OFFERING CIRCULAR
NORWEB plc (Incorporated in England with limited liability under the Companies Act 1985 with registered number 2366949) £200,000,000 8.875 per cent. Bonds 2026
Issue price: 99.646 per cent.
Application has been made to The International Stock Exchange of the United Kingdom and the Republic of Ireland Limited (the "London Stock Exchange") for the Bonds to be admitted to the Official List. Copies of this document, which comprises listing particulars prepared in compliance with the Listing Rules made under Section 142 of the Financial Services Act 1986 by the London Stock Exchange, have been delivered to the Registrar of Companies in England and Wales for registration in accordance with Section 149 of that Act.
The Bonds will be issued in registered form ("Registered Bonds") in the denominations of £1 and any integral multiple thereof and in bearer form ("Bearer Bonds") in the denominations of £1,000, £10,000 and £100,000.
The Bearer Bonds will be represented initially by a single temporary global Bond, without interest coupons, (the "Global Bond") which will be deposited with a common depositary for Morgan Guaranty Trust Company of New York, Brussels office, as operator of the Euroclear System ("Euroclear") and Cedel Bank, société anonyme ("Cedel") on or about 3rd August, 1995 (the "Closing Date") and will be exchangeable for definitive Bearer Bonds with interest coupons and one talon for further interest coupons attached on or after 13th September, 1995 upon certification as to non-U.S. beneficial ownership. The Registered Bonds are expected to be available for delivery on or after the Closing Date outside the United States upon certification that the beneficial owners of the relevant Registered Bonds are not U.S. persons (as referred to under "Selling Restrictions" below) or persons who have acquired such Registered Bonds for resale to any U.S. person.
SBC Warburg A Division of Swiss Bank Corporation
NatWest Markets UBS Limited
The date of this Offering Circular is 28th July, 1995 NORWEB plc (the "Issuer", the "Company" or "NORWEB") accepts responsibility for the information contained in this document. To the best of the knowledge and belief of the Issuer (which has taken all reasonable care to ensure that such is the case) the information contained in this document is in accordance with the facts and does not omit anything likely to affect the import of such information. The Issuer together with its subsidiary undertakings are referred to herein as the "Group".
No person is authorised to give any information or to make any representation not contained in this document and any information or representation not contained herein must not be relied upon as having been authorised by or on behalf of the Issuer or the Managers (as defined under "Subscription and Sale " below). This document does not constitute an offer of, or an invitation by or on behalf of the Issuer or the Managers to subscribe for or purchase, any of the Bonds. Neither the delivery of this document nor any subscription, sale or purchase made in connection herewith shall under any circumstances constitute a representation or create any implication that there has been no change in the affairs of the Issuer since the date hereof.
The distribution of this document and the offering of the Bonds in certain jurisdictions may be restricted by law. Persons into whose possession this document comes are required by the Issuer and the Managers to inform themselves about, and to observe, any such restrictions.
The Bonds have not been, and will not be, registered under the United States Securities Act of 1933 and are subject to U.S. tax law requirements. Subject to certain exceptions, the Bonds may not be offered, sold or delivered within the United States or to U.S. persons. For a further description of certain restrictions on the offering and sale of the Bonds and on the distribution of this document, see "Selling Restrictions " below.
All references herein to "pounds", "sterling", "£", "pence" or "p" are to the lawful currency of the United Kingdom. All references herein to "kW" and "MW" are to kilowatts and megawatts respectively.
In connection with this issue, Swiss Bank Corporation acting through its division SBC Warburg, may over-allot or effect transactions which stabilise or maintain the market price of the Bonds at a level which might not otherwise prevail. Such stabilising, if commenced, may be discontinued at any time.
TABLE OF CONTENTS Page Terms and Conditions of the Bonds 3 Use of Proceeds 18 NORWEB plc 19 Financial Information 28 Capitalisation of NORWEB plc 33 United Kingdom Taxation 34 Subscription and Sale 36 Selling Restrictions 36 General Information 37
2 TERMS AND CONDITIONS OF THE BONDS
The following is the text of the terms and conditions of the Bonds which (subject to amendment and save for certain paragraphs in italics) will be endorsed on each Bond in definitive form: The £200,000,000 8.875 per cent. Bonds 2026 (the "Bonds", which expression shall in these Terms and Conditions, unless the context otherwise requires, include any further bonds issued pursuant to Condition 17 and forming a single series with the Bonds) of NORWEB plc (the "Issuer") are constituted by a Principal Trust Deed dated 3rd August, 1995 (the "Trust Deed" which expression shall wherever the context so admits include any deed supplemental thereto) made between the Issuer and The Law Debenture Trust Corporation p.l.c. (the "Trustee", which expression shall include any successor) as trustee for the holders of the Bonds (the "Bondholders"). The issue of the Bonds was authorised by resolutions of the Board of Directors of the Issuer passed on 26th June, 1995 and by resolutions of a duly authorised committee of the Board of Directors of the Issuer passed on 10th July, 1995. The Bonds are, on issue, listed on The International Stock Exchange of the United Kingdom and the Republic of Ireland Limited (the "London Stock Exchange"). The statements in these Terms and Conditions include summaries of, and are subject to, the detailed provisions of and definitions in the Trust Deed. Copies of the Trust Deed and of an Agency Agreement dated 3rd August, 1995 (the "Agency Agreement") made between the Issuer, Morgan Guaranty Trust Company of New York, London office, as principal paying agent (the "Principal Paying Agent", which expression shall include any successor), The Royal Bank of Scotland plc as registrar (the "Registrar", which expression shall include any successor), the other paying agents named therein (together with the Principal Paying Agent, the "Paying Agents", which expression shall include any additional or successor paying agents) and the Trustee are available for inspection during normal business hours by the Bondholders and the holders of the interest coupons appertaining to the Bonds in bearer form (respectively, the "Couponholders" and the "Coupons", which latter expression shall, unless the context otherwise requires, include the Talon referred to below) at the registered office for the time being of the Trustee, being at the date of issue of the Bonds at Princes House, 95 Gresham Street, London EC2V 7LY, and at the specified office of each of the Paying Agents and the Registrar. The Bondholders and the Couponholders are entitled to the benefit of, are bound by, and are deemed to have notice of, all the provisions of the Trust Deed and the Agency Agreement.
1. FORM, DENOMINATION AND TITLE The Bonds are in bearer form, serially numbered, in the denominations of £1,000, £10,000 and £100,000 each ("Bearer Bonds") with Coupons and one Talon for further Coupons (a "Talon") attached on issue and in registered form in the denominations of £1 and integral multiples thereof ("Registered Bonds") without interest coupons. Title to the Bearer Bonds and to the Coupons will pass by delivery and title to the Registered Bonds will pass upon the registration of transfers in accordance with the provisions of the Agency Agreement and the Trust Deed. Bearer Bonds of one denomination cannot be exchanged for Bearer Bonds of another denomination. The Issuer, any Paying Agent, the Registrar and the Trustee may (to the fullest extent permitted by applicable laws) deem and treat the holder of any Bearer Bond and the holder of any Coupon and the registered holder of any Registered Bond as the absolute owner for all purposes (whether or not the Bond or Coupon shall be overdue and notwithstanding any notice of ownership or writing on the Bond or Coupon or any notice of previous loss or theft of the Bond or Coupon). The Bearer Bonds will be represented initially by a single temporary Global Bond, without Coupons, which will be deposited with a common depositary for Euroclear and Cedel on or about the Closing Date for credit against payment to the accounts designated by the relevant subscribers with Euroclear or Cedel. The temporary Global Bond will be exchangeable on or after a date which is expected to be 13th September, 1995 for definitive Bearer Bonds, with Coupons attached, upon certification that the beneficial owners of the relevant Bearer Bonds are not U.S. persons or persons who have acquired such Bearer Bonds for resale to any U.S. person. Unless, upon due presentation of the temporary Global Bond for exchange, delivery of definitive Bearer Bonds is improperly withheld or refused and such withholding or refusal is continuing at the relevant due date for payment thereof definitive Bearer Bonds with Coupons attached must be obtained before interest can be collected in respect of the relevant Bearer Bonds. The Registered Bonds will be issued in definitive registered form and delivered on or about the Closing Date to the Managers for the accounts of the subscribers thereof upon certification that the beneficial owners of the relevant Registered Bonds are not U. S. persons or persons who have acquired such Registered Bonds for resale to any U.S. person.
3 Bonds (both in bearer and in registered form) and Coupons will bear the following legend:
"Any United States person who holds this obligation will be subject to limitations under the United States income tax laws, including the limitations provided in Sections 165(¡) and 1287(a) of the internal Revenue Code".
