSP | and PGLI
acquisition debt) with- |-----------------| Dividends to PGLH and PGLI
out tax inefficiency, and |
facilitates overall |
tax efficiency. The US |-----------------|
withholding tax cost on | PGUSIC | Dividends to PGUSP
interest is 0%, whereas |-----------------|
the US withholding tax |
<PAGE>
cost on dividends is |
currently 15% (reduced to |-----------------|
5% by double tax treaties). | LGEE | Tax allocation agreement
(Note 2) | Utility | payments to PGUSP
| Subsidiaries | Dividends to PGUSIC
|-----------------|
<PAGE>
Notes:
1. In order to maximize the UK tax matching, the US$ borrowing of PGUSIL
needs to equal its US$ investment in PGL.
2. The amount of debt, and terms of the debt, at this level is the maximum
that would be lent to PGUSP, on a stand-alone basis, by an arm's length
lender.
<PAGE>
EXHIBIT 99.F-1.2
POWERGEN PLC SUBSIDIARIES
<TABLE>
<CAPTION>
PG's Incorporated
interest
Description %
<S> <C> <C> <C>
PowerGen plc Investment co England & Wales
PowerGen Share Scheme Trustee Limited Qualifying Employee Trust Company 100% England & Wales
PowerGen UK plc Electric generation 100% England & Wales
PowerGen East Midlands Investments Investment co (unlimited) 100% England & Wales
PowerGen (East Midlands) Holdings Investment co (unlimited) 48%*# England & Wales
PowerGen Energy plc Electric distribution in UK 100%* England & Wales
PowerGen Retail Gas Ltd Gas retail in UK 100% England & Wales
EME Industrial Shipping Ltd Gas shipping in UK 100% England & Wales
East Midlands Electricity Gen (Non Fossil) Ltd Investment co 100% England & Wales
Biogas Generation Ltd Waste combustion in UK 50% England & Wales
Charnwood Insurance Co Ltd, Guernsey Captive Insurance co 100% Guernsey
Coppice Insurance Co Ltd, Guernsey In liquidation 100% Guernsey
East Midlands Electricity Gen (IPG) Ltd Non trading 100% England & Wales
Phambile Nobane (Proprietary) Ltd Distribution project in S. Africa 33.3% South Africa
UK Dormant Companies Dormant 100% England & Wales
Overseas dormant Companies Dormant 100% Various
PowerGen CHP Ltd Development and operation of 100%* England & Wales
cogeneration plant in UK
PowerGen Cogeneration Ltd Operates cogen plant in UK 100% England & Wales
Biogeneration Ltd Operates biomass plant in UK 50% England & Wales
PowerGen Energy Trading Ltd Energy trading in Europe 100%* England & Wales
PowerGen Investments Ltd Investment co 100% England & Wales
PowerGen Renewables Holdings Ltd Investment co 50% England & Wales
PowerGen Renewables Ltd Operates 9 windfarms in UK 50% England & Wales
</TABLE>
1
<PAGE>
<TABLE>
<S> <C> <C> <C>
Yorkshire Windpower Ltd Operates 2 windfarms in UK 25% England & Wales
TPG Wind Ltd Operates 1 windfarm in UK 25% England & Wales
Windy Hills Ltd Dormant 100% Northern Ireland
PowerGen Renewables Developments Develops windfarms in UK 100% England & Wales
Blyth Offshore Wind Ltd Developing an offshore windfarm 16.5% England & Wales
Fusers Ltd Develops windfarms in Ireland 50% Ireland
Tursillagh Windfarm Ltd Develops windfarms in Ireland 25% Ireland
Cottam Development Centre Ltd Turbine testing/operation in UK 50% England & Wales
PowerGen Gas Ltd Gas pipeline transportation and 100% England & Wales
Gen Net. Com Ltd Internet services provider 100%* England & Wales
PowerGen Systems & Services IT services co 100%* England & Wales
PowerGen Finance Ltd Investment co 100%* England & Wales
Ergon Finance Ltd Investment co 100%* England & Wales
PowerGen Energy Solutions Energy management co in UK 100%* England & Wales
DelComm Ltd Dormant 100% England & Wales
Ergon Nominees Ltd Investment co 100% England & Wales
Garnedd Power Co Ltd Hydro electric plant in Wales 60% England & Wales
Hams Hall Management Co Ltd Property management co 84.6% England & Wales
PowerGen Projects Consultancy Ltd (with Malaysian Branch) Project management 100%* England & Wales
Ergon Insurance Ltd Captive Insurance co 100% Isle of Man
PowerGen International Limited Investment co 100% England & Wales
PowerGen Overseas Holdings Limited Investment co 100%* England & Wales
Ergon Generation (Malaysia) Sdn Rhd Dormant 100% Malaysia
Visioncash Investment co 1%*+ England & Wales
Ergon Overseas Holdings Ltd Investment co 100%* England & Wales
PowerGen Holdings BV (see attached) Investment co 84%. Netherlands
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Inputrapid Ltd Investment co 100%* England & Wales
Ergon Energy Ltd Investment co 100%* England & Wales
PT Jawa Power Owner of Paiton station 35% Indonesia
PowerGen Serang Ltd Investment co 100%* England & Wales
North Queensland Power Ltd Dormant 40% England & Wales
LLPCo Holdings Ltd Investment co 49.95% Australia
LLPCo PTY Ltd Manages Yallourn Investments 49.95% Australia
Yallourn Investments A Limited Partnership (LLP) Financing partnership for Yallourn 49.94%+ Australia
station
Meerco PTY Ltd Investment co for Yallourn 49.94% Australia
Other UK Dormant Companies Dormant 100%* England & Wales
PowerGen US Holdings Ltd Borrower under Credit Facility to 100% England & Wales
PowerGen US Investments Ltd Dormant (pending US investment) 100% England & Wales
Ergon US Investments Ltd Dormant (pending US investment) 100% England & Wales
Powerconsult Ltd Dormant 100%* England & Wales
Powercoal Ltd Dormant 100%* England & Wales
</TABLE>
. One share held by Ergon Nominees Limited
# Remaining 52% held by PowerGen UK plc
+ Remaining 99% of equity held by PowerGen Holdings BV. PowerGen
International Ltd holds voting control.
. remaining 16% held by Inputrapid Ltd
+ 0.01% held by LLPCo PTY Ltd
3
<PAGE>
POWERGEN HOLDINGS BV
<TABLE>
<CAPTION>
PG's interest
Description % Incorporated
<S> <C> <C> <C>
PowerGen Holdings BV Netherlands
PT PowerGen Jawa Timur Operator of Paiton station 99%* Indonesia
Turbogas Produtora Energetica SA Owner of Tapada station 49.99% Portugal
Portugen Energia SA Operator of Tapada station 75% Portugal
Csepel Eromu Rt Owner of Csepel I plant 100% Hungary
PowerGen Energia RT Operator of Csepel II project 100% Hungary
Csepel Aramtermelo Owner of Csepel II station (in construction) 100% Hungary
PowerGen Nederland BV Investment co 100% Netherlands
Mibrag BV Investment co 33.3% Netherlands
Mibrag mbH Owner of Mibrag mine 33.3% Germany
Mibrag IB GmbH Finance co for Mibrag 33.3% Germany
Mibrag IV GmbH Finance co for Mibrag 33.3% Germany
Mibrag IVB GmbH Finance co for Mibrag 33.3% Germany
Mibrag I GmbH & Co KG Finance co for Mibrag 0.06% Germany
PowerGen Australia Holdings BV Investment co for Yallourn 100% Netherlands
PowerGen Australia BV Investment co for Yallourn 100% Netherlands
PowerGen Aus PTY Ltd Investment co 100% Australia
Auspower PTY Ltd Investment co 49.95% Australia
Mezzco PTY Ltd Financing partnership 49.95%# Australia
Yallourn Energy PTY Ltd Owner of Yallourn station 49.95%# Australia
PowerGen India Private Ltd Investment co 100% India
Gujarat PowerGen Energy Corporation Owner of Pagathan plant 46.34%+ India
</TABLE>
4
<PAGE>
<TABLE>
<S> <C> <C> <C>
Saale Energie GmbH Investment co for Schkopau plant 50% Germany
Saale Energis Services GmbH Consultancy services 49.5% Germany
Kraftwerk Schkopau GbR Owner of Schkopau plant 20.5% Germany
Kraftwerk Schkopau B'Gessellschaft GmbH Operator of Schkopau plant 22.5% Germany
LG Energy Co Ltd Owner of Bugkok plant 49.9% Korea
PT Power Jawa Barat Developer of Serang project 40% Indonesia
BLCP Power Limited Developer of Map Ta Phut project 35% Thailand
PowerGen (Malaysia) Sdn Bhd Non trading 100% Malaysia
PowerGen Brasil Limitada Dormant 100% Brasil
Csepel Holdings BV Dormant 100% Netherlands
</TABLE>
* PowerGen Overseas Holdings Limited holds 1% share capital
# Also, 49.95% redeemable preference shares in Auspower PTY Ltd held by
PowerGen Aus Pty Limited
+ PowerGen Holdings BV has an additional 27.7% direct interest in Gujarat
PowerGen Energy Corporation
Note: All of the above-referenced Investment Companies are financing companies.
5
<PAGE>
EXHIBIT F-3.2
THE POWERGEN PLC PROPOSED STRUCTURE FOR INVESTMENT IN LG&E ENERGY CORP.
This exhibit describes and explains the purpose of the corporate structure
that PowerGen plc ("PowerGen") intends to use for its acquisition of all of the
issued and outstanding shares of LG&E Energy Corp. ("LG&E Energy"). The
structure described below is the proposed structure of the PowerGen system as it
relates to LG&E Energy immediately after the acquisition of LG&E Energy is
completed, which is the point when PowerGen will register as a holding company
under the Public Utility Holding Company Act of 1935, as amended. The following
points should be noted in connection with the structure:
1. The purpose of this structure is to permit both reinvestment and
repatriation of the profits of LG&E Energy in a tax efficient manner. The
intermediate companies between PowerGen and PowerGen US Investments Corp. are
formed solely for the purposes of this transaction and are directly or
indirectly wholly owned by PowerGen. The parties note that this structure
provides insulation to the U.S. jurisdictional operations by separating them
from the remainder of the group under a holding company (PowerGen US Investments
Corp.) incorporated in the United States.
2. The diagram set forth below is the current intended structure based on our
best understanding of the relevant tax treatment to be afforded the companies
and their interaction with management imperatives. However, it is possible that
as a result of future changes in tax or accounting rules or other related
matters, the structure will need to change to some extent prior to closing. Any
changes in the structure prior to the closing of the transaction will be
reflected in an amendment to the Application/Declaration on Form U-1.
<PAGE>
The diagram below assumes that the purchase price for LG&E Energy is $3.23
billion.
------------------
PowerGen plc
------------------
|
------------------
External Debt
$3.23bn PowerGen US Holdings
------------- Limited
------------------
| Loan $3.23bn
------------------ ------------------
PowerGen US Ergon US
Investments Ltd Investments Ltd
------------------ ------------------
|
------------------
PowerGen Luxembourg SA
------------------
|
------------------
PowerGen Luxembourg Holdings SA
------------------
| |
| |
------------------- |
PowerGen Luxembourg | 10%
Investments SA |
------------------- |
90% | |
| |
------------------
PowerGen US
Partnership
------------------
|
------------------
PowerGen US
Investments Corp.