2. TRANSFER AND EXCHANGE (a) Transfer of Registered Bonds A Registered Bond may be transferred in whole or in part (in the principal amount of £1 or any integral multiple thereof) by the transferor depositing the Registered Bond for registration of the transfer of the Registered Bond (or the relevant part of the Registered Bond) at the specified office of the Registrar with a form of transfer (in a form approved by the Registrar and the Trustee) duly completed and signed by or on behalf of the transferor and upon the Registrar after due and careful enquiry being satisfied with the evidence of title and the identity of the person making the request and subject to such reasonable regulations as the Issuer and the Registrar may (with the prior approval of the Trustee) prescribe. Subject as provided above and subject to the payment of any sum in respect of any stamp duty, tax or other governmental charge as is referred to in paragraph (e) below, the Registrar will, within three Business Days (as defined below) of the request (or such longer period as may be required to comply with any applicable fiscal or other laws or regulations), deliver at its specified office to the transferee or (at the risk and, if mailed at the request of the transferee otherwise than by ordinary uninsured mail, at the expense of the transferee) send by mail to such address as the transferee may request a new Registered Bond of a like aggregate principal amount to the Registered Bond (or the relevant part of the Registered Bond) transferred. In the case of the transfer of part only of a Registered Bond, a new Registered Bond in respect of the balance of the Registered Bond not transferred will be so delivered or (at the risk and, if mailed at the request of the transferor otherwise than by ordinary uninsured mail, at the expense of the transferor) sent by mail to the transferor. For the purpose of this Condition 2, "Business Day" means a day on which commercial banks and foreign exchange markets settle payments in London.
(b) Exchange of Bearer Bonds for Registered Bonds At the option of the holder thereof, upon presentation to the Principal Paying Agent at any time on or after 13th September, 1995 (the "Exchange Date") of a duly completed and signed request for exchange (in the form for the time being obtainable from the specified office of the Registrar or the Principal Paying Agent (a "Registration Request")) together with the relevant Bearer Bond(s) and payment of any sum in respect of any such stamp duty, tax or other governmental charge as is referred to in paragraph (e) below, subject to the terms of the Agency Agreement, Bearer Bonds are exchangeable in whole, but not in part, for the same aggregate principal amount of Registered Bonds, provided that all unmatured Coupons relating thereto are attached thereto or are surrendered therewith. Registration Requests may not be presented on or after the Record Date (as defined in Condition 5) in respect of any Interest Payment Date (as defined in Condition 4) up to and including such Interest Payment Date. Interest on a Registered Bond issued on exchange will accrue, and interest on the corresponding Bearer Bond(s) presented for exchange will cease to accrue, as from the immediately preceding Interest Payment Date or, if none, as from 3rd August, 1995 (the "Closing Date"). Registration Requests may only be presented, and Bearer Bonds and Coupons may only be surrendered for exchange for Registered Bonds, at the specified office of the Principal Paying Agent. The Registrar will, within five Business Days of the date of presentation to the Principal Paying Agent of any Registration Request together with the relevant Bearer Bond(s) and Coupons, deliver at its specified office to the Bondholder or (at the risk and, if mailed at the request of the Bondholder otherwise than by ordinary uninsured mail, at the expense of the Bondholder) mail to such address (other than an address in the United States) as may be specified by the Bondholder in the Registration Request a Registered Bond of the same aggregate principal amount as that of the Bearer Bond exchanged.
(c) Exchange of Registered Bonds for Bearer Bonds At the option of the holder thereof, upon presentation to the Registrar at any time on or after the Exchange Date of a duly completed and signed request for exchange (in the form for the time being obtainable from the specified office of the Registrar or the Principal Paying Agent (a "Bearer Request")) together with the relevant Registered Bond(s) and payment of any sum in respect of any such stamp duty, tax or other governmental charge as is referred to in paragraph (e) below, subject to the terms of the Agency Agreement, Registered Bonds are exchangeable in whole or in part in principal amounts of £1,000 or integral multiples thereof for
4 the same aggregate principal amount of Bearer Bonds. Bearer Requests may not be presented on or after the Record Date in respect of any Interest Payment Date up to and including such Interest Payment Date. Bearer Requests may not be presented on or after the date the Issuer validly gives notice to the Bondholders of its intention to redeem Bearer Bonds pursuant to Condition 6(c). Interest on Bearer Bonds issued on exchange will accrue, and interest on the corresponding Registered Bonds presented for exchange will cease to accrue, as from the immediately preceding Interest Payment Date or, if none, the Closing Date. Bearer Requests may only be presented, and Registered Bonds may only be surrendered for exchange for Bearer Bonds, at the specified office of the Registrar. The Principal Paying Agent will, within five Business Days of the date of presentation to the Registrar of any Bearer Request together with the relevant Registered Bond(s), deliver at its specified office to the Bondholder or (at the risk and, if mailed at the request of the Bondholder otherwise than by ordinary uninsured mail, at the expense of the Bondholder) mail to such address, other than an address in the United States, as may be specified by the Bondholder in the Bearer Request the Bearer Bond or Bearer Bonds requested together with all Coupons in respect of all Interest Payment Dates falling after the date of presentation. In the case of exchange of part only of a Registered Bond, a new Registered Bond for the balance so exchanged will be sent by mail by the Registrar (at the risk and, if mailed at the request of the Bondholder otherwise than by ordinary uninsured mail, at the expense of the Bondholder) to such address, other than an address in the United States, as may be specified by the Bondholder in the Bearer Request.
(d) Closed Periods In the event of a partial redemption of Bonds under Condition 6(b), the Issuer shall not be required: (i) to register the transfer of Registered Bonds (or parts of Registered Bonds) or to exchange Bearer Bonds for Registered Bonds (or vice versa) during the period beginning on the sixty-fifth day before the date of the partial redemption and ending on the day on which notice is given specifying the serial numbers of Bonds called (in whole or in part) for redemption (both inclusive); or (ii) to register the transfer of any Registered Bond, or part of a Registered Bond, called for partial redemption; or (iii) to exchange any Registered Bond (or part thereof) or Bearer Bond called for partial redemption; except that a Registered Bond (or part thereof) or Bearer Bond called for partial redemption may be exchanged for a Bearer Bond or Registered Bond, respectively, which is simultaneously surrendered not later than the relevant Record Date. (e) Formalities free of charge Such transfer or exchange will be effected without charge subject to (i) the person making such application for transfer or request for exchange paying or procuring the payment of any stamp duty, tax or other governmental charge, (ii) the Registrar being satisfied with the documents of title and identity of the person making the application or request and (iii) such reasonable regulations as the Issuer may from time to time agree with the Trustee, the Principal Paying Agent and the Registrar. The exchange of Bearer Bonds for Registered Bonds and Registered Bonds for Bearer Bonds will be subject to the provisions of all applicable fiscal or other laws and regulations in effect at the time of such exchange. (f) Registrar The name of the initial Registrar and its initial specified office are set out at the end of these Terms and Conditions. The Issuer reserves the right, subject to the prior written approval of the Trustee, at any time to vary or terminate the appointment of the Registrar and to appoint another Registrar provided that it will at all times maintain a Registrar approved by the Trustee having a specified office in the United Kingdom. Notice of any termination or appointment and of any changes in specified office will be given to the Bondholders promptly by the Issuer in accordance with Condition 14.
3. STATUS The Bonds and the Coupons are direct, unconditional and unsecured obligations of the Issuer and rank and will rank pari passu, without any preference among themselves, with all other outstanding unsecured and unsubordinated obligations of the Issuer, present and future, but, in the event of insolvency, only to the extent permitted by applicable laws relating to creditors' rights.
4. INTEREST The Bonds bear interest from (and including) the Closing Date at the rate of 8.875 per cent. per annum payable (less United Kingdom income tax, if appropriate) annually in arrear on 25th March in each year (each an "Interest Payment Date"), except that the first such payment, which will be made on 25th March,
5 1996, will be in respect of the period from (and including) the Closing Date to (but excluding) 25th March, 1996 and will amount to £57.19 (less United Kingdom income tax, if appropriate) per £1,000 in principal amount of the Bonds (and so in proportion for any greater or lesser principal amount of the Bonds, rounded upwards, if necessary, to two decimal places). Each Bond or, in the case of the redemption of part only of a Registered Bond, that part only of the Registered Bond will cease to bear interest from its due date for redemption unless, upon due presentation, payment of the principal in respect of the Bond is improperly withheld or refused or unless default is otherwise made in respect of such payment, in which event interest shall continue to accrue as provided in the Trust Deed.
When interest is required to be calculated in respect of a period of less than a full year, it shall be calculated on the basis of a 360 day year consisting of 12 months of 30 days each.
5. PAYMENTS AND EXCHANGE OF TALONS Payments of principal and interest in respect of each Bearer Bond will be made against presentation and surrender (or, in the case of part payment only, endorsement) of the Bearer Bond, except that payments of interest due on an Interest Payment Date will be made against presentation and surrender (or, in the case of part payment only, endorsement) of the relevant Coupons, in each case at the specified office of any of the Paying Agents.
Payments in respect of each Bearer Bond will be made at the specified office of any Paying Agent, at the option of the holder, by sterling cheque drawn on, or by transfer to a sterling account maintained by the payee with, a bank in the City of London, subject in all cases to any applicable fiscal or other laws and regulations, but without prejudice to the provisions of Condition 8. Each Bearer Bond should be presented for payment together with all relative unmatured Coupons, failing which the full amount of any relative missing unmatured Coupon (or, in the case of payment not being made in full, that proportion of the full amount of the missing unmatured Coupon which the amount so paid bears to the total amount due) will be deducted from the amount due for payment. Each amount so deducted will be paid in the manner mentioned above against presentation and surrender (or, in the case of part payment only, endorsement) of the relative missing Coupon at any time before the expiry of 10 years after the Relevant Date (as defined in Condition 8) in respect of the relevant Bearer Bond (whether or not the Coupon would otherwise have become void pursuant to Condition 9), or, if later, five years after the date on which the Coupon would have become due, but not thereafter.
If the due date for redemption of any Bearer Bond is not an Interest Payment Date interest accrued on such Bond from (and including) the preceding Interest Payment Date (or, if none, the Closing Date) up to (but excluding) the date of redemption shall be paid only against presentation and surrender of such Bearer Bond. Payments of principal in respect of each Registered Bond will be made against presentation and surrender (or, in the case of part payment only, endorsement) of the Registered Bond at the specified office of the Registrar in London by sterling cheque drawn on a bank in the City of London. Payments of interest on each Registered Bond will be made by sterling cheque drawn on a bank in the City of London and mailed on the Business Day in the City of London immediately preceding the relevant due date to the holder (or to the first named of joint holders) of the Registered Bond appearing on the register at the close of business on the seventh day before the relevant due date (the "Record Date") at his address shown on the register on the Record Date. Upon application of the holder to the specified office of the Registrar, not less than three Business Days before the due date for any payment in respect of a Registered Bond, the payment may be made (in the case of payment of principal against presentation and surrender (or, in the case of part payment only, endorsement) of the relevant Registered Bond as provided above) by transfer on the due date to a sterling account maintained by the payee with a bank in the City of London. Payments in respect of principal and interest on Registered Bonds are subject in all cases to any fiscal or other laws and regulations applicable in the place of payment, but without prejudice to the provisions of Condition 8. A holder shall be entitled to present a Bond or Coupon for payment only on a Presentation Date and shall not be entitled to any further interest or other payment if a Presentation Date is after the due date. "Presentation Date" means a day which (subject to Condition 9): (a) is or falls after the relevant due date but, if the due date is not or was not a Business Day in the City of London, is or falls after the next following such Business Day; and
6 (b) is a Business Day in the place of the specified office of the Paying Agent (or the Registrar in the case of payments of principal in respect of Registered Bonds) at which the Bond or Coupon is presented for payment and, in the case of payment by transfer to a sterling account in the City of London as referred to above, in the City of London.
In this Condition 5, "Business Day" means, in relation to any place, a day on which commercial banks and foreign exchange markets settle payments in that place. On and after the Interest Payment Date on which the final Coupon comprised in any Coupon sheet matures, the Talon comprised in the Coupon Sheet may be surrendered at the specified office of any Paying Agent in exchange for a further Coupon sheet (including any appropriate further Talon), subject to the provisions of Condition 9. Each Talon shall, for the purposes of these Conditions, be deemed to mature on the Interest Payment Date on which the final Coupon comprised in the relative Coupon sheet matures.
The names of the initial Paying Agents and their initial specified offices are set out at the end of these Terms and Conditions. The Issuer reserves the right, subject to the prior written approval of the Trustee, at any time to vary or terminate the appointment of any Paying Agent and to appoint additional or other Paying Agents provided that it will at all times maintain at least two Paying Agents having specified offices in separate European cities approved by the Trustee, one of which, so long as the Bonds are listed on the London Stock Exchange, shall be London or such other place as the London Stock Exchange may approve and one of which shall be outside the United Kingdom. Notice of any termination or appointment and of any changes in specified offices will be given to the Bondholders promptly by the Issuer in accordance with Condition 14.
6. REDEMPTION AND PURCHASE (a) Unless previously redeemed or purchased and cancelled as provided below, the Issuer will redeem the Bonds at their principal amount on 25th March, 2026. (b) The Issuer may, at any time, having given notice to the Bondholders in accordance with this Condition 6(b) (which notice shall be irrevocable), redeem the Bonds in whole or in part (but if in part, in integral multiples of £1,000,000 in principal amount thereof), at the price which shall be the higher of the following, together with interest accrued up to (but excluding) the date of redemption:
(i) par; and
(ii) that price (the "Redemption Price"), expressed as a percentage rounded to three decimal places (0.0005 being rounded down), at which the Gross Redemption Yield on the Bonds, if they were to be purchased at such price on the third dealing day prior to the publication of the notice of redemption or, in the case of a partial redemption, the first notice of redemption referred to below, would be equal to the Gross Redemption Yield on such dealing day of the 8 3/4pe r cent. Treasury Stock 2017 or of such other United Kingdom Government Stock as the Trustee, with the advice of three leading brokers operating in the gilt-edged market and/or gilt-edged market makers, shall determine to be appropriate (the "Reference Stock") on the basis of the middle market price of the Reference Stock prevailing on such dealing day, as determined by Swiss Bank Corporation (or such other person(s) as the Trustee may approve).
The Gross Redemption Yield on the Bonds and the Reference Stock will be expressed as a percentage and will be calculated on the basis indicated by the Joint Index and Classification Committee of the Institute and Faculty of Actuaries as reported in the Journal of the Institute of Actuaries, Vol. 105, Part 1, 1978, page 18 or on such other basis as the Trustee may approve.
In the case of a partial redemption of Bonds, Bonds (or, as the case may be, parts of Registered Bonds) to be redeemed will be selected individually by lot in such place as the Trustee may approve and in such manner as the Trustee shall deem to be appropriate and fair without involving any part only of a Bearer Bond, not more than 65 days before the date fixed for redemption. In the case of a redemption of all of the Bonds pursuant to this Condition 6(b), notice will be given to the Bondholders by the Issuer in accordance with Condition 14 once not less than 30 nor more than 60 days before the date fixed for redemption. In the case of a partial redemption, notice will be so given twice, first not less than 80 nor more than 95 days, and secondly not less than 30 nor more than 60 days, before the date fixed for redemption. Each notice will specify the date fixed for redemption and the redemption price and, in the case of a partial redemption, the aggregate principal amount of the Bonds to be redeemed, the serial numbers of Bonds previously called (in whole or in part) for redemption and not presented for payment and the aggregate principal amount of the Bonds which will be outstanding after the partial redemption. In addition, in the case of a partial redemption, the first notice will
7 specify the period during which exchanges or transfers of Bonds may not be made as provided in Condition 2 and the second notice will specify the serial numbers of the Bonds called (in whole or, in the case of Registered Bonds, in part) for redemption.
Upon the expiry of any such notice period as is referred to above, the Issuer shall be bound to redeem the Bonds to which the notice refers at the relative redemption price applicable at the date of such redemption together with interest accrued to (but excluding) such date.
(c) If, as a result of any change in, or amendment to, the laws or regulations of the United Kingdom or any political sub-division of, or any authority in, or of, the United Kingdom having power to tax, or any change in the application or official interpretation of such laws or regulations, which change or amendment becomes effective after 28th July, 1995, the Issuer has or will become obliged to pay additional amounts as provided or referred to in Condition 8 (and such amendment or change has been evidenced by the delivery by the Issuer to the Trustee (who shall, in the absence of manifest error, accept such certificate and opinion as sufficient evidence thereof) of (i) a certificate signed by two Directors of the Issuer on behalf of the Issuer stating that such amendment or change has occurred (irrespective of whether such amendment or change is then effective), describing the facts leading thereto and stating that such obligation cannot be avoided by the Issuer taking reasonable measures available to it and (ii) an opinion in a form satisfactory to the Trustee of independent legal advisers of recognised standing to whom the Trustee shall have no reasonable objection to the effect that such amendment or change has occurred (irrespective of whether such amendment or change is then effective)), the issuer may, at its option, having given not less than 30 nor more than 60 days' notice to the Bondholders in accordance with Condition 14 (which notice shall be irrevocable), redeem all, but not some only, in a case where the requirement to pay such additional amounts results solely from the deduction from payments of interest in respect of Bearer Bonds of any United Kingdom income tax required to be withheld or deducted at source, of only the Bearer Bonds and, in any other case, of the Bonds (other than Bonds in respect of which the Issuer shall have given a notice of redemption pursuant to Condition 6(b) prior to any notice being given under this Condition 6(c)), in each case at their principal amount together with interest accrued to the date of redemption, provided that no notice of redemption shall be given earlier than 90 days before the earliest date on which the Issuer would be required to pay such additional amounts were a payment in respect of the Bonds then due. Any notice to Bondholders pursuant to this Condition 6(c) which applies only to Bearer Bonds shall also inform holders of Bearer Bonds of their right to exchange such Bearer Bonds for Registered Bonds pursuant to Condition 2(b) and the period or periods during which such exchange can take place.