------------------
|
------------------
LG&E Energy Corp.
and Subsidiaries
------------------
<PAGE>
EXHIBIT J-1
DRAFT NOTICE OF FILING FOR PUBLICATION IN THE FEDERAL REGISTER
SECURITIES AND EXCHANGE COMMISSION
[Release No. 35-_____]
Filings Under the Public Utility Holding Company Act of 1935, as amended ("Act"
or "1935 Act")
[Date of Notice]
Notice is hereby given that the following filing has been made with the
Commission pursuant to provisions of the Act and Rules promulgated under the
Act. All interested persons are referred to the application and declaration for
complete statements of the proposed transactions summarized below. The
application and declaration and any amendments are available for public
inspection through the Commission's Branch of Public Reference.
Interested persons wishing to comment or request a hearing on the application
or declaration should submit their views in writing by [Date], 2000, to the
Secretary, Securities and Exchange Commission, Washington, DC 20549-0609, and
serve a copy on the relevant applicants and declarants at the addresses
specified below. Proof of service (by affidavit or, in case of an attorney at
law, by certificate) should be filed with the request. Any request for hearing
should identify specifically the issues of facts or law that are disputed. A
person who so requests will be notified of any hearing, if ordered, and will
receive a copy of any notice or order issued in the matter. After [Date], 2000,
the application and declaration, as filed or as amended, may be granted and/or
permitted to become effective.
PowerGen plc, et al. (70- _____)
PowerGen plc ("PowerGen"), a public limited company organized under the
laws of England and Wales, PowerGen US Holdings Limited ("US Holdings"),
PowerGen US Investments Limited, Ergon US Investments Limited, PowerGen
Luxembourg SA, PowerGen Luxembourg Holdings SA, PowerGen Luxembourg Investments
SA, PowerGen US Partnership, and PowerGen US Investments Corp. (excluding
PowerGen, collectively, the "Intermediate Companies"),/1/ each located at 53 New
Broad Street, London EC2M 1SL, United Kingdom, and LG&E Energy Corp. ("LG&E
Energy"), an
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/1/ The Intermediate Companies either have been or will be formed prior to
consummation of the Merger. The Intermediate Companies will require the
approval of their respective boards of directors to engage in the activities
contemplated by the application-declaration under this file number.
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exempt holding company, and LG&E Capital Corp. ("LG&E Capital"), LG&E Energy
Marketing Inc., and LG&E Power Inc., each located at 220 West Main Street, P.O.
Box 32030, Louisville, Kentucky 40232, Louisville Gas and Electric Company
("LG&E"), one of its public-utility subsidiary companies, located at 220 West
Main Street, P.O. Box 32010, Louisville, Kentucky 40232 and Kentucky Utilities
Company ("KU"), another public-utility subsidiary company of LG&E Energy,
located at One Quality Street, Lexington, Kentucky 40507 (collectively,
"Applicants"), have filed a joint application-declaration ("Application-
Declaration") under Sections 2(a)(7), 2(a)(8), 3(a)(1), 3(a)(2), 4, 5, 6(a), 7,
9(a), 10, 11(b), 12, 13, 14, 15 and 33 of the Act, and Rules 42, 43, 45, 46, 52,
53, 54, 80-91, 93, and 94 under the Act.
Summary of Proposal
As described in more detail below, PowerGen proposes: (a) to acquire, by
means of the merger described below ("Merger"), all of the issued and
outstanding common stock of LG&E Energy/2/ ("LG&E Energy Common Stock") and, as
a result of the acquisition of LG&E Energy Common Stock, indirectly acquire (i)
all of LG&E Energy's interest in LG&E and KU, its electric and gas utility
subsidiary companies, (ii) 20% of the common stock of Electric Energy, Inc.
("EEI"), (iii) 7.4% of the common stock of Ohio Valley Electric Company
("OVEC"), and (iv) all of the issued and outstanding common stock of LG&E
Energy's nonutility subsidiaries; (b) to retain LG&E Energy and KU as subsidiary
public utility holding companies exempt from registration under the Act pursuant
to Sections 3(a)(1) and 3(a)(2), respectively; (c) to engage in acquisition-
related financing transactions; (d) to retain the gas utility system of LG&E;
(e) to retain its existing utility and nonutility activities, businesses and
investments; (f) to retain LG&E Energy's existing nonutility activities,
businesses and investments; (g) that the Commission find that the Intermediate
Companies and KU are not "holding companies" for purposes of Section 11(b)(2) of
the Act; (h) to execute a system tax allocation agreement; (i) to establish a
service company subsidiary; (j) to adopt utility and nonutility service company
agreements; and (k) to maintain in place the existing financing arrangements of
LG&E Energy and its subsidiaries and to engage in a variety of financing
transactions subsequent to the Merger, including (i) external financings by
PowerGen, US Holdings, LG&E Energy, LG&E and KU, (ii) intrasystem financings by
the Intermediate Companies, LG&E Energy, and LG&E Energy's utility and
nonutility subsidiary companies (collectively, the "U.S. Subsidiary Companies"),
(iii) increases in the number of shares authorized by any U.S. Subsidiary
Company with respect to any capital security of the company, as well as
alteration of the terms of any capital security, without further Commission
authorization, (iv) guarantees and other credit support by PowerGen, US
Holdings, LG&E Energy and the non-utility subsidiaries of LG&E Energy of
securities and other obligations of their subsidiaries, (v) currency and
interest rate hedging instruments, (vi) acquisition, redemption or retirement of
securities, (vii) the formation of financing entities and the issuance by those
entities of securities authorized to be issued
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/2/ As more particularly described below, LG&E Energy will be merged into a
Kentucky corporation to be formed as a direct wholly-owned subsidiary of
PowerGen US Investments Corp. ("Merger Sub"), with LG&E Energy as the surviving
entity.
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and sold under the authority requested in the Application-Declaration, (viii)
acquisition of intermediate subsidiaries for investing in exempt wholesale
generators ("EWGs"), foreign utility companies ("FUCOs"), Rule 58 subsidiaries,
exempt telecommunications companies ("ETCs") or other nonutility subsidiaries,
(ix) reorganization of the Intermediate Companies and the U.S. Non-Utility
Subsidiaries,/3/ (x) using the proceeds of financing transactions in an amount
equal to 100% of the PowerGen system's consolidated retained earnings post-
Merger for additional investment in EWGs and FUCOs, (xi) financial reporting as
described in the Application-Declaration; (xii) the payment by the U.S.
Subsidiary Companies of dividends out of capital or unearned surplus; and (xiii)
the payment by U.S. Non-Utility Subsidiaries of dividends out of capital or
unearned surplus.
Following consummation of the Merger, PowerGen will register with the
Commission as a holding company under Section 5 of the Act. In addition, the
Intermediate Companies will each register as holding companies under the Act.
LG&E Energy and KU are currently exempt holding companies under Sections 3(a)(1)
and 3(a)(2), respectively, of the Act and intend to retain that status following
the Merger./4/
PowerGen and Subsidiaries
PowerGen is a public limited company formed under the laws of England and
Wales. Other than US Holdings, one of the Intermediate Companies, PowerGen
currently has two direct subsidiaries, PowerGen UK plc ("PowerGen UK") and
PowerGen Share Scheme Trustee Limited ("Share Trustee"). PowerGen UK was formed
under the laws of England and Wales to serve as a holding company over PowerGen
Energy (formerly East Midlands Electricity plc), a utility company, and the
other subsidiaries of PowerGen that will not be in the LG&E Energy chain of
ownership./5/ Prior to consummation of the Merger, PowerGen UK (or PowerGen
Group Holdings, if applicable) will file a notification of FUCO status as it
will qualify as a FUCO within the meaning of Section 33 of the Act. The parties
expect that PowerGen UK (or PowerGen Group Holdings) will
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/3/ U.S. Non-Utility Subsidiaries means the subsidiaries of LG&E Energy, other
than the U.S. Utility Subsidiaries.
/4/ Notwithstanding this request, LG&E Energy and KU will be regulated under the
Act as subsidiary companies of registered holding companies. KU will be
regulated as a public utility subsidiary of a registered holding company, and
LG&E Energy will be regulated as a nonutility subsidiary of a registered holding
company.
/5/ PowerGen currently intends to establish a new unlimited liability holding
company between PowerGen plc and PowerGen UK, to be called PowerGen Group
Holdings. This is to permit PowerGen International Limited (the holding company
for all of PowerGen's current overseas investments) to become a sister company,
rather than a subsidiary, of PowerGen UK (which conducts PowerGen's U.K.
businesses) while at the same time creating a single FUCO company with ownership
of all FUCO businesses, except for those in the LG&E Energy Group.
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retain this status following the Merger. Share Trustee administers employee
stock plans to benefit the employees of PowerGen.
PowerGen UK's direct subsidiaries are: PowerGen East Midlands Investments;
PowerGen CHP Ltd; PowerGen Energy Trading Ltd; PowerGen Investments Ltd; Cottam
Development Centre Ltd; PowerGen Gas Ltd; Gen Net.Com Ltd; PowerGen Systems &
Services; PowerGen Finance Ltd; Ergon Finance Ltd; PowerGen Energy Solutions;
Ergon Nominees Ltd; Garnedd Power Co Ltd; Hams Hall Management Co Ltd; PowerGen
Projects Consultancy Ltd; Ergon Insurance Ltd; PowerGen International Limited;
LLPCo Holdings Ltd; and Yallourn Investments A Limited Partnership.
PowerGen Energy is an electricity distribution company which supplies some 2.3
million residential and business customers and is the third largest regional
electricity company in England and Wales with a service territory covering a
16,000 square kilometer area. PowerGen Energy operates a distribution network
of over 67,000 kilometers of overhead lines and underground cables together with
utility connections and metering services.
The following describes PowerGen UK's other subsidiaries. PowerGen CHP Ltd
and PowerGen CoGeneration Limited are the United Kingdom's leading developers
and operators of combined heat and power plants (known as cogeneration in the
United States). PowerGen Energy Trading Limited trades electricity, gas and oil
in several markets in the United Kingdom and continental Europe. PowerGen
Energy Solutions Limited provides tailored energy service products and advice to
customers. PowerGen Investments Ltd holds renewable energy businesses
developing wind farms. PowerGen Gas Limited operates natural gas pipelines in
the United Kingdom. PowerGen International Limited is a power project developer
involved in eleven projects in Europe, India, and Asia. Cottam Development
Centre Ltd tests electric generation turbines in the United Kingdom. Gen
Net.Com Ltd is an internet services provider; and PowerGen Systems & Services is
an information technology services company. PowerGen Energy Solutions is an
energy management company in the United Kingdom. Each of PowerGen Finance Ltd,
Ergon Finance Ltd, Ergon Nominees Ltd, and LLPCo Holdings Ltd is an investment
company holding interests in electric generating stations, power projects, and
energy-related business interests. Garnedd Power Co Ltd owns a hydro electric
plant in Wales. Hams Hall Management Co Ltd is a property management company.
PowerGen Projects Consultancy Ltd is engaged in project management. Ergon
Insurance Ltd is a captive insurance company formed in connection with the self-
insured retention of certain of PowerGen UK's assets. Finally, Yallourn
Investments, A Limited Partnership, is a financing partnership.
PowerGen's ordinary shares are listed on the London Stock Exchange ("LSE").
PowerGen has an American Depositary Share ("ADS") program under which some of
its shares trade in the United States as American Depositary Receipts ("ADRs")
on the New York Stock Exchange ("NYSE"). According to a report filed by
PowerGen with the Commission on March 29, 2000, in accordance with Section 12(b)
of the Securities and Exchange Act of 1934 ("34 Act") on Form 20-F, PowerGen had
issued and outstanding
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as of January 2, 2000: 649,726,502 ordinary shares, 50 pence par value per
share, 49,998 shares of limited voting redeemable preference shares, 1 pound
sterling par value per share, and one special share./6/ As of PowerGen's fiscal
year ended January 2, 2000, PowerGen had revenues, net income and total assets
of $6.058 billion, $1.819 billion, and $10.740 billion, respectively./7/
LG&E Energy and Subsidiaries
LG&E Energy is an exempt holding company incorporated under the laws of the
Commonwealth of Kentucky in 1989. Following consummation of the Merger, LG&E
Energy will remain an exempt holding company under Section 3(a)(1) of the Act.
(Similarly, KU, one of LG&E Energy's public utility subsidiary companies and
itself a public utility holding company, will remain an exempt holding company
under Section 3(a)(2) of the Act.) LG&E Energy and its subsidiaries will be
subject to the jurisdiction of the Commission as part of the PowerGen registered
holding company system. LG&E Energy and its subsidiaries are referred to in
this notice as the "LG&E Energy Group" and the subsidiaries of LG&E Energy are
referred to in this notice as the "LG&E Energy Subsidiary Companies."
LG&E Energy owns virtually all of the voting securities of LG&E and KU, each
of which is a public utility company under the Act.
LG&E is engaged primarily in the generation, transmission, and distribution of
electricity to approximately 366,000 customers in Louisville and adjacent areas
in Kentucky. LG&E also purchases, distributes, and sells natural gas to
approximately 295,000 customers within this service area and in limited
additional areas. For the twelve months ended December 31, 1999, LG&E had
electric operating revenues of $790.7
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/6/ This special or "golden" share is held by the government of the United
Kingdom and is effectively a governmental change-in-control regulation. In the
case of PowerGen, Her Majesty's Government's golden share confers only the right
to prevent certain actions, such as a person or group of persons from acquiring
more than 15% of PowerGen's shares. This golden share does not entitle Her
Majesty's Government to vote at meetings of PowerGen shareholders or exert any
positive control over PowerGen or its business. Also, it does not restrict
shareholder voting rights or affect the economics of the financial structure of
PowerGen. The golden share in its effect is similar to the laws of some states
in the United States, which prohibit the acquisition of more than a specified
percentage (often 5% or 10%) of a holding company's voting power without prior
governmental approval.
/7/ All figures are presented on a U.S. Generally Accepted Accounting Procedures
("U.S. GAAP") basis. The figures for revenues and net income were translated
into dollars using a rate of U.S. $1.6172 for one pound, and the figure for
total assets was translated using a rate of U.S. $1.6117 for one pound.
Consistent with U.S. GAAP, PowerGen's share of joint ventures and associates'
businesses is included in net income and assets but is omitted from revenues.
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million, gas operating revenues of $177.6 million, electric operating income of
$189.9 million, and gas operating income of $7.9 million. LG&E is subject to
regulation by the Federal Energy Regulatory Commission ("FERC") and the Kentucky
Public Service Commission ("Kentucky Commission").
KU has received by order from the Commission an exemption from regulation
(except for Section 9(a)(2)) as a holding company pursuant to Section 3(a)(2) of
the Act, as KU is predominantly a public utility company whose operations do not
extend beyond the state in which it is organized, Kentucky, and states
contiguous, i.e., Virginia and Tennessee.
KU is engaged in producing, transmitting, and selling electric energy to about
458,000 customers in over 600 communities and adjacent suburban and rural areas
in 77 counties in central, southeastern and western Kentucky, and to about
29,000 customers in 5 counties in southwestern Virginia. In Virginia, KU
operates under the name Old Dominion Power Company. KU also sells electric
energy at wholesale for resale in 12 municipalities in Kentucky and one
municipality in Pennsylvania. In addition, KU owns and operates a small amount
of electric utility property in one county in Tennessee. For the twelve months
ended December 31, 1999, KU had operating revenues of $937.3 million and
operating income of $196.4 million. KU is subject to regulation by the FERC,
Kentucky Commission, Virginia State Corporation Commission, and may also be
subject to regulation by the Tennessee Regulatory Authority.
Through its direct, wholly-owned public utility subsidiaries, LG&E Energy
indirectly owns 20% of the common stock of EEI and 7.4% of the common stock of
OVEC, each of which is a public utility company under the Act.
In addition to its utility subsidiaries, LG&E Energy has the following direct,
nonutility subsidiaries: LG&E Energy Foundation, Inc. ("LG&E Energy
Foundation"); LG&E Energy Marketing Inc. (" LEM"); and LG&E Capital.
LG&E Energy Foundation, a charitable foundation exempt from Federal income tax
under Section 501(c)(3) of the Internal Revenue Code, makes charitable
contributions to qualified entities. It is wholly-owned by LG&E Energy. As of
December 31, 1999, the market value of the assets of LG&E Energy Foundation were
$19.9 million.
LEM engages in energy marketing and trading. Effective June 30, 1998, LEM
discontinued its merchant trading and sales business; however, LEM maintains the
technical systems and personnel necessary to engage in power marketing sale from
assets it owns or controls.
LG&E Capital is a holding company for non-utility investments. Through
various subsidiaries and joint ventures, LG&E Capital is involved in numerous
non-utility, energy-related businesses. LG&E Credit Corp., which is wholly-
owned by LG&E Capital, offers consumer lending programs and services in
Louisville. LG&E Capital's wholly-owned subsidiary, LG&E International Inc.
("LG&E International"), is a management and holding company for international
energy project investments and
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operations. Each of the overseas projects in which LG&E International has
interests qualify for FUCO status. LG&E Capital's wholly-owned subsidiary, LG&E
Power, Inc., develops, operates, maintains, and owns interests in domestic power
facilities that sell electric and steam energy to utility and industrial
customers. Each of such facilities qualifies as an EWG or qualifying facility.
WKE Corp., a holding company, and its subsidiaries, are currently wholly-owned
by LG&E Capital. WKE Corp.'s subsidiaries operate the Big Rivers Electric
Corporation's facilities./8/ Finally, CRC - Evans International, Inc., which is
wholly-owned by LG&E Capital, provides equipment and services used in the
construction and rehabilitation of gas and oil pipelines.
LG&E Energy Common Stock is listed on the NYSE and the Chicago Stock Exchange.
As of February 29, 2000, there were 129,677,030 shares of LG&E Energy Common
Stock outstanding. As of and for the twelve months ended December 31, 1999, on
a consolidated basis, LG&E Energy's assets, operating revenues, and net income
were $5,133.8 million, $2,707.3 million, and $62.1 million, respectively.
The Proposed Merger and Subsequent Corporate Structure
In accordance with an Agreement and Plan of Merger ("Merger Agreement"), dated
as of February 27, 2000, among LG&E Energy, PowerGen, PowerGen US Investments
Corp., a Delaware corporation to be formed as an indirect wholly-owned
subsidiary of PowerGen, and Merger Sub, a Kentucky corporation to be formed as a
direct wholly-owned subsidiary of PowerGen US Investments Corp., LG&E Energy
will become an indirect, wholly-owned subsidiary of PowerGen. LG&E Energy will
merge into Merger Sub, with LG&E Energy as the surviving entity.
As consideration for each common share of LG&E Energy outstanding at the time
of the Merger, LG&E Energy shareholders will receive $24.85 per share in cash,
without interest./9/ LG&E Energy shareholders will not obtain any stock
consideration from PowerGen in the Merger. Applicants state that the Merger is
expected to have no effect on the outstanding public debt of the LG&E Energy
Subsidiary Companies.
PowerGen intends to establish the Intermediate Companies/10/ as intermediate
holding companies in the corporate structure between PowerGen and LG&E Energy.
The
__________________
/8/ It was determined by the Commission that none of WKE Corp.'s subsidiaries
were public utility companies under the Act by virtue of their operation and
maintenance of the Big Rivers Electric Corporation's generating facilities. See
SEC No-Action Letter (July 13, 1998).
/9/ Under Kentucky corporate law, dissenting shareholders are entitled to seek
the judicially determined value of their common stock in lieu of the $24.85
provided in the Merger Agreement.
/10/ Applicants note that there will be no third party holders of voting equity
securities in the Intermediate Companies.
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Intermediate Companies exist primarily for the purpose of creating an
economically efficient and viable structure for the transaction and the ongoing
operations of PowerGen and the U.S. Subsidiary Companies. Applicants, however,
note that certain adjustments in this structure may be necessary to reflect tax
and accounting changes prior to consummation of the Merger.
Section 11(b)(2) requires, in effect, that a registered holding company may
not have as an indirect subsidiary a company which is itself a holding company
as defined in the Act. Section 2(a)(7), which defines what constitutes a
holding company within the meaning of the Act, provides that the Commission may,
under certain circumstances, determine that a company is not a holding company
as defined in that Section. Applicants propose that the Intermediate
Companies, LG&E Energy and KU not be deemed holding companies under Section
2(a)(7), solely for purposes of Section 11(b)(2).
Following consummation of the Merger, PowerGen will file under Section 5 as a
registered holding company, with LG&E Energy as an indirect wholly-owned
subsidiary that is an exempt holding company. PowerGen will seek to qualify
PowerGen UK (or PowerGen Group Holdings, if applicable)/11/ as a FUCO within the
meaning of Section 33 of the Act. Applicants maintain that, as a FUCO, PowerGen
UK will be exempt from all provisions of the Act, except as provided in Section
33. In this regard, Applicants seek confirmation that PowerGen's investment in
PowerGen UK (or PowerGen Group Holdings, if applicable) at the time of
consummation of the Merger will not be counted toward the limitation on
"aggregate investment" for the purposes of Rule 53 under the Act. Applicants
indicate that the proposed use of financing proceeds to, after the Merger,
invest up to an additional 100 percent of PowerGen's consolidated retained
earnings in EWGs or FUCOs will not have an adverse impact on LG&E, KU, or EEI,
their respective customers, or on the ability of the state commissions having
jurisdiction over such utility subsidiaries to protect such subsidiaries or such
customers.
Following consummation of the Merger, LG&E Energy Common Stock will be
deregistered under the 1934 Act and delisted from the NYSE and the Chicago Stock
Exchange. The Merger Agreement provides that the headquarters of LG&E Energy as
the surviving entity will remain in Louisville, Kentucky, with offices for
utility operations of LG&E remaining in Louisville, Kentucky, and of KU
remaining in Lexington, Kentucky. The post-Merger LG&E Energy Board of
Directors will be comprised of three directors, one of which will be a director
or officer of LG&E Energy immediately prior to the Merger. These directors will
hold office until their successors are duly elected or appointed and qualified.