N.B. Holders of Registered Bonds should note that if the Issuer gives a notice under this Condition 6(c) to redeem only the outstanding Bearer Bonds, their right to exchange their Registered Bonds for Bearer Bonds will thereupon cease and there will be no obligation on the Issuer to redeem any Registered Bonds which may be outstanding nor will there be any obligation on the Issuer to maintain in issue any minimum principal amount of Registered Bonds.
Upon the expiry of any such notice period as is referred to above (and subject as provided above), the Issuer shall be bound to redeem the relevant Bonds at their principal amount together with interest accrued to (but excluding) the redemption date.
(d) The Issuer or any of its Subsidiaries (as defined in Condition 10) may at any time purchase Bonds in any manner and at any price. If purchases are made by tender, tenders must be available to all Bondholders alike.
(e) All Bonds which are redeemed by the Issuer will forthwith be cancelled (together, in the case of Bearer Bonds, with all relative unmatured Coupons attached to the Bearer Bonds or surrendered with the Bearer Bonds) and may not be reissued or resold. Bonds purchased by the Issuer or any of its Subsidiaries may be held or reissued or resold or surrendered for cancellation.
7. REDEMPTION AT THE OPTION OF BONDHOLDERS (a) (i) If, at any time while any of the Bonds remains outstanding, a Restructuring Event (as defined below) occurs and prior to the commencement of or during the Restructuring Period (as defined below) an independent financial adviser (as defined below) shall have certified in writing to the Trustee that such Restructuring Event will not be or is not, in its opinion, materially prejudicial to the interests of the Bondholders, the following provisions of this Condition 7 shall cease to have any further effect in relation to such Restructuring Event.
8 (ii) If, at any time while any of the Bonds remains outstanding, a Restructuring Event occurs and (subject to Condition 7(a)(i)): (A) within the Restructuring Period, either:
(i) if at the time such Restructuring Event occurs there are Rated Securities (as defined below), a Rating Downgrade (as defined below) in respect of such Restructuring Event also occurs; or (ii) if at such time there are no Rated Securities, a Negative Rating Event (as defined below) also occurs; and (B) an independent financial adviser shall have certified in writing to the Trustee that such Restructuring Event will be or is, in its opinion, materially prejudicial to the interests of the Bondholders (a "Negative Certification"),
then, unless at any time the Issuer shall have given a notice under Condition 6(b) in respect of his Bond or Condition 6(c), in each case expiring prior to the Put Date (as defined below), the holder of each Bond will, upon the giving of a Put Event Notice (as defined below), have the option (the "Put Option") to require the Issuer to redeem or, at the option of the Issuer, purchase (or procure the purchase of) that Bond on the Put Date at its principal amount together with (or, where purchased, together with an amount equal to) interest accrued to (but excluding) the Put Date.
A Restructuring Event shall be deemed not to be materially prejudicial to the interests of the Bondholders if, notwithstanding the occurrence of a Rating Downgrade, the rating assigned to the Rated Securities by any Rating Agency (as defined below) is subsequently increased to an investment grade rating (BBB-/ Baa3 or their respective equivalents for the time being, or better) prior to any Negative Certification being issued.
Any certification by an independent financial adviser as aforesaid as to whether or not, in its opinion, any Restructuring Event will be or is materially prejudicial to the interests of the Bondholders shall, in the absence of manifest error, be conclusive and binding on the Trustee, the Issuer and the Bondholders. For the purposes of this Condition 8, an "independent financial adviser" means a financial adviser appointed by the Issuer and approved by the Trustee (such approval not to be unreasonably withheld or delayed) or, if the Issuer shall not have appointed such an adviser within 21 days after becoming aware of the occurrence of such Restructuring Event and the Trustee is indemnified to its satisfaction against the costs of such adviser, appointed by the Trustee following consultation with the Issuer.
(b) Promptly upon the Issuer becoming aware that a Put Event (as defined below) has occurred, and in any event not later than 14 days after the occurrence of a Put Event, the Issuer shall, and at any time upon the Trustee becoming similarly so aware the Trustee may, and if so requested by the holders of at least one-quarter in principal amount of the Bonds then outstanding shall, give notice (a "Put Event Notice") to the Bondholders in accordance with Condition 14 specifying the nature of the Put Event and the procedure for exercising the Put Option.
(c) To exercise the Put Option, the holder of a Bond must deliver such Bond to the specified office of any Paying Agent, on a day which is a Business Day (as defined in Condition 5) in the City of London and in the place of such specified office falling within the period (the "Put Period") commencing on the date on which a Put Event Notice is given and ending on the 45th day thereafter, accompanied by a duly completed and signed notice of exercise in the form (for the time being current) obtainable from any specified office of any Paying Agent (a "Put Notice") and in which the holder may specify a bank account complying with the requirements of Condition 5 to which payment is to be made under this Condition 7. Each Bearer Bond should be delivered together with all Coupons appertaining thereto maturing after the day (the "Put Date") being the fifteenth day after the date of expiry of the Put Period, failing which an amount equal to the face value of any such missing Coupon will be deducted from the amount due for payment. Each amount so deducted will be paid in the manner provided in Condition 5 against presentation and surrender (or, in the case of part payment only, endorsement) of the relevant missing Coupon at any time before the expiry of 10 years after the Relevant Date in respect of the relevant Bearer Bond (whether or not the Coupon would otherwise have become void pursuant to Condition 9) or, if later, five years after the date on which such Coupon would have become due, but not thereafter. The Paying Agent to which such Bond and Put Notice are delivered shall issue to the Bondholder concerned a non-transferable receipt in respect of the Bond so delivered. Payment in respect of any Bond so delivered
9 shall be made, if the holder duly specifies a bank account in the Put Notice to which payment is to be made on the Put Date, by transfer to that bank account and, in every other case, on or after the Put Date in each case against presentation and surrender or (as the case may be) endorsement of such receipt at any specified office of any Paying Agent, subject in any such case as provided in Condition 5. A Put Notice, once given, shall be irrevocable. For the purposes of Conditions 1, 9, 10, 11, 13 and 15, receipts issued pursuant to this Condition 7 shall be treated as if they were Bonds. The Issuer shall redeem or, at the option of the Issuer, purchase (or procure the purchase of) the relevant Bond on the applicable Put Date unless previously redeemed or purchased. (d) For the purposes of these Terms and Conditions: (i) A "Negative Rating Event" shall be deemed to have occurred if (A) the Issuer does not either prior to or not later than 14 days after the date of a Negative Certification in respect of the relevant Restructuring Event, seek, and thereupon use all reasonable endeavours to obtain, a rating of the Bonds or any other unsecured and unsubordinated debt of the Issuer (or of any Subsidiary of the Issuer and which is guaranteed on an unsecured and unsubordinated basis by the Issuer) having an initial maturity of five years or more from a Rating Agency or (B) if it does so seek and use such endeavours, it is unable, as a result of such Restructuring Event, to obtain such a rating of at least investment grade (BBB-/Baa3, or their respective equivalents for the time being or better). (ii) "Pooling and Settlement Agreement" means the agreement dated 30th March, 1990 (as amended and restated at 22nd April, 1994) made by the Issuer with The National Grid Company plc and others setting out the rules and procedures for the operation of an electricity trading pool and of a settlement system and, while the same has effect, the Initial Settlement Agreement also dated 30th March, 1990 and made between the same parties, in each case as in force on 28th July, 1995. (iii) A "Put Event" occurs on the date of the last to occur of (aa) a Restructuring Event, (bb) either a Rating Downgrade or, as the case may be, a Negative Rating Event and (cc) the relevant Negative Certification. (iv) "Rating Agency" means Standard & Poor's Corporation or any of its subsidiaries and their successors ("Standard & Poor's") or Moody's Investors Service Inc. or any of its subsidiaries and their successors ("Moody's") or any rating agency substituted for either of them (or any permitted substitute of them) by the Issuer from time to time with the prior written approval of the Trustee (such approval not to be unreasonably withheld or delayed). (v) A "Rating Downgrade" shall be deemed to have occurred in respect of a Restructuring Event if the then current rating assigned to the Rated Securities by any Rating Agency (whether provided by a Rating Agency at the invitation of the Issuer or by its own volition) is withdrawn or reduced from an investment grade rating (BBB-/Baa3, or their respective equivalents for the time being, or better) to a non-investment grade rating (BB+/Ba1, or their respective equivalents for the time being, or worse) or, if the Rating Agency shall then have already rated the Rated Securities below investment grade (as described above), the rating is lowered one full rating category. (vi) "Rated Securities" means the Bonds, if at any time and for so long as they shall have a rating from a Rating Agency, and otherwise any other unsecured and unsubordinated debt of the Issuer (or of any Subsidiary of the Issuer and which is guaranteed on an unsecured and unsubordinated basis by the Issuer) having an initial maturity of five years or more which is rated by a Rating Agency. (vii) "Restructuring Event" means the occurrence of any one or more of the following events: (A) (aa) the Secretary of State for Trade and Industry (or any successor) giving the Issuer written notice of revocation of the public electricity supply licence (the "PES Licence") granted by the Secretary of State for Energy to the Issuer under the Electricity Act 1989 in relation to its authorised area and excluding any second tier supply licence provided that the giving of notice pursuant to paragraph 3 of Part 1 of the PES Licence shall not be deemed to constitute the revocation of the PES Licence or (bb) the Issuer agreeing in writing with the Secretary of State for Trade and Industry (or any successor) to any revocation or surrender of the PES Licence or (cc) any legislation (whether primary or subordinate) being enacted terminating or revoking the PES Licence, except in any such case in circumstances where a licence or licences on substantially no less favourable terms is or are granted to the Issuer or a wholly-owned Subsidiary of the Issuer (the "Relevant Subsidiary") and in the case of such Relevant Subsidiary at the time of such grant it either executes in favour of the Trustee an unconditional and irrevocable guarantee in respect of the Bonds in such form as the Trustee may approve (such approval not to be unreasonably withheld or delayed) or becomes the primary obligor under the Bonds in accordance with Condition 12; or