Also, those individuals serving on the Board of Directors of LG&E Energy at the
time the Merger becomes effective shall serve on a U.S. Advisory Board to
provide advice to PowerGen with respect to the operations of LG&E Energy and its
subsidiaries, businesses and regulatory developments in the United States, and
such other matters as the Advisory Board members, PowerGen, and LG&E Energy
shall mutually agree.
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/11/ PowerGen may create a new holding company as a subsidiary of PowerGen and a
parent of PowerGen UK; if it does so, PG Group Holdings would be the new entity.
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Financing the Merger
The acquisition price for the LG&E Energy Common Stock, based on the number of
shares outstanding on February, 27, 2000, will be approximately $3.23 billion.
PowerGen intends to finance the acquisition from borrowing under a fully
committed bank facility, which was established on February 27, 2000, with five
internationally recognized banks and was subsequently syndicated among a larger
group. The credit facility provides for up to $4.0 billion in borrowings by
PowerGen, US Holdings and other Intermediate Companies that are subsidiaries of
US Holdings as approved in writing by the banks (the "Bank Loans" or "Credit
Facility"). It is intended that US Holdings will borrow under the Credit
Facility, guaranteed by PowerGen. The Credit Facility has a final maturity of 5
years from the date of signing. To the extent jurisdictional, Applicants
request that US Holding's borrowing under the Credit Facility for the purpose of
financing the Merger be authorized under the Act.
Retention of LG&E's Gas System
Applicants request Commission authorization under Section 11 of the Act to
retain the gas utility system of LG&E in addition to the integrated electric
utility systems of LG&E and KU. Applicants maintain that LG&E's gas utility
system satisfies the standard for being considered an integrated system under
Section 11 of the Act. Furthermore, Applicants indicate that the lost economies
that would follow from requiring the divestiture of LG&E's gas utility system
are substantial, both quantitatively and qualitatively, mandating the retention
of the gas system.
Approval of New Tax Allocation Agreement
Applicants ask the Commission to approve an agreement for the allocation of
consolidated tax among PowerGen US Partnership, PowerGen US Investments Corp.
and the LG&E Energy Group post-Merger (the "Tax Allocation Agreement"). Approval
is necessary because the Tax Allocation Agreement will provide for the retention
by the PowerGen entities within the consolidated group of certain payments for
tax losses, rather than the allocation of such losses to subsidiary companies
without payment as would otherwise be required by Rule 45(c)(5).
Subsidiary Service Company and Related Agreements
Applicants propose to form a subsidiary service company of LG&E Energy, to be
named LG&E Energy Services, Inc. ("LG&E Services"), to provide goods and
services to members of the LG&E Energy Group, and to a lesser extent, to
PowerGen and its other subsidiaries. Applicants request that LG&E Services be
authorized pursuant to Section 13(b) and Rule 88 to provide goods and services
to affiliates. In addition, Applicants propose that members of the PowerGen
System may provide goods and services to the LG&E Energy Group. In particular,
it is anticipated presently that most of the Trans-Atlantic goods and services
will provided by PowerGen UK (or PowerGen Group
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Holdings, if applicable); however, Applicants do not seek authorization for
PowerGen UK (or PowerGen Group Holdings) to become a qualified as a service
provider. Charges for services provided to public utility affiliates will comply
with the "at cost" and fair and equitable requirements of Section 13. Applicants
request that the Commission grant an exemption from the "at cost" requirement in
respect of certain services to be provided to non-utility subsidiaries.
Applicants seek Commission approval of the proposed Utility Service Agreement
and the Non-Utility Service Agreement under Section 13 of the Act.
Financing Transactions
As discussed more fully below, LG&E Energy and its subsidiaries, together with
PowerGen and the Intermediate Companies, request authority to engage in a
variety of financing transactions subsequent to the Merger. LG&E Energy and its
subsidiaries seek authority to extend (unless noted otherwise below) through
December 31, 2005 ("Authorization Period") the existing financing arrangements
LG&E Energy and its subsidiaries, to the extent these arrangements are
jurisdictional. In addition, Applicants seek authority for the following
transactions through the Authorization Period:
1. PowerGen and US Holdings External Financing
PowerGen and US Holdings propose to issue equity and debt securities in
amounts that, except as noted below, would not aggregate more than $6 billion
outstanding at any time during the Authorization Period ("Aggregate
Limitation"). Debt incurred to finance the Merger, including any borrowings
under the Credit Facility, would be included in the Aggregate Limitation. These
securities could include, but would not necessarily be limited to, ordinary
shares, preferred shares, options, warrants, long- and short-term debt
(including commercial paper), convertible securities, subordinated debt, bank
borrowings and securities with call or put options. In addition to the
Aggregate Limitation, aggregate outstanding amounts of securities issued by
PowerGen would be subject to the limits for each type of security described
below:/12/
<TABLE>
<CAPTION>
Security $ billions
<S> <C>
Ordinary Shares, including options and warrants 4.0
Preferred stock 1.0
Short-term debt financing 4.0
Long-term debt financing 6.0
</TABLE>
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/12/ Further, Applicants have proposed that certain other conditions be imposed
in the requested order, relating to, among other things, the capitalization of
PowerGen, LG&E and KU.
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a. Ordinary Shares
PowerGen's common equity consists of ordinary shares, with a par value of 50
pence each, that are listed on the LSE. PowerGen currently has ADSs in the
United States which trade as ADRs on the NYSE and are registered under the
Securities Act of 1933, as amended ("33 Act"). PowerGen proposes to issue
ordinary shares from time to time and seeks authority to do so.
Ordinary share financings by PowerGen covered by this Application-Declaration
may occur in any one of the following ways: (i) through a pro rata rights
offering directly to existing shareholders; (ii) through underwriters or dealers
pursuant to underwriting agreements of a type standard in the United Kingdom,
the United States, or other places of sale; (iii) through agents; (iv) directly
in private placements or other non-public offerings to a number of purchasers or
a single purchaser; (v) directly to employees (or to trusts established for
their benefit) and other shareholders through PowerGen's employee benefit
schemes; (vi) through the issuance of bonus shares (i.e., stock splits or stock
dividends) to existing shareholders; or (vii) through the issuance of options or
warrants to acquire ordinary shares.
PowerGen seeks authority to use its ordinary shares (or associated ADSs or
ADRs) as consideration for acquisitions that are otherwise authorized under the
Act. Among other things, transactions may involve the exchange of PowerGen
equity securities for securities of the company being acquired in order to
provide the seller with certain tax advantages. These transactions will be
individually negotiated. The ability to offer stock as consideration provides
both PowerGen and the seller of the business with flexibility. The PowerGen
ordinary shares to be exchanged may, among other things, be purchased on the
open market pursuant to Rule 42 or may be original issue. From the perspective
of the Commission, the use of stock as consideration valued at market value is
no different than a sale of common stock on the open market and use of the
proceeds to acquire securities, the acquisition of which is otherwise
authorized. For purposes of the $6.0 billion external financing limit, PowerGen
ordinary shares used as consideration in an acquisition would be valued at
market value based upon the last closing price of the ordinary shares on the LSE
prior to the execution of the transaction agreement.
In addition to other general corporate purposes, the ordinary shares will be
used to fund employee benefit plans. PowerGen currently maintains three
employee benefit plans pursuant to which its employees may acquire ordinary
shares of PowerGen as part of their compensation: (a) PowerGen ShareSave
Scheme; (b) the PowerGen Executive Share Option Scheme; and (c) the PowerGen
Restricted Share Plan. In addition, PowerGen may adopt one or more other plans
which will provide for the issuance and/or sale of PowerGen ordinary shares,
share options and share awards to a group which has not yet been determined but
may include directors, officers and employees of the companies in the PowerGen
System. PowerGen requests authority to issue ordinary shares under the existing
plans and such additional plans (collectively, "Plans") that may be developed in
the future. All shares issued under the Plans will be valued, if ordinary
shares, at market value based on the closing price on the LSE on the day before
the
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issuance of the shares. Options issued by PowerGen to the Plans will be valued
at zero until exercised.
Ordinary shares for use under share plans may be newly issued or shares
purchased in the open market by PowerGen or PowerGen Share Scheme Trust Limited.
To the extent any issuance, sale or reacquisition of securities pursuant to the
share plans are jurisdictional under the Act, Applicants request authorization
thereof. Shares issued under the share plans will be included within the
Aggregate Limitation.
b. Preferred Stock
US Holdings proposes to issue non-voting preferred stock from time to time
during the Authorization Period. Any issuance of preferred securities would
have dividend rates or methods of determining dividend rates, redemption
provisions, conversion or put terms and other terms and conditions as US
Holdings may determine at the time of issuance.
c. Debt
Each of PowerGen and US Holdings may engage in such short-term financing as
each may deem appropriate in light of its needs and market conditions at the
time of issuance. Such financing could include, without limitation, commercial
paper sold in established U.S. or European commercial paper markets, lines of
credit with banks or other financial institutions, and debt securities issued
under an indenture or a note program.
In addition, US Holdings proposes to issue long-term debt from time to time
during the Authorization Period. Any long-term debt would have the designation,
aggregate principal amount, interest rate(s) or method of determining the same,
terms of payment of interest, redemption provisions, non-refunding provisions,
sinking fund terms, put terms and other terms and conditions as are deemed
appropriate at the time of issuance. In addition, the long-term debt may be
convertible into preferred shares of US Holdings or ordinary shares of PowerGen
authorized to be issued hereunder. The maturity of any long-term debt will not
exceed 50 years.
2. Intermediate Company Financings
Applicants seek Commission approval of financings by the Intermediate
Companies as described below./13/
___________________
/13/ US Holdings and it direct subsidiary, PowerGen US Investments Ltd, will
enter into parallel loans in order to effect a currency hedging transaction. The
Applicants believe that, although the transaction will be booked as loans, they
do not constitute loans or extensions of credit within the meaning of Section
12(a) of the Act. See The Southern Company, Holding Co. Act Release No. 27134
(Feb. 9, 2000).
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The portion of an individual Intermediate Company's aggregate financing to be
effected through the sale of equity securities to its immediate parent company
during the Authorization Period cannot be determined at this time. It may
happen that the proposed sale of capital securities may in some cases exceed the
capital stock of a given Intermediate Company authorized at the date of the
Merger, in which case such limit will be increased. In addition, an
Intermediate Company may choose to use other forms of capital securities.
Capital stock includes common stock, ordinary shares, preferred stock, other
preferred securities, options and/or warrants convertible into common or
preferred stock, rights, and similar securities. As needed to accommodate the
sale of additional equity, Applicants request the authority to increase the
amount or change the terms of any Intermediate Company's authorized capital
securities, without additional Commission approval, except as provided below.
The terms that may be changed include dividend rates, conversion rates and
dates, and expiration dates. Applicants note that except for the financings of
US Holdings described above, each of the Intermediate Companies will be wholly-
owned directly or indirectly by PowerGen and will not have third-party
investors.
Each Intermediate Company and LG&E Energy also proposes to borrow from its
parent company. Such inter-company loans would be on terms and conditions not
materially less favorable than those obtainable by US Holdings from third
parties.
3. LG&E Energy Group Financings
a. Existing Financing Authority
To the extent the Commission will have jurisdiction over the existing
financing arrangements of LG&E Energy and its subsidiaries after the Merger,
Applicants seek Commission approval to retain the existing financing
arrangements of the LG&E Energy Group, which, to this date have been exempt from
Commission authorization. Although LG&E Energy will remain an exempt holding
company under Section 3(a)(1) of the Act following consummation of the Merger,
because it will be part of a registered holding company system its financing
arrangements will come under the jurisdiction of the Commission. Applicants
request that the Commission authorize the existing financing arrangements
through the Authorization Period.
b. External Financings
LG&E Energy proposes to obtain funds externally through sales of short-term
debt securities, which include commercial paper and bank financings. The
aggregate amount of short-term debt of LG&E Energy to be outstanding at any one
time during the Authorization Period shall not exceed $400 million. Such
financing could include, without limitation, commercial paper sold in
established U.S. or European commercial paper markets, lines of credit with
banks or other financial institutions, and debt securities issued under an
indenture or a note program.
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All securities of LG&E and KU, except for securities with maturities of two
years or less, are approved by the Kentucky Commission. Accordingly, authority
is requested for LG&E and KU to maintain outstanding any such existing debt with
maturities of two years or less and to issue debt with maturities of two years
or less and to one or more associate or non-associate lenders in an aggregate
principal amount to be outstanding at any one time during the Authorization
Period not to exceed $400 million for LG&E and $400 million for KU.
c. Inter-Company Loans
The activities of LG&E Energy and the U.S. Non-Utility Subsidiaries are
financed through inter-company loans./14/ The sources of funds include
internally generated funds and proceeds of external financings. The Applicants
request authorization to maintain in place the existing inter-company loans. The
Applicants also request authorization for additional inter-company loans among
LG&E Energy and the U.S. Non-Utility Subsidiaries in a net principal amount at
any one time outstanding not to exceed $1.0 billion.
d. Money Pools
LG&E Energy, LG&E and KU currently participate in a money pool (the "LG&E
Money Pool"). Through the LG&E Money Pool, LG&E and KU make unsecured short-
term borrowings from the money pool and contribute surplus funds to the money
pool. LG&E Energy contributes surplus funds to the LG&E Money Pool, but does not
borrow from the LG&E Money Pool. LG&E Energy requests that the Commission
authorize the continuation of the LG&E Money Pool for an interim period of not
to exceed two years (the "Transition Period") to permit LG&E to make a
transition from the LG&E Money Pool to the Utility Money Pool and the Non-
Utility Money Pool as discussed below.
LG&E Energy proposes to form two new money pools: a money pool for its public
utility subsidiaries ("Utility Money Pool"), and a money pool for its nonutility
subsidiaries ("Non-Utility Money Pool").
Under the Utility Money Pool, short-term funds would be available from the
following sources for short-term loans to the U.S. Utility Subsidiaries from
time to time: (a) surplus funds in the treasuries of Utility Money Pool
participants; (b) surplus funds in the treasury of LG&E Energy; and (c) proceeds
from bank borrowings by Utility
____________________
/14/ If LG&E is denied its request for continuing exemption under Section
3(a)(1) of the Act, these inter-company loans would violate Section 12(a) of the
Act. In such event, LG&E Energy requests that these borrowings and extensions of
credit not be deemed illegal under the Act, pending their repayment over a
reasonable period of time. Because of the amount of the borrowings, LG&E Energy
requests that it be granted two years from the date of the order authorizing
proposals in the Application-Declaration to repay these borrowings and eliminate
the extensions of credit.
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Money Pool participants or the sale of commercial paper by the Utility
Subsidiaries for loan to the Utility Money Pool. Each of LG&E and KU may borrow
up to $200 million at any one time outstanding from the Utility Money Pool.
If only internal funds make up the funds available in the Utility Money Pool,
the interest rate applicable and payable to or by the participants for all loans
of such internal funds outstanding on any day will be the rates for high-grade
unsecured 30-day commercial paper sold through dealers by major corporations as
quoted in The Wall Street Journal on the preceding business day.
If only external funds comprise the funds available in the Utility Money Pool,
the interest rate applicable to loans of such external funds would be equal to
the lending company's cost for such external funds (or, if more than one Utility
Money Pool participant had made available external funds on such day, the
applicable interest rate would be a composite rate equal to the weighted average
of the cost incurred by the respective Utility Money Pool participants for such
external funds).
In cases where both internal funds and external funds are concurrently
borrowed through the Utility Money Pool, the rate applicable to all loans
comprised of such "blended" funds would be a composite rate equal to the
weighted average of (a) the cost of all internal funds contributed by Utility
Money Pool participants and (b) the cost of all such external funds. In
circumstances where internal funds and external funds are available for loans
through the Utility Money Pool, loans may be made exclusively from internal
funds or external funds, rather than from a "blend" of such funds, to the extent
it is expected that such loans would result in a lower cost of borrowings.
The Non-Utility Money Pool would be operated substantially on the same terms
and conditions as the Utility Money Pool.
4. Guarantees
PowerGen and US Holdings request authorization to enter into guarantees,
extend credit, obtain letters of credit, enter into guaranty-type expense
agreements or otherwise provide credit support with respect to the obligations
of the U.S. Subsidiary Companies as may be appropriate to enable these system
companies to carry on their respective authorized or permitted businesses.
Guarantees entered into by PowerGen and US Holdings would not be subject to the
Aggregate Limitation, but instead would be subject to a separate $ 2.5 billion
limit ("PowerGen Guarantee Limitation") based on the amount at risk.
The LG&E Energy Group has in place certain guarantees and other credit support
arrangements, which arrangements will remain in place following the Merger.
These guarantees and other credit support arrangements are described in the
Application-Declaration. The Applicants request authorization to retain
outstanding these guarantees and other credit support arrangements.
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LG&E Energy requests authorization to enter into guarantees, extend credit,
obtain letters of credit, enter into guaranty-type expense agreements or
otherwise provide credit support with respect to the obligations of its
subsidiary companies. Guarantees entered into by LG&E Energy would be subject
to a separate $1.5 billion limit, based on the amount at risk.
In addition, the Applicants request authorization for the LG&E Energy's non-
utility subsidiaries to enter into guarantees, extend credit, obtain letters of
credit, enter into expense agreements or otherwise provide credit support with
respect to the obligations of any of such non-utility subsidiaries as may be
appropriate to enable such company to carry on its business, in an aggregate
principal amount not to exceed $1.5 billion outstanding at any one time,
exclusive of (a) any such guarantees existing on the date of the Merger and
identified in the Application-Declaration and (b) any such guarantees that may
be exempt pursuant to Rule 45(b).
5. Interest Rate and Currency Risk Management Devices
The U.S. Subsidiary Companies request authority to enter into, perform,
purchase and sell financial instruments intended to manage the volatility of
interest rates and currency exchange rates, including but not limited to
interest rate and currency swaps, caps, floors, collars and forward agreements
or any other similar agreements.
6. Acquisition, Redemption, or Retirement of Securities
Each of PowerGen and the U.S. Subsidiary Companies proposes from time to time
during the Authorization Period to acquire, redeem, or retire its securities or
those of its direct and indirect subsidiaries, which securities may be either
outstanding presently or issued and sold in the future (i.e., from the date of
this Application until the end of the Authorization Period).
7. Other Securities
In addition to the specific securities for which authorization is sought in
the Application-Declaration, PowerGen and the U.S. Subsidiary Companies may
issue other types of securities during the Authorization Period that are not
exempt from prior Commission approval. PowerGen and the U.S. Subsidiary
Companies request that the Commission reserve jurisdiction over the issuance of
such additional types of securities except to the extent these securities are
exempt pursuant to Rules 45 or 52.
8. Financing Entities
Authority is sought for US Holdings and the LG&E Energy Subsidiary Companies
to organize new corporations, trusts, partnerships or other entities created for
the purpose of facilitating financings through their issuance to third parties
of trust preferred securities or other securities authorized by the Application-
Declaration or issued pursuant to an applicable exemption. Request is also made
for authorization for these
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financing entities to issue such securities to third parties in the event such
issuances are not exempt pursuant to Rule 52. Additionally, request is made for
authorization with respect to (i) the issuance of debentures or other evidences
of indebtedness by any of US Holdings and the LG&E Energy Subsidiary Companies
to a financing entity in return for the proceeds of the financing, (ii) the
acquisition by any of PowerGen or the U.S. Subsidiary Companies of voting
interests or equity securities issued by the financing entity to establish
ownership of the financing entity, and (iii) the guarantee by US Holdings or
LG&E Energy Subsidiary Companies of such financing entity's obligations in
connection therewith. Any amounts issued by such financing entities to third
parties pursuant to these authorizations will count against the external
financing limit authorized in the Application-Declaration for US Holdings or the
LG&E Energy Subsidiary Companies, as applicable. However, the underlying intra-
system mirror debt and guarantee will not count against any applicable
intercompany financing limit or the separate US Holdings or the LG&E Energy
Subsidiary Companies guarantee limits.
9. Intermediate Subsidiaries Reorganization
LG&E Energy and its U.S. Non-Utility Subsidiaries propose to acquire the
securities of one or more intermediate subsidiaries ("LG&E Energy Intermediate
Subsidiaries"), which would be organized exclusively for the purpose of
acquiring, holding, and/or financing the acquisition of the securities of, or
other interest in, one or more EWGs, FUCOs, Rule 58 subsidiaries, ETCs or other
non-exempt U.S. non-utility subsidiaries, provided that the LG&E Energy
Intermediate Subsidiaries may also engage in development activities and
administrative activities relating to such subsidiaries.
Investments in LG&E Energy Intermediate Subsidiaries may take the form of any
combination of the following: (1) purchases of capital shares, partnership
interests, member interests in limited liability companies, trust certificates
or other forms of equity interests; (2) capital contributions; (3) open account
advances with or without interest; (4) loans; and (5) guarantees issued,
provided or arranged in respect of the securities or other obligations of any
LG&E Energy Intermediate Subsidiaries. Funds for any direct or indirect
investment by LG&E Energy in any LG&E Energy Intermediate Subsidiary will be
derived from (1) financings authorized in the Application-Declaration; (2) any
appropriate future debt or equity securities issuance authorization obtained by
LG&E Energy or a non-utility subsidiary from the Commission; and (3) other
available cash resources, including proceeds of securities sales by a non-
utility subsidiary of LG&E Energy pursuant to Rule 52 under the Act.
10. Reorganization
The Intermediate Companies seek a general grant of authority to restructure
the capital structure of the Intermediate Companies from time to time, in order
to reflect tax and accounting changes after the Merger, without the need to
apply for or receive prior Commission approval, on the condition that the
reorganization will not result in (i) any Intermediate Company being organized
under any jurisdiction other than a member state of the European Union with
which the United States has a Double Taxation Treaty, or a
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state of the United States, (ii) any Intermediate Companies not being wholly-
owned, directly or indirectly, by PowerGen or, other than in respect of the debt
and preferred stock of US Holdings, having third party investors, (iii) the
Intermediate Companies being engaged in any business or trade other than the
business of owning, directly or indirectly, equity securities of LG&E Energy and
the financing transactions described in the Application-Declaration, and (iv)
any of the Intermediate Companies being regulated by United Kingdom or other
third country regulatory authorities having jurisdiction over electricity rates
and service. Such restructurings may involve the creation of new, or the
elimination of existing, Intermediate Companies or the consolidation of
Intermediate Companies and/or the re-incorporation of an Intermediate Company in
a different jurisdiction.