10 (B) any modification (other than a modification which is of a formal, minor or technical nature) is made to the terms and conditions of the PES Licence on or after 28th July, 1995 unless two Directors of the Issuer have certified in good faith to the Trustee that the modified terms and conditions are not materially less favourable to the business of the Issuer provided that any modification arising from the review of the distribution price control formula by Professor Stephen Littlechild in his capacity as the Director General of Electricity Supply published on 6th July, 1995 shall not constitute a Restructuring Event unless it results in the credit rating assigned to the short term debt of the Issuer by Standard & Poor's or Moody's being either (i) downgraded to a "speculative grade" rating "B" or below in the case of Standard &l Poor's or to "not prime" or worse in the case of Moody's or (ii) withdrawn;
(C) (aa) the Pooling and Settlement Agreement being terminated under Clause 67.4 thereof and not replaced by an agreement, commercial arrangement or open market mechanism or framework having substantially the same effect as the Pooling and Settlement Agreement, in each case on terms which two Directors of the Issuer certify in good faith to the Trustee to be not materially less favourable to the business of the Issuer or (bb) the Issuer being given notice pursuant to Clause 67.3.2 of the Pooling and Settlement Agreement requiring it to cease to be a party thereto or (cc) any notice declaring an event of default (as defined in the Pooling and Settlement Agreement) being given to the Issuer under Clause 66.1.1 or 66.2 thereof and such default remaining unremedied or unwaived or (dd) any modification (other than a modification which is of a formal, minor or technical nature) being made to the Pooling and Settlement Agreement on or after 28th July, 1995 or (ee) the Issuer ceasing to be a party to the Pooling and Settlement Agreement for any reason (other than pursuant to (bb) and (cc) above), except where a licence is granted to the Relevant Subsidiary as contemplated by sub-paragraph (d)(vii)(A) above and at or about the same time all rights and obligations of the Issuer pursuant to the Pooling and Settlement Agreement are assigned and transferred to such Relevant Subsidiary in such manner as the Trustee may approve (such approval not to be unreasonably withheld or delayed), unless, in the case of (dd), two Directors of the Issuer have certified in good faith to the Trustee that any such modification has not had and will not have a materially adverse effect on the amount or nature of any payment made or to be made by or to the Issuer pursuant to the Pooling and Settlement Agreement or a materially adverse effect on the financial rights or obligations of the Issuer under the Pooling and Settlement Agreement, provided that any such modification shall, to the extent it grants or confers powers or discretions on the Director General of Electricity Supply (or any successor) under or in respect of the Pooling and Settlement Agreement, be deemed not to have a materially adverse effect as aforesaid, but for the avoidance of doubt any modification to the Pooling and Settlement Agreement made by the Director General of Electricity Supply (or any successor) by virtue of or pursuant to any such powers or discretions and which otherwise would have a materially adverse effect as provided above shall not by virtue of this sub-paragraph be deemed not to have such an effect; or
(D) any legislation (whether primary or subordinate) is enacted which removes, qualifies or amends (other than an amendment which is of a formal, minor or technical nature) the duties of the Secretary of State for Trade and Industry (or any successor) and/or the Director General of Electricity Supply (or any successor) under Section 3 of the Electricity Act 1989 as in force on 28th July, 1995, unless two Directors of the Issuer have certified in good faith to the Trustee that such removal, qualification or amendment does not have a materially adverse effect on the financial condition of the Issuer.
(viii) "Restructuring Period" means:
(A) if at the time a Restructuring Event occurs there are Rated Securities, the period of 90 days starting from and including the day on which that Restructuring Event occurs; or
(B) if at the time a Restructuring Event occurs there are no Rated Securities, the period starting from and including the day on which that Restructuring Event occurs and ending on the day 90 days following the later of (aa) the date on which the Issuer shall seek to obtain a rating pursuant to Condition 7(d)(i) prior to the expiry of the 14 days referred to in the definition of Negative Rating Event and (bb) the date on which a Negative Certification shall have been given to the Issuer in respect of that Restructuring Event.
11 (ix) A Rating Downgrade or a Negative Rating Event or a non-investment grade rating shall be deemed not to have occurred as a result or in respect of a Restructuring Event if the Rating Agency making the relevant reduction in rating or, where applicable, declining to assign a rating of at least investment grade as provided in this Condition 7 does not announce or publicly confirm or inform the Trustee in writing at its request that the reduction or, where applicable, declining to assign a rating of at least investment grade was the result, in whole or in part, of any event or circumstance comprised in or arising as a result of the applicable Restructuring Event.
The Trust Deed provides that the Trustee is under no obligation to ascertain whether a Restructuring Event, a Negative Rating [went or any event which could lead to the occurrence of or could constitute a Restructuring Event has occurred and until it shall have actual knowledge or express notice pursuant to the Trust Deed to the contrary the Trustee may assume that no Restructuring Event, Negative Rating Event or other such event has occurred.
8. TAXATION All payments in respect of the Bonds (other than payments of interest in respect of Registered Bonds which will be made subject to the deduction of any United Kingdom income tax required to be withheld or deducted at source) by the Issuer shall be made without withholding or deduction for, or on account of, any present or future taxes, duties, assessments or governmental charges of whatever nature ("Taxes") imposed or levied by or on behalf of the United Kingdom, or any political sub-division of, or any authority in, or of, the United Kingdom having power to tax, unless the withholding or deduction of the Taxes is required by law. In that event (other than where the deduction or withholding is in respect of Registered Bonds as aforesaid), the Issuer will pay such additional amounts as may be necessary in order that the net amounts received by the Bondholders and Couponholders after the withholding or deduction shall equal the respective amounts which would have been receivable in respect of the Bonds or, as the case may be, Coupons in the absence of the withholding or deduction; except that no additional amounts shall be payable in relation to any payment in respect of any Bond or Coupon:
(a) to, or to a third party on behalf of, a holder who is liable to the Taxes in respect of the Bond or Coupon by reason of his having some connection with the United Kingdom other than the mere holding of the Bond or Coupon; or
(b) where the Coupon is presented for payment in the United Kingdom; or
(c) presented for payment more than 30 days after the Relevant Date except to the extent that a holder would have been entitled to additional amounts on presenting the same for payment on the last day of such period of 30 days; or
(d) to, or to a third party on behalf of, a holder who would not be liable or subject to the withholding or deduction by making a declaration of non-residence or other similar claim for exemption to the relevant tax authority.
As used herein, "Relevant Date" means the date on which the payment first becomes due but, if the full amount of the money payable has not been received in London by the Principal Paying Agent or the Trustee on or before the due date, it means the date on which, the full amount of the money having been so received, notice to that effect shall have been duly given to the Bondholders by the Issuer in accordance with Condition 14.
Any reference in these Terms and Conditions to any amounts in respect of the Bonds shall be deemed also to refer to any additional amounts which may be payable under this Condition or under any undertakings given in addition to, or in substitution for, this Condition pursuant to the Trust Deed.
9. PRESCRIPTION Bonds (whether in bearer or registered form) and Coupons (which for this purpose shall not include Talons) will become void unless presented for payment within periods of 10 years (in the case of principal) and five years (in the case of interest) from the Relevant Date in respect of the Bonds or, as the case may be, the Coupons, subject to the provisions of Conditions 5 or 7(c). There shall not be included in any Coupon sheet issued upon exchange of a Talon any Coupon which would be void upon issue under this Condition or Conditions 5 or 7(c).