PowerGen also seeks a general grant of authority to establish a new subsidiary
to serve as a capital corporation that may borrow funds from and loan funds to
Intermediate Companies to facilitate the efficient repatriation of funds from
the non-U.K. organized Intermediate Companies or their subsidiaries to the U.K.
organized Intermediate Companies.
In addition, LG&E Energy seeks a general grant of authority to restructure its
non-utility interests from time to time, without the need to apply for or
receive prior Commission approval, on the condition that the reorganization will
not result in the entry by the non-utility subsidiaries into new lines of
business that have not previously been authorized by the Commission or that are
not permissible on an exempt basis under the Act or Commission Rule. Such
restructurings may involve the creation of new, or the elimination of existing,
LG&E Energy Intermediate Subsidiaries, the consolidation of U.S. Non-Utility
Subsidiaries, the spin-off of a portion of an existing business of a U.S. Non-
Utility Subsidiary to another U.S. Non-Utility Subsidiary, the re-incorporation
of an existing U.S. Non-Utility Subsidiary in a different state, the transfer of
authority from one U.S. Non-Utility Subsidiary to another, the transfer or sale
of one U.S. Non-Utility Subsidiary, or its assets, to LG&E Energy or another
U.S. Non-Utility Subsidiary, or other similar type arrangements.
11. EWG/FUCO-Related Financings
As a general matter, PowerGen intends to fund its FUCO activities at the level
of its first-tier subsidiary, PowerGen UK (or PowerGen Group Holdings, as
applicable), under which PowerGen subsidiaries other than the U.S. Subsidiary
Companies/15/ will be segregated./16/ However, under certain circumstances, it
may be desirable from time to time for PowerGen to provide some additional
investment capital or credit support for
_________________________
/15/ The U.S. Subsidiary Companies means LG&E Energy, the LG&E Energy Subsidiary
Companies, and the Intermediate Companies.
/16/ As noted earlier, PowerGen and LG&E Energy have asked that PowerGen's
investments in PowerGen UK, which will claim status as a FUCO under Rule 53, not
be counted in the determination of "aggregate investment" as defined in the
Rule.
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FUCO acquisitions or operations. To that end, PowerGen is seeking authority to
finance after the Merger additional EWG and FUCO investments and operations in
an aggregate amount of up to 100% percent of its consolidated retained earnings
at any one time outstanding during the Authorization Period./17/ Such financings
may include the issuance or sale of securities for the purpose of financing the
acquisition or operations of an EWG or FUCO, or the guarantee of a security of
an EWG or FUCO.
Payment of Dividends
Applicants will use the purchase method of accounting for the Merger. Under
this method of accounting, the premium to be paid to acquire LG&E Energy will
result in the accrual by the PowerGen system of a substantial amount of goodwill
that will have to be amortized, although such amortization will have no effect
on the cash flow of PowerGen and its subsidiaries. Applicants have been advised
that, under applicable accounting rules, the premium paid in the Merger will not
be "pushed down" to the LG&E Energy Group. However, changes in circumstances
may result in such a "push down" or similar non-cash charge to retained
earnings. Accordingly, PowerGen and the US Subsidiary Companies request
authority to pay dividends out of additional paid-in capital up to the amount of
LG&E Energy's consolidated retained earnings just prior to the Merger and out of
earnings before the amortization of goodwill thereafter. In no case would such
dividends be paid by LG&E Energy out of paid-in capital if the common stock
equity of LG&E Energy as a percentage of consolidated retained earnings was
below 30% on a consolidated basis.
LG&E Energy anticipates that there will be situations in which one or more of
its direct or indirect U.S. Non-Utility Subsidiaries will have unrestricted cash
available for distribution in excess of any such company's current and retained
earnings. In such situations, the declaration and payment of a dividend would
have to be charged, in whole or in part, to capital or unearned surplus.
Accordingly, LG&E Energy requests authorization, on behalf of the direct and
indirect U.S. Non-Utility Subsidiaries, that such U.S. Non-Utility Subsidiary
companies be permitted to pay dividends with respect to the securities of such
companies, from time to time through the Authorization Period, out of capital
and unearned surplus capital (including revaluation reserve), to the extent
permitted under applicable corporate law.
Reporting
Applicants will file Form U5S annually with the Commission within 120 days of
the close of PowerGen's fiscal year. In addition, PowerGen will continue to
file a Form 20-F annually with the Commission, a semiannual report containing
earnings information, and reports on Form 6-K containing material announcements
as made.
_______________
/17/ Applicants state that PowerGen cannot fully comply with some of the
technical requirements of Rule 53(a).
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It is proposed that, with respect to PowerGen which, as noted above, has
registered under the 1934 Act, the reporting systems of the 1934 Act and the
1933 Act be integrated with reports under the 1935 Act. The Applicants propose
to incorporate by reference into the Rule 24 certificates of notification the
portion of the 1933 Act and 1934 Act reports containing or reflecting
disclosures of transactions occurring pursuant to the authorization granted in
this proceeding.
Applicants further propose to provide Rule 24 certificates semi-annually,
which is consistent with the financial reporting requirements in the United
Kingdom.
Applicants request an exemption from Rule 26(a)(1) under the 34 Act, regarding
the maintenance of financial statements in conformity with Regulation S-X, for
any existing subsidiary of PowerGen UK (or PowerGen UK Holdings as of its
formation) organized outside the United States. Any FUCO acquired directly or
indirectly by PowerGen subsequent to the issuance of an order in the
Application-Declaration will become part of PowerGen's consolidated financial
statements, and PowerGen will reconcile such statements to U.S. GAAP in the same
manner as required by Form 20-F.
Applicants further propose that their Form U5S filings will include PowerGen's
consolidated financial statements in the format required by Form 20-F, i.e.,
U.K. GAAP format with reconciliations to U.S. GAAP.
Foreign Utility Companies
Prior to the closing of the proposed transactions, PowerGen UK will file a
Form U-57 to perfect its exemption as a FUCO. Thereafter, Applicants believe
that PowerGen UK will be exempt from all provisions of the Act -- except with
respect to transactions with PowerGen and its non-FUCO subsidiary companies.
While FUCO interests will form the largest part of PowerGen UK's interests,
PowerGen UK will have certain non-FUCO subsidiaries. Accordingly, Applicants
seek to rely on Section 33 to acquire and hold certain nonexempt interests in
connection with their FUCO holdings. Applicants request that the Commission
find these "other businesses" to be consistent with the policies and provisions
of the Act, so long as: (i) all direct or indirect investments in these
businesses for which there is recourse, directly or indirectly, to the
registered holding company will be counted toward "aggregate investment" for
purposes of Rule 53; and (ii) there are appropriate safeguards to protect the
interests of U.S. ratepayers from the adverse effects, if any, that may be
associated with the foreign operations.
Exemption from Registration
LG&E Energy and KU currently enjoy exemption from registration under the Act
pursuant to Sections 3(a)(1) and 3(a)(2) of the Act, respectively. Applicants
seek a declaration from the Commission that LG&E Energy and KU may remain exempt
holding companies under Sections 3(a)(1) and 3(a)(2), respectively, although
following consummation of the Merger, the Intermediate Companies and PowerGen
plan to register
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under Section 5 of the Act. In the event the Commission does not grant the
relief requested, LG&E Energy or KU, as applicable, would register under Section
5 of the Act.
For the Commission, by the Division of Investment Management, under delegated
authority.
Jonathan G. Katz
Secretary
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EXHIBIT N-1.1
FORM OF
UTILITY MONEY POOL AGREEMENT
This Utility Money Pool Agreement (the "Agreement"), dated as of ______,
2000, is made and entered into by and among LG&E Energy Corp, ("LG&E Energy"), a
Kentucky corporation and a holding company under the Public Utility Holding
Company Act of 1935, as amended (the "Act"), LG&E Services Company ("LG&E
Services"), a Kentucky corporation and a non-utility subsidiary of LG&E Energy
(in its role as administrator of the money pool and as a participant in the
money pool), and each of the utility subsidiaries whose name appears on the
signature pages hereof (each a "Party" and collectively, the "Parties").
WITNESSETH:
WHEREAS, the Parties desire to establish a Money Pool (the "Utility Money
Pool") to coordinate and provide for certain of their short-term cash and
working capital requirements; and
WHEREAS, the utility subsidiaries that will participate in the Utility
Money Pool (each a "Subsidiary" and collectively, the "Subsidiaries") will from
time to time have need to borrow funds on a short-term basis, and certain of the
Parties will from time to time have funds available to loan on a short-term
basis;
NOW, THEREFORE, in consideration of the premises and the mutual agreements,
covenants and provisions contained herein, the Parties hereto agree as follows:
ARTICLE I
CONTRIBUTIONS AND BORROWINGS
Section 1.01 Contributions to Utility Money Pool.
Each Party will determine each day, on the basis of cash flow projections
and other relevant factors, in such Party's sole discretion, the amount of funds
it has available for contribution to the Utility Money Pool, and will contribute
such funds to the Utility Money Pool. The determination of whether a Party at
any time has surplus funds to lend to the Utility Money Pool or shall lend funds
to the Utility Money Pool will be made
<PAGE>
by such Party's chief financial officer or treasurer, or by a designee thereof,
on the basis of cash flow projections and other relevant factors, in such
Party's sole discretion. Each Party may withdraw any of its funds at any time
upon notice to LG&E Services as administrative agent of the Utility Money Pool.
Section 1.02 Rights to Borrow.
Subject to the provisions of Section 1.04(c) of this Agreement, short-term
borrowing needs of the Parties, with the exception of LG&E Energy, will be met
by funds in the Utility Money Pool to the extent such funds are available. Each
Party (other than LG&E Energy) shall have the right to make short-term
borrowings from the Utility Money Pool from time to time, subject to the
availability of funds and the limitations and conditions set forth herein and in
the applicable orders of the Securities and Exchange Commission ("SEC"). Each
Party (other than LG&E Energy) may request loans from the Utility Money Pool
from time to time during the period from the date hereof until this Agreement is
terminated by written agreement of the Parties; provided, however, that the
aggregate amount of all loans requested by any Party hereunder shall not exceed
the applicable borrowing limits set forth in applicable orders of the SEC and
other regulatory authorities, resolutions of such Party's Board of Directors,
such Party's governing corporate documents, and agreements binding upon such
Party. No loans through the Utility Money Pool will be made to, and no
borrowings through the Utility Money Pool will be made by, LG&E Energy.
Section 1.03 Source of Funds.
(a) Funds will be available through the Utility Money Pool from the
following sources for use by the Parties from time to time: (1) surplus funds in
the treasuries of Parties other than LG&E Energy, (2) surplus funds in the
treasury of LG&E Energy, and (3) proceeds from bank borrowings by Parties and
the sale of commercial paper by LG&E Energy and each other Party ("External
Funds"), in each case to the extent permitted by applicable laws and regulatory
orders. Funds will be made available from such sources in such other order as
LG&E Services, as administrator of the Utility Money Pool, may determine will
result in a lower cost of borrowing to companies borrowing from the Utility
Money Pool, consistent with the individual borrowing needs and financial
standing of the Parties providing funds to the Utility Money Pool.