12 10. EVENTS OF DEFAULT The Trustee at its discretion may, and if so requested in writing by the holders of at least one-quarter in principal amount of the Bonds then outstanding or if so directed by an Extraordinary Resolution (as defined in the Trust Deed) of the Bondholders shall (subject in each case to being indemnified to its satisfaction), (but, in the case of the happening of any of the events mentioned in sub-paragraphs (b), (c), (e), (f), (g) and (h) below, only if the Trustee shall have certified in writing to the Issuer that such event is, in its opinion, materially prejudicial to the interests of the Bondholders), give notice to the Issuer that the Bonds are, and they shall accordingly thereby forthwith become, immediately due and repayable at their principal amount together with accrued interest (as provided in the Trust Deed) if any of the following events (each an "Event of Default") shall have occurred (unless such Event of Default has been remedied to the satisfaction of the Trustee):
(a) if default is made for a period of 14 days or more in the payment of any principal or the purchase price due in respect of any Bond pursuant to Condition 7 or 21 days or more in the payment of any interest due in respect of the Bonds or any of them; or
(b) if the Issuer fails to perform or observe any of its other obligations, covenants, conditions or provisions under the Bonds or the Trust Deed and (except where the Trustee shall have certified to the Issuer in writing that it considers such failure to be incapable of remedy in which case no such notice or continuation as is hereinafter mentioned will be required) such failure continues for the period of 60 days (or such longer period as the Trustee may in its absolute discretion permit) next following the service by the Trustee on the Issuer of notice requiring the same to be remedied; or
(c) if (i) any other indebtedness for borrowed money of the Issuer or any Principal Subsidiary becomes due and repayable prior to its stated maturity by reason of an event of default (howsoever described) or (ii) any such indebtedness for borrowed money is not paid when due or, as the case may be, within any applicable grace period (as originally provided) or (iii) the Issuer or any Principal Subsidiary fails to pay when due (or, as the case may be, within any originally applicable grace period) any amount payable by it under any present or future guarantee for, or indemnity in respect of, any indebtedness for borrowed money of any person or (iv) any security given by the Issuer or any Principal Subsidiary for any indebtedness for borrowed money of any person or any guarantee or indemnity of indebtedness for borrowed money of any person becomes enforceable by reason of default in relation thereto and steps are taken to enforce such security save in any such case where there is a bona fide dispute as to whether the relevant indebtedness for borrowed money or any such guarantee or indemnity as aforesaid shall be due and payable, provided that the aggregate amount of the relevant indebtedness for borrowed money in respect of which any one or more of the events mentioned above in this sub-paragraph (c) has or have occurred equals or exceeds £20,000,000 or its equivalent in other currencies (as determined by the Trustee) or, if greater, three per cent. of the Capital and Reserves, and for the purposes of this sub-paragraph (c), "indebtedness for borrowed money" shall exclude Project Finance Indebtedness; or
(d) if any order shall be made by any competent court or any resolution shall be passed for the winding up or dissolution of the Issuer, save for the purposes of amalgamation, merger, consolidation, reorganisation, reconstruction or other similar arrangement on terms previously approved in writing by the Trustee or by an Extraordinary Resolution of the Bondholders; or
(e) if any order shall be made by any competent court or any resolution shall be passed for the winding up or dissolution of a Principal Subsidiary, save for the purposes of amalgamation, merger, consolidation, reorganisation, reconstruction or other similar arrangement (i) not involving or arising out of the insolvency of such Principal Subsidiary and under which all the surplus assets of such Principal Subsidiary are transferred to the Issuer or any of its other Subsidiaries or (ii) the terms of which have previously been approved in writing by the Trustee or by an Extraordinary Resolution of the Bondholders; or
(f) if the Issuer or any Principal Subsidiary shall cease to carry on the whole or substantially the whole of its business, save in each case for the purposes of amalgamation, merger, consolidation, reorganisation, reconstruction or other similar arrangement (i) not involving or arising out of the insolvency of the Issuer or such Principal Subsidiary and under which all or substantially all of its assets are transferred to another member of the Group or (ii) under which all or substantially all of its assets are transferred to a third party or parties (whether associates or not) for full consideration by the Issuer or a Principal Subsidiary on an arm's length basis or (iii) where the transferee is or
13 immediately upon such transfer becomes a Principal Subsidiary or (iv) the terms of which have previously been approved in writing by the Trustee or by an Extraordinary Resolution of the Bondholders, provided that if the Issuer shall cease to hold or shall transfer the PES Licence it shall be deemed to have ceased to carry on the whole or substantially the whole of its business (and none of exceptions (i) to (iii) shall apply) unless the transferee assumes all the issuer's obligations under the Bonds and the Trust Deed as primary obligor or gives a guarantee in form and substance acceptable to the Trustee in respect of the obligations of the Issuer under the Bonds and the Trust Deed; or
(g) if the Issuer or any Principal Subsidiary shall suspend or shall threaten to suspend payment of its debts generally or shall be declared or adjudicated by a competent court to be unable, or shall admit in writing its inability, to pay its debts (within the meaning of Section 123(1) or (2) of the Insolvency Act 1986) as they fall due, or shall be adjudicated or found insolvent by a competent court or shall enter into any composition or other similar arrangement with its creditors under Section 1 of the Insolvency Act 1986; or
(h) if a receiver, administrative receiver, administrator or other similar official shall be appointed in relation to the Issuer or any Principal Subsidiary or in relation to the whole or a substantial part of the undertaking or assets of any of them or a distress, execution or other process shall be levied or enforced upon or sued out against, or an encumbrancer shall take possession of, the whole or a substantial part of the assets of any of them and in any of the foregoing cases it or he shall not be paid out or discharged within 90 days (or such longer period as the Trustee may in its absolute discretion permit).
For the purposes of sub-paragraph (g) above, Section 123(1)(a) of the Insolvency Act 1986 shall have effect as if for "£750" there was substituted " £250,000" or such higher figure as the Director (as defined in the PES licence) may from time to time determine by notice in writing to the Secretary of State (as defined in the PES Licence) and the Issuer.
Neither the Issuer nor any Principal Subsidiary shall be deemed to be unable to pay its debts for the purposes of sub-paragraph (g) above if any such demand as is mentioned in Section 123(1)(a) of the Insolvency Act 1986 is being contested in good faith by the Issuer or the relevant Principal Subsidiary with recourse to all appropriate measures and procedures or if any such demand is satisfied before the expiration of such period as may be stated in any notice given by the Trustee under the first paragraph of this Condition 10.
For the purposes of these Terms and Conditions:
(A) "Principal Subsidiary" at any time shall mean a Subsidiary of the Issuer (not being an Excluded Subsidiary or any other Subsidiary of the Issuer more than 70 per cent. of whose indebtedness for borrowed money is Project Finance Indebtedness):
(i) whose (a) net profits before tax or (b) gross assets represent 20 per cent. or more of the consolidated net profits before tax of the Group or consolidated gross assets of the Group respectively, in each case as calculated by reference to the then latest audited financial statements of such Subsidiary (consolidated in the case of a company which itself has Subsidiaries and which, in the normal course, prepares consolidated accounts) and the then latest audited consolidated financial statements of the Group; or
(ii) to which is transferred all or substantially all of the business, undertaking and assets of a Subsidiary of the Issuer which immediately prior to such transfer is a Principal Subsidiary, whereupon the transferor Subsidiary shall immediately cease to be a Principal Subsidiary and the transferee Subsidiary shall cease to be a Principal Subsidiary under the provisions of this sub-paragraph (ii) (but without prejudice to the provisions of sub-paragraph (i) above), upon publication of its next audited financial statements;
all as more fully defined in the Trust Deed. A report by the Auditors that in their opinion a Subsidiary of the Issuer is or is not or was or was not at any particular time or throughout any specified period a Principal Subsidiary shall, in the absence of manifest error, be conclusive and binding on all parties;
(B) "Capital and Reserves" means the aggregate of:
(i) the amount paid up or credited as paid up on the share capital of the Issuer; and
14 (ii) the total of the capital, revaluation and revenue reserves of the Group, including any share premium account, capital redemption reserve and credit balance on the profit and loss account but excluding sums set aside for taxation and amounts attributable to outside shareholders in Subsidiary Undertakings (as defined below) and deducting any debit balance on the profit and loss account,
all as shown in the then latest audited consolidated balance sheet of the Group prepared in accordance with the historical cost convention (as modified by the revaluation of certain fixed assets) for the purposes of the Companies Act 1985, but adjusted as may be necessary in respect of any variation in the paid up share capital or share premium account of the Issuer since the date of that balance sheet and further adjusted as may be necessary to reflect any change since the date of that balance sheet in the Subsidiary Undertakings comprising the Group and/or as the Auditors (as defined in the Trust Deed) may consider appropriate.