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(b) Borrowing Parties will borrow pro rata from each lending Party in the
proportion that the total amount loaned by such lending Party bears to the total
amount then loaned through the Utility Money Pool. On any day when more than one
fund source (e.g., surplus treasury funds of LG&E Energy and other Utility Money
Pool participants ("Internal Funds") and External Funds), with different rates
of interest, is used to fund loans through the Utility Money Pool, each
borrowing Party will borrow pro rata from each fund source in the same
proportion that the amount of funds provided by that fund source bears to the
total amount of short-term funds available to the Utility Money Pool.
Section 1.04 Authorization.
(a) Each loan shall be authorized by the lending Party's chief financial
officer or treasurer, or by a designee thereof.
(b) LG&E Services, as administrator of the Utility Money Pool, will
provide each Party with periodic activity and cash accounting reports that
include, among other things, reports of cash activity, the daily balance of
loans outstanding and the calculation of interest charged.
(c) All borrowings from the Utility Money Pool shall be authorized by the
borrowing Party's chief financial officer or treasurer, or by a designee
thereof. No Party shall be required to effect a borrowing through the Utility
Money Pool if such Party determines that it can (and is authorized to) effect
such borrowing at lower cost directly from banks or through the sale of its own
commercial paper.
Section 1.05 Interest.
The daily outstanding balance of all loans to any Subsidiary shall accrue
interest as follows:
(a) If only Internal Funds comprise the daily outstanding balance of all
loans outstanding during a calendar month, the interest rate applicable to such
daily balances shall be the rates for high-grade unsecured 30-day commercial
paper of major corporations sold through dealers as quoted in The Wall Street
Journal (the "Average Composite").
(b) If only External Funds comprise the daily outstanding balance of all
loans outstanding during a calendar month, the interest rate applicable to such
daily outstanding balance shall
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be the lender's cost for such External Funds or, if more than one Party had made
available External Funds at any time during the month, the applicable interest
rate shall be a composite rate, equal to the weighted average of the costs
incurred by the respective Parties for such External Funds.
(c) In cases where the daily outstanding balances of all loans outstanding
at any time during the month include both Internal Funds and External Funds, the
interest rate applicable to the daily outstanding balances for the month shall
be equal to the weighted average of the (i) cost of all Internal Funds
contributed by Parties, as determined pursuant to Section 1.05(a) of this
Agreement, and (ii) the cost of all such External Funds, as determined pursuant
to Section 1.05(b) of this Agreement.
(d) The interest rate applicable to Loans made by a Subsidiary to the
Utility Money Pool under Section 1.01 of this Agreement shall be the Average
Composite as determined pursuant to Section 1.05(a) of this Agreement.
Section 1.06 Certain Costs.
The cost of compensating balances and fees paid to banks to maintain
credit lines by Parties lending External Funds to the Utility Money Pool shall
initially be paid by the Party maintaining such line. A portion of such costs
shall be retroactively allocated every month to the Subsidiaries borrowing such
External Funds through the Utility Money Pool in proportion to their respective
daily outstanding borrowings of such External Funds.
Section 1.07 Repayment.
Each Subsidiary receiving a loan from the Utility Money Pool hereunder
shall repay the principal amount of such loan, together with all interest
accrued thereon, on demand and in any event within 365 days of the date on which
such loan was made. All loans made through the Utility Money Pool may be
prepaid by the borrower without premium or penalty.
Section 1.08 Form of Loans to Subsidiaries.
Loans to the Subsidiaries from the Utility Money Pool shall be made as
open-account advances, pursuant to the terms of this agreement. A separate
promissory note will not be required for
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each individual transaction. Instead, a promissory note evidencing the terms of
the transactions shall be signed by the Parties to the transaction. Any such
note shall: (a) be in substantially the form attached hereto as Exhibit A; (b)
be dated as of the date of the initial borrowing; (c) be payable on demand; and
(d) be repayable in whole at any time or in part from time to time, without
premium or penalty.
ARTICLE II
OPERATION OF UTILITY MONEY POOL
Section 2.01 Operation.
Operation of the Utility Money Pool, including record keeping and
coordination of loans, will be handled by LG&E Services under the authority of
the appropriate officers of the Parties. LG&E Services shall be responsible for
the determination of all applicable interest rates and charges to be applied to
advances outstanding at any time hereunder, shall maintain records of all
advances, interest charges and accruals and interest and principal payments for
purposes hereof, and shall prepare periodic reports thereof for the Parties.
LG&E Services will administer the Utility Money Pool on an "at cost" basis.
Separate records shall be kept by LG&E Services for the Utility Money Pool
established by this Agreement and any other money pool administered by LG&E
Services.
Section 2.02 Investment of Surplus Funds in the Utility Money Pool.
Funds not required for the Utility Money Pool loans (with the exception
of funds required to satisfy the Utility Money Pool's liquidity requirements)
will ordinarily be invested in one or more short-term investments, including (i)
interest-bearing accounts with banks; (ii) obligations issued or guaranteed by
the U.S. government and/or its agencies and instrumentalities, including
obligations under repurchase agreements; (iii) obligations issued or guaranteed
by any state or political subdivision thereof, provided that such obligations
are rated not less than A by a nationally recognized rating agency; (iv)
commercial paper rated not less than A-1 by S&P or P-1 by Moody's, or their
equivalent by a nationally recognized rating agency; (v) money market funds;
(vi) bank certificates of deposit; (vii) Eurodollar funds; and (viii) such
other investments as are permitted by Section 9(c) of the Act and Rule 40
thereunder.
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Section 2.03 Allocation of Interest Income and Investment Earnings.
The interest income and other investment income earned by the Utility
Money Pool on loans and investment of surplus funds will be allocated among the
Parties in accordance with the proportion each Party's contribution of funds in
the Utility Money Pool bears to the total amount of funds in the Utility Money
Pool and the cost of any External Funds provided to the Utility Money Pool by
such Party. Interest and other investment earnings will be computed on a daily
basis and settled once per month.
Section 2.04 Event of Default.
If any Subsidiary shall generally not pay its debts as such debts become
due, or shall admit in writing its inability to pay its debts generally, or
shall make a general assignment for the benefit of creditors, or any proceeding
shall be instituted by or against any Party seeking to adjudicate it bankrupt or
insolvent, then LG&E Services, on behalf of the Utility Money Pool, may, by
notice to the Subsidiary, terminate the Utility Money Pool's commitment to the
Subsidiary and/or declare the principal amount then outstanding of, and the
accrued interest on, the loans and all other amounts payable to the Utility
Money Pool by the Subsidiary hereunder to be forthwith due and payable,
whereupon such amounts shall be immediately due and payable without presentment,
demand, protest or other formalities of any kind, all of which are hereby
expressly waived by each Subsidiary.
ARTICLE III
MISCELLANEOUS
Section 3.01 Amendments.
No amendment to this Agreement shall be adopted except in a writing
executed by a duly authorized officer of each of the Parties hereto and subject
to all applicable approvals by the SEC and the applicable state utility
regulatory commission.
Section 3.02 Legal Responsibility.
Nothing herein contained shall render any Party liable for the
obligations of any other Party hereunder and the rights,
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obligations and liabilities of the Parties are several in accordance with their
respective obligations, and not joint.
Section 3.03 Rules for Implementation.
The Parties may develop a set of guidelines for implementing the provisions
of this Agreement, provided that the guidelines are consistent with all of the
provisions of this Agreement.
Section 3.04 Governing Law.
This Agreement shall be governed by and construed in accordance with, the
laws of the Commonwealth of Kentucky.
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IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
the duly authorized officer of each Party hereto as of the date first above
written.
LG&E ENERGY CORP.
By:___________________________
Name:______________________
Title:_____________________
LG&E SERVICES COMPANY
By:___________________________
Name:______________________
Title:_____________________
LOUISVILLE GAS AND ELECTRIC COMPANY
By:___________________________
Name:______________________
Title:_____________________
KENTUCKY UTILITIES COMPANY
By: __________________________
Name:__________________
Title:_________________
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EXHIBIT A
To Utility Money Pool Agreement
FORM OF NOTE
FOR VALUE RECEIVED, the undersigned, __________ 9the "Borrower"), hereby
promises to pay to the order of LG&E Services Company, as administrator of the
Utility Money Pool as defined in the Money Pool Agreement (as defined below), at
its principal office in Louisville, Kentucky, on demand, the principal amount
outstanding from time to time under that certain Utility Money Pool Agreement
dated as of _________, 2000 by and among LG&E Energy Corp., LG&E Services
Company, as administrator, the undersigned, and each of the other utility
subsidiaries whose name appears on the signature pages thereof (the "Money Pool
Agreement"). The principal amount outstanding under this note shall bear
interest, calculated daily, at a rate determined in accordance with the Money
Pool Agreement. The undersigned hereby authorizes the administrator to record
on the grid on the reverse side hereof or attached hereto the date and amount of
each advance under the Money Pool Agreement and each payment made on account of
the principal thereof. The principal amount outstanding as set forth on the
grid on the reverse side hereof or attached hereto shall be rebuttable
presumptive evidence of the principal amount owing and unpaid on this note.
This note may be prepaid in full at any time or in part from time to time,
without premium or penalty.
Date: ______________________
By: ______________________
Name: _____________________
Title: ____________________
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Amount of Loan Principal
Date Loan Repayment Amount
Outstanding
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EXHIBIT N-1.2
FORM OF
NON-UTILITY MONEY POOL AGREEMENT
This Non-Utility Money Pool Agreement (the "Agreement"), dated as of
___________, 2000, is made and entered into by and among LG&E Energy Corporation
("LG&E Energy"), a Kentucky corporation and a registered holding company under
the Public Utility Holding Company Act of 1935, as amended (the "Act"), LG&E
Services Company ("LG&E Services") (solely in the role as administrator of the
money pool), a subsidiary service company of LG&E Energy, and each of the non-
utility subsidiaries of LG&E Energy whose name appears on the signature pages
hereof (each a "Party" and collectively, the "Parties").
WITNESSETH:
WHEREAS, the Parties desire to establish a Money Pool (the "Non-Utility
Money Pool") to coordinate and provide for certain of their short-term cash and
working capital requirements; and
WHEREAS, the non-utility subsidiaries that will participate in the Non-
Utility Money Pool (each a "Subsidiary" and collectively, the "Subsidiaries")
will from time to time have need to borrow funds on a short-term basis, and
certain of the Parties will from time to time have funds available to loan on a
short-term basis;
NOW, THEREFORE, in consideration of the premises and the mutual
agreements, covenants and provisions contained herein, the Parties hereto agree
as follows:
ARTICLE I
CONTRIBUTIONS AND BORROWINGS
Section 1.01 Contributions to Non-Utility Money Pool.
Each Party will determine each day, on the basis of cash flow projections
and other relevant factors, in such Party's sole discretion, the amount of funds
it has available for contribution to the Non-Utility Money Pool, and will
contribute such funds to the Non-Utility Money Pool. The determination of
whether a Party at any time has surplus funds to lend to the Non-Utility Money
Pool or shall lend funds to the Non-Utility
<PAGE>
Money Pool will be made by an appropriate officer of such Party, or by a
designee thereof, on the basis of cash flow projections and other relevant
factors, in such Party's sole discretion. Each Party may withdraw any of its
funds at any time upon notice to LG&E Services as administrative agent of the
Non-Utility Money Pool.