A report by the Auditors as to the amount of the Capital and Reserves at any given time shall, in the absence of manifest error, be conclusive and binding on all parties;
(C) "Excluded Subsidiary" means any Subsidiary of the Issuer (other than a PES Subsidiary): (i) which is a company whose principal assets and business are constituted by the ownership, acquisition, development and/or operation of an asset whether directly or indirectly; (ii) none of whose indebtedness for borrowed money in respect of the financing of such ownership, acquisition, development and/or operation of an asset is subject to any recourse whatsoever to any member of the Group (other than the Subsidiary itself or another Excluded Subsidiary) in respect of the repayment thereof, except as expressly referred to in paragraph (G)(ii)(c); and
(iii) which has been designated as such by the Issuer by written notice to the Trustee, provided that the Issuer may give written notice to the Trustee at any time that any Excluded Subsidiary is no longer an Excluded Subsidiary, whereupon it shall cease to be an Excluded Subsidiary; (D) "Group" means the Issuer and the Subsidiary Undertakings; (E) "Subsidiary Undertaking" shall have the meaning given to it by Section 258 of the Companies Act 1985 (but shall exclude any undertakings (as defined in the Companies Act 1985) whose accounts are not included in the then latest published audited consolidated accounts of the Issuer, nor (in the case of an undertaking which has first become a subsidiary undertaking of a member of the Group since the date as at which any such audited accounts were prepared) would its accounts have been so included or consolidated if it had become so on or before that date);
(F) "indebtedness for borrowed money" means any present or future indebtedness (whether being principal, premium, interest or other amounts) for or in respect of (i) money borrowed, (ii) liabilities under or in respect of any acceptance or acceptance credit or (iii) any notes, bonds, debentures, debenture stock, loan stock or other securities offered, issued or distributed whether by way of public offer, private placing, acquisition, consideration or otherwise and whether issued for cash or in whole or in part for a consideration other than cash;
(G) "Project Finance Indebtedness" means any indebtedness for borrowed money to finance the ownership, acquisition, development and/or operation of an asset: (i) which is incurred by an Excluded Subsidiary; or
(ii) in respect of which the person or persons to whom any such indebtedness for borrowed money is or may be owed by the relevant borrower (whether or not a member of the Group) has or have no recourse whatsoever to any member of the Group (other than an Excluded Subsidiary) for the repayment thereof other than:
(a) recourse to such borrower for amounts limited to the cash flow or net cash flow (other than historic cash flow or historic net cash flow) from such asset; and/or (b) recourse to such borrower for the purpose only of enabling amounts to be claimed in respect of such indebtedness for borrowed money in an enforcement of any encumbrance given by such borrower over such asset or the income, cash flow or other proceeds deriving therefrom (or given by any shareholder or the like in the borrower over its shares or the like in the capital of the borrower) to secure such indebtedness for borrowed money,
15 provided that (aa) the extent of such recourse to such borrower is limited solely to the amount of any recoveries made on any such enforcement, and (bb) such person or persons are not entitled, by virtue of any right or claim arising out of or in connection with such indebtedness for borrowed money, 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 officer in respect of the borrower or any of its assets (save for the assets the subject of such encumbrance); and/or
(c) recourse to such borrower generally, or directly or indirectly to a member of the Group, under any form of assurance, undertaking or support, 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 indemnity in respect thereof or any 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;
(H) "Subsidiary" means a subsidiary within the meaning of Section 736 of the Companies Act, 1985; and
(I) "PES Subsidiary" means any Subsidiary of the Issuer which holds a public electricity supply licence granted under the Electricity Act 1989.
11. ENFORCEMENT The Trustee may at any time, at its discretion and without notice, take such proceedings against the Issuer as it may think fit to enforce the provisions of the Trust Deed, the Bonds and the Coupons but it shall not be bound to take any proceedings or any other action in relation to the Trust Deed, the Bonds or the Coupons unless (a) it shall have been so directed by an Extraordinary Resolution of the Bondholders or so requested in writing by the holders of at least one-quarter in principal amount of the Bonds then outstanding, and (b) it shall have been indemnified to its satisfaction. No Bondholder or Couponholder shall be entitled to proceed directly against the Issuer unless the Trustee, having become bound so to proceed, fails so to do within a reasonable period and such failure shall be continuing.
12. SUBSTITUTION The Trustee may, without the consent of the Bondholders or Couponholders, agree with the Issuer to the substitution in place of the Issuer (or of any previous substitute under this Condition) as the principal debtor under the Bonds, the Coupons and the Trust Deed of any Subsidiary of the Issuer, subject to (a) the Bonds being unconditionally and irrevocably guaranteed by the Issuer (save where the Issuer has transferred the PES Licence to the substituted Subsidiary), (b) the Trustee being satisfied that the interests of the Bondholders will not be materially prejudiced by the substitution, and (c) certain other conditions set out in the Trust Deed being complied with.
13. REPLACEMENT OF BONDS AND COUPONS Should any Bond or Coupon be lost, stolen, mutilated, defaced or destroyed, it may be replaced at the specified office of the Paying Agent in London, in the case of a Bearer Bond or Coupon, or the Registrar, in the case of a Registered Bond, upon payment by the claimant of the expenses incurred in connection with the replacement and on such terms as to evidence and indemnity as the Issuer may reasonably require. Mutilated or defaced Bonds or Coupons must be surrendered before replacements will be issued.
14. NOTICES Notices to holders of Registered Bonds will be mailed to them at their respective addresses in the Register and deemed to have been given on the fourth day (excluding Sundays) after the date of mailing, provided that, if at any time by reason of suspension or curtailment (or expected suspension or curtailment) of postal services within the United Kingdom or elsewhere, the Issuer is unable effectively to give notice to holders of Registered Bonds through the post, notices to holders of Registered Bonds will be valid if given in the same manner as other notices set out below.
Other notices to the Bondholders (including notices to holders of Bearer Bonds) will be valid if published in a leading English language daily newspaper published in London or such other English language daily
16 newspaper with general circulation in Europe as the Trustee may approve. Any notice shall be deemed to have been given on the date of publication or, if so published more than once, on the date of the first publication. It is expected that publication will normally be made in the Financial Times. If publication as provided above is not practicable, notice will be given in such other manner, and shall be deemed to have been given on such date, as the Trustee may approve.
Couponholders will be deemed for all purposes to have notice of the contents of any notice given to the Noteholders in accordance with this Condition.
15. MEETINGS OF BONDHOLDERS, MODIFICATION, WAIVER AND AUTHORISATION (a) The Trust Deed contains provisions for convening meetings of the Bondholders to consider any matter affecting their interests, including the modification by Extraordinary Resolution of these Terms and Conditions or the provisions of the Trust Deed. The quorum at any meeting for passing an Extraordinary Resolution will be one or more persons present holding or representing a clear majority in principal amount of the Bonds for the time being outstanding, or at any adjourned such meeting one or more persons present whatever the principal amount of the Bonds held or represented by him or them, except that at any meeting, the business of which includes the modification of certain of the provisions of these Terms and Conditions and certain of the provisions of the Trust Deed, the necessary quorum for passing an Extraordinary Resolution will be one or more persons present holding or representing not less than two-thirds, or at any adjourned such meeting not less than one-third, of the principal amount of the Bonds for the time being outstanding. An Extraordinary Resolution passed at any meeting of the Bondholders will be binding on all Bondholders, whether or not they are present at the meeting, and on all Couponholders.
(b) The Trustee may agree, without the consent of the Bondholders or Couponholders, to any modification (subject to certain exceptions) of, or to the waiver or authorisation of any breach or proposed breach of, any of these Terms and Conditions or any of the provisions of the Trust Deed which is not, in the opinion of the Trustee, materially prejudicial to the interests of the Bondholders or to any modification which is of a formal, minor or technical nature or to correct a manifest error.
(c) In connection with the exercise by it of any of its trusts, powers, authorities or discretions (including, without limitation, any modification, waiver, authorisation or substitution), the Trustee shall have regard to the interests of the Bondholders as a class and, in particular but without limitation, shall not have regard to the consequences of the exercise of its trusts, powers, authorities or discretions for individual Bondholders and Couponholders resulting from their being for any purpose domiciled or resident in or otherwise connected with, or subject to the jurisdiction of, any particular territory and the Trustee shall not be entitled to require, nor shall any Bondholder or Couponholder be entitled to claim, from the Issuer, the Trustee or any other person any indemnification or payment in respect of any tax consequences of any such exercise upon individual Bondholders or Couponholders except to the extent already provided for in Condition 8 and/or any undertaking given in addition to, or in substitution for, Condition 8 pursuant to the Trust Deed.
(d) Any modification, waiver or authorisation shall be binding on the Bondholders and the Couponholders and, unless the Trustee agrees otherwise, any modification shall be notified by the Issuer to the Bondholders as soon as practicable thereafter in accordance with Condition 14.
16. INDEMNIFICATION OF THE TRUSTEE The Trust Deed contains provisions for the indemnification of the Trustee and for its relief from responsibility, including provisions relieving it from taking action unless indemnified to its satisfaction.
17. FURTHER ISSUES The Issuer is at liberty from time to time, without the consent of the Bondholders or Couponholders, to create and issue further bonds or notes (whether in bearer or registered form) either (a) ranking pari passu in all respects (or in all respects save for the first payment of interest thereon) and so that the same shall be consolidated and form a single series with the outstanding bonds or notes of any series (including the Bonds) constituted by the Trust Deed or any supplemental deed or (b) upon such terms as to ranking, interest, conversion, redemption and otherwise as the Issuer may determine at the time of the issue. Any further bonds
17 or notes which are to form a single series with the outstanding bonds or notes of any series (including the Bonds) constituted by the Trust Deed or any supplemental deed shall, and any other further bonds or notes may (with the consent of the Trustee), be constituted by a deed supplemental to the Trust Deed. The Trust Deed contains provisions for convening a single meeting of the Bondholders and the holders of bonds or notes of other series in certain circumstances where the Trustee so decides.