Section 1.02 Rights to Borrow.
Subject to the provisions of Section 1.04(c) of this Agreement, all short-
term borrowing needs of the Parties, with the exception of LG&E Energy, will be
met by funds in the Non-Utility Money Pool to the extent such funds are
available. Each Party (other than LG&E Energy) shall have the right to make
short-term borrowings from the Non-Utility Money Pool from time to time, subject
to the availability of funds and the limitations and conditions set forth herein
and in the applicable orders of the Securities and Exchange Commission. Each
Party (other than LG&E Energy) may request loans from the Non-Utility Money Pool
from time to time during the period from the date hereof until this Agreement is
terminated by written agreement of the Parties; provided, however, that the
aggregate amount of all loans requested by any Party hereunder shall not exceed
the applicable borrowing limits set forth in applicable orders of the Securities
and Exchange Commission and other regulatory authorities, resolutions of such
Party's Board of Directors or similar governing body, such Party's governing
corporate documents, and agreements binding upon such Party.
Section 1.03 Source of Funds.
(a) Funds will be available through the Non-Utility Money Pool from the
following sources for use by the Parties from time to time: (i) surplus funds in
the treasuries of Parties other than LG&E Energy, (ii) surplus funds in the
treasury of LG&E Energy, and (iii) proceeds from bank borrowings by Parties and
the sale of commercial paper or debt securities by Parties ("External Sources").
Funds will be made available from such sources in such order as LG&E Services,
as administrator of the Non-Utility Money Pool, may determine will result in a
lower cost of borrowing to companies borrowing from the Non-Utility Money Pool,
consistent with the individual borrowing needs and financial standing of the
Parties providing funds to the Non- Utility Money Pool.
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(b) Borrowing Parties will borrow pro rata from each lending Party in the
proportion that the total amount loaned by such lending Party bears to the total
amount then loaned through the Non-Utility Money Pool. On any day when more than
one fund source (e.g., surplus treasury funds of LG&E Energy and other Non-
Utility Money Pool participants ("Internal Sources") and funds from External
Sources), with different rates of interest, is used to fund loans through the
Non-Utility Money Pool, each borrowing Party will borrow pro rata from each such
fund source in the Non-Utility Money Pool in the same proportion that the amount
of funds provided by that fund source bears to the total amount of short-term
funds available to the Non-Utility Money Pool.
Section 1.04 Authorization.
(a) Each loan shall be authorized by the lending Party's chief financial
officer or treasurer, or by a designee thereof.
(b) LG&E Services, as administrator of the Non-Utility Money Pool, will
provide each Party with periodic activity and cash accounting reports that
include, among other things, reports of cash activity, the daily balance of
loans outstanding and the calculation of interest charged.
(c) All borrowings from the Non-Utility Money Pool shall be authorized by
the borrowing Party's chief financial officer or treasurer, or by a designee
thereof. No Party shall be required to effect a borrowing-through the Non-
Utility Money Pool if such Party determines that it can (and is authorized to)
effect such borrowing at lower cost directly from banks or through the sale of
its own commercial paper.
Section 1.05 Interest.
The daily outstanding balance of all loans to any Subsidiary shall accrue
interest as follows:
(a) If only Internal Funds comprise the daily outstanding balance of all
loans outstanding during a calendar month, the interest rate applicable to such
daily balances shall be the rates for high-grade unsecured 30-day commercial
paper of major corporations sold through dealers as quoted in The Wall Street
Journal (the "Average Composite").
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(b) If only External Funds comprise the daily outstanding balance of all
loans outstanding during a calendar month, the interest rate applicable to such
daily outstanding balances shall be the lender's cost for such External Funds
or, if more than one Party had made available External Funds at any time during
the month, the applicable interest rate shall be a composite rate, equal to the
weighted average of the costs incurred by the respective Parties for such
External Funds.
(c) In cases where the daily outstanding balances of all loans outstanding
at any time during the month include both Internal Funds and External Funds, the
interest rate applicable to the daily outstanding balances for the month shall
be equal to the weighted average of (i) the cost of all Internal Funds
contributed by Parties, as determined pursuant to Section 1.05(a) of this
Agreement, and (ii) the cost of all such External Funds, as determined pursuant
to Section 1.05(b) of this Agreement.
(d) The interest rate applicable to Loans made by a Subsidiary to the Non-
Utility Money Pool under Section 1.01 of this Agreement shall be the Average
Composite as determined pursuant to Section 1.05(a) of this Agreement.
Section 1.06 Certain Costs.
The cost of compensating balances and fees paid to banks to maintain credit
lines by Parties lending External Funds to the Non-Utility Money Pool shall
initially be paid by the Party maintaining such line. A portion of such costs
shall be retroactively allocated every month to the Subsidiaries borrowing such
External Funds through the Non-Utility Money Pool in proportion to their
respective daily outstanding borrowings of such External Funds.
Section 1.07 Repayment.
Each Subsidiary receiving a loan from the Non-Utility Money Pool hereunder
shall repay the principal amount of such loan, together with all interest
accrued thereon, on demand and in any event within 365 days of the date on which
such loan was made. All loans made through the Non-Utility Money Pool may be
prepaid by the borrower without premium or penalty.
Section 1.08 Form of Loans to Subsidiaries.
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Loans to the Subsidiaries from the Non-Utility Money Pool shall be made as
open-account advances, pursuant to the terms of this Agreement. A separate
promissory note will not be required for each individual transaction. Instead, a
promissory grid note evidencing the terms of the transactions shall be signed by
the Parties to the transaction. Any such note shall: (a) be in substantially the
form attached hereto as Exhibit A; (b) be dated as of the date of the initial
borrowing; (c) be payable on demand; and (d) be repayable in whole at any time
or in part from time to time, without premium or penalty.
ARTICLE II
OPERATION OF NON-UTILITY MONEY POOL
Section 2.01 Operation.
Operation of the Non-Utility Money Pool, including record keeping and
coordination of loans, will be handled by LG&E Services under the authority of
the appropriate officers of the Parties. LG&E Services shall be responsible for
the determination of all applicable interest rates and charges to be applied to
advances outstanding at any time hereunder, shall maintain records of all
advances, interest charges and accruals and interest and principal payments for
purposes hereof, and shall prepare periodic reports thereof for the Parties.
LG&E Services will administer the Non-Utility Money Pool on either an "at cost"
basis or, in its sole discretion, on a different basis. Separate records shall
be kept by LG&E Services for the Non-Utility Money Pool established by this
Agreement and any other money pool administered by LG&E Services.
Section 2.02 Investment of Surplus Funds in the Non-Utility Money Pool.
Funds not required for the Non-Utility Money Pool loans (with the exception
of funds required to satisfy the Non-Utility Money Pool's liquidity
requirements) will ordinarily be invested in one or more short-term investments,
including (i) interest-bearing accounts with banks; (ii) obligations issued or
guaranteed by the U.S. government and/or its agencies and instrumentalities,
including obligations under repurchase agreements; (iii) obligations issued or
guaranteed by any state or political subdivision thereof, provided that such
obligations are rated not less than A by a nationally recognized rating agency;
(iv) commercial paper rated not less than A-1 by S&P or P-1 by Moody's, or their
equivalent by a nationally recognized
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rating agency; (v) money market funds; (vi) bank certificates of deposit; (vii)
Eurodollar funds; and (viii) such other investments as are permitted by Section
9(c) of the Act and Rule 40 thereunder.
Section 2.03 Allocation of Investment Earnings.
The interest income and other investment income earned by the Non-Utility
Money Pool on loans and on investment of surplus funds will be allocated among
the Parties in accordance with the proportion each Party's contribution of funds
in the Non-Utility Money Pool bears to the total amount of funds in the Non-
Utility Money Pool and the cost of any External Sources provided to the Non-
Utility Money Pool by such Party. Interest and other investment earnings will
be computed on a daily basis and settled once per month.
Section 2.04 Event of Default.
If any Subsidiary shall generally not pay its debts as such debts become
due, or shall admit in writing its inability to pay its debts generally, or
shall make a general assignment for the benefit of creditors, or any proceeding
shall be instituted by or against any Party seeking to adjudicate it bankrupt or
insolvent, then LG&E Services, on behalf of the Non-Utility Money Pool, may, by
notice to the Subsidiary, terminate the Non-Utility Money Pool's commitment to
the Subsidiary and/or declare the principal amount then outstanding of, and the
accrued interest on, the loans and all other amounts payable to the Non-Utility
Money Pool by the Subsidiary hereunder to be forthwith due and payable,
whereupon such amounts shall be immediately due and payable without presentment,
demand, protest or other formalities of any kind, all of which are hereby
expressly waived by each Subsidiary.
ARTICLE III
MISCELLANEOUS
Section 3.01 Amendments.
No amendment to this Agreement shall be adopted except in a writing
executed by a duly authorized officer of each Party.
Section 3.02 Legal Responsibility.
Nothing herein contained shall render any Party liable for
6
<PAGE>
the obligations of any other Party hereunder and the rights, obligations and
liabilities of the Parties are several in accordance with their respective
obligations, and not joint.
Section 3.03 Rules for Implementation.
The Parties may develop a set of guidelines for implementing the
provisions of this Agreement, provided that the guidelines are consistent with
all of the provisions of this Agreement.
7
<PAGE>
Section 3.04 Governing Law.
This Agreement shall be governed by, and construed in accordance with,
the laws of the Commonwealth of Kentucky.
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered
by the duly authorized officer of each Party hereto as of the date first above
written.
LG&E ENERGY CORP.
By: __________________________
Name:__________________
Title:_________________
LG&E CAPITAL CORP.
By: ___________________________
Name:___________________
Title:__________________
LG&E POWER INC.
By: ___________________________
Name:___________________
Title:__________________
LG&E SERVICES COMPANY
By: ___________________________
Name:___________________
Title:__________________
[ADD OTHERS]
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EXHIBIT A
To Non-Utility Money Pool Agreement
FORM OF NOTE
FOR VALUE RECEIVED, the undersigned, __________ 9 the "Borrower"), hereby
promises to pay to the order of LG&E Services Company, as administrator of the
Non-Utility Money Pool as defined in the Money Pool Agreement (as defined
below), at its principal office in Louisville, Kentucky, on demand, the
principal amount outstanding from time to time under that certain Non-Utility
Money Pool Agreement dated as of _________, 2000 by and among LG&E Energy Corp.,
LG&E Services Company, as administrator, the undersigned, and each of the other
non-utility subsidiaries whose name appears on the signature pages thereof (the
"Money Pool Agreement"). The principal amount outstanding under this note shall
bear interest, calculated daily, at a rate determined in accordance with the
Money Pool Agreement. The undersigned hereby authorizes the administrator to
record on the grid on the reverse side hereof or attached hereto the date and
amount of each advance under the Money Pool Agreement and each payment made on
account of the principal thereof. The principal amount outstanding as set forth
on the grid on the reverse side hereof or attached hereto shall be rebuttable
presumptive evidence of the principal amount owing and unpaid on this note.
This note may be prepaid in full at any time or in part from time to time,
without premium or penalty.
Date: ______________________
______________________
By: _________________
Name: ________________
Title: _______________
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Amount of Loan Principal
Date Loan Repayment Amount
Outstanding
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