18. GOVERNING LAW The Trust Deed, the Bonds and the Coupons are governed by, and will be construed in accordance with, English law.
USE OF PROCEEDS The net proceeds of the issue are estimated to amount to approximately £194,292,000 and will be used for general corporate purposes of the Issuer and its Subsidiaries and to assist the growth of the Group.
18 NORWEB PLC INTRODUCTION The Company was incorporated under the Companies Act 1985 on 1st April, 1989 as a public limited company. Together with its subsidiaries, the Company comprises a group of companies whose principal activities are the distribution of electricity across the Company's distribution system, the supply of electricity within and outside its authorised area (the "Authorised Area"), the generation of electricity, electrical appliance retailing, electrical contracting, telecommunications and the supply of natural gas. The Company has direct and indirect share interests in subsidiaries and associated companies.
Since 31st March, 1990 the Company has been licensed under the Electricity Act 1989 as the public electricity supplier for the Authorised Area which is specified in its public electricity supply licence ("PES Licence") in the North West of England totalling 12,500 sq. kms stretching from the Scottish border to the Peak District and from the Pennines to the Irish Sea. Included within this area is the conurbation of Greater Manchester. The residential population of the Company's Authorised Area is estimated to be 4.7 million.
BUSINESS Electricity Distribution System At present the majority of customers in the Authorised Area are connected to the distribution system of the Company and have no effective choice in the system through which they receive their electricity. The Company is required to have a PES Licence which authorises it to supply electricity to any premises within its Authorised Area. As a PES Licence holder, the Company is required to develop and maintain an efficient, coordinated and economic system of electricity distribution.
The Pool As part of the restructuring of the electricity industry in July 1989, a new market was established for trading electricity between generators and suppliers, (the "Pool").
Almost all electricity is presently sold by generators and purchased by suppliers through the Pool which operates under a set of rules which govern its operation and the calculation of payments due to and from each generator and supplier. The Company participates in the Pool and is a party to the Pooling and Settlement Agreement dated 30th March, 1990, as amended. As the Pool does not itself sell or buy electricity, a computerised system (the "Settlement System") is used to calculate prices and to process the data necessary to calculate the payments due. The Settlement System is administered on a day to day basis by NGC (Settlements) Limited ("NGC"), a subsidiary of The National Grid Company plc. Generators bid to supply the Pool for each half hour period creating an overall average price for electricity.
Contracts for Differences As a result of the variations in demand and supply, the price of electricity in the Pool can vary significantly both throughout the day and seasonally. Pool members can seek to reduce their exposure to the volatility of Pool prices by entering into bilateral contracts for differences. These contracts are not contracts to deliver electricity but are contracts to allocate between the parties certain of the financial risks involved in the generation and purchase of electricity through the Pool. They provide a degree of hedging against fluctuations in Pool prices, offer a mechanism to allow generators to be more certain of recovering their costs and give a measure of stability to suppliers to assist them in setting tariffs and the terms of electricity supply contracts. The Company has entered into a number of contracts for differences to hedge against fluctuations in Pool prices. For 1994/95 the percentage of the electricity supplied by the Company covered by these contracts was 74 per cent. These contracts for differences were with 10 generators under a range of agreements, the largest of which represented cover for 25 per cent. of the electricity supplied by the Company.
Electricity Distribution Business The Company's distribution business involves the transportation of electricity from the points where it is received in bulk across its distribution system and the ultimate delivery of such electricity to end users. The PES Licence grants the Company an exclusive licence to distribute electricity within its Authorised Area and to charge suppliers of electricity for the transportation of power across the Company's distribution system. The Company's distribution system is comprised of approximately 57,500 km of overhead lines and underground cables, transformers and switchgear operating at different voltages according to consumer
19 requirements and their location. Approximately 25 per cent. of the system is overhead lines and 75 per cent. is underground cables, servicing some 2.2 million industrial, commercial and residential consumers of electricity who are connected to the system. Because the PES Licence grants the Company the exclusive right to distribute electricity to all current and new consumers of electricity in its Authorised Area, the income derived from the distribution business is dependent on changes in the demand for electricity by consumers in the Authorised Area. Demand for electricity is affected by such factors as growth and movements in population, social trends, economic and business growth or decline, changes in the mix of energy sources used by consumers, weather conditions and energy efficiency measures. Maintaining reliability of the electricity distribution network is an important objective of the Company. Loss of supply can arise through faults on the system and prearranged interruptions required to carry out work on the distribution system. In each of the five most recent financial years the ratio of the average number of minutes lost per year per consumer, compared with the total number of minutes in the year, was such that system availability expressed as a percentage was more than 99.9 per cent. The Company has one of the oldest distribution networks in England and Wales and in order to retain a high degree of reliability it operates a growing programme of asset replacement for switchgear, transformers and the refurbishment and replacement of overhead lines and underground cables as they approach the end of their useful working lives. Cross operational capital expenditure within the distribution business was £76.4 million in 1993/94 and £77.5 million in 1994/95. Within this total of £77.5 million, £41.5 million was spent on asset replacement and £23.6 million on new business development. Capital expenditure within the distribution business is expected to continue to increase in future years.
Electricity Supply Business The Company's supply business involves the bulk purchase of electricity from generators and its sale to end users. The customers are principally residential, commercial and industrial, although other customers include farms, public lighting and traction. Although the Company is required by its PES Licence to supply customers within its Authorised Area, those customers with electricity demand above certain levels can enter into electricity supply agreements with any licensed electricity supplier as part of the competitive market. As of 1st April, 1990 customers using more than 1MW of demand for electricity were able to negotiate separate electricity supply agreements with any of the licensed electricity suppliers. As of 1st April, 1994 this level was reduced to 100kW, and from 1st April, 1998, all electricity customers within England and Wales will be able to choose their supplier of electricity. The supply of electricity outside the Authorised Area requires a Second Tier Licence, which the Company has. In 1994/95, the first year of competition in the over 100kW market, the Company was successful in retaining 70 per cent. of customers located in the Company's Authorised Area, while obtaining new contracts with nearly 300 customers elsewhere in the UK.
Electricity Generation Business Norweb Generation Limited ("Norweb Generation"), a wholly owned subsidiary of the Company, owns, develops and operates the Company's generation investments. Norweb Generation develops the Company's generation activities through ownership and operation of power projects and equity investments with third parties. The chart below sets forth a description of Norweb Generation's current investments and joint ventures as at 31st March, 1995. Activity Companies Type of Investment Hydro and Conventional Generation Northern Hydro Ltd 100% owned subsidiary Norgen Hydropower Ltd 100% owned subsidiary Generation from land fill gas Norgen (Chester Road) Ltd 100% owned subsidiary Norweb Land Fill Gas Ltd 50% joint venture Manufacture and sale of small combined Combined Power Systems 29.9% investment (Until heat and power plant (CHP) Limited April 1994, 14%) Generation from CHP installations Norweb CPS Ltd 80% subsidiary CPS (Central) Ltd 50% joint venture Conventional (Combined Cycle Gas Lakeland Power Ltd 20% investment Turbine) generation Conventional (Combined Cycle Gas Keadby Power Ltd 50% joint venture Turbine) generation (under construction)
20 The Company's PES Licence imposes a limit on the generation capacity in the UK and overseas in which the Company may have an interest. This limit is currently set at 750MW and the present level of generation capacity held through Norweb Generation totals 396MW (excluding capacity overseas). Norweb Generation's first overseas investment was concluded on 31st May, 1994 by its wholly owned subsidiary, Northern Hydro Limited, which acquired a 50 per cent. general partner interest in the Gordonsville Energy Limited Partnership (GELP). GELP owns two gas fired cogeneration facilities totalling 240MW located on one site in Gordonsville, Virginia. The Gordonsville plant passed the tests leading to its commercial operation on 1st June, 1994 and has contributed to the Company's earnings in the financial year 1994/95.
Electrical Retailing Business The electrical retailing business of the Company is operated by Norweb Retail, an operating division of the Company. The sale of electrical goods and services takes place through a chain of high street shops and out-of-town superstores across the North and Midlands and, more recently, the South West of England and South Wales. In support of these sales the Company offers servicing and repair facilities, extended warranty arrangements and appliance delivery and connection services. The Company reinsures through a wholly owned insurance company a substantial proportion of the extended warranty plans which Norweb Retail sells. The Company is a major supplier of electrical white goods, which include cookers, washing machines, dishwashers, refrigerators and freezers. The Company is also increasing its share of the brown goods market, which includes hi-fi systems, camcorders, TVs and video systems. In 1994/95 white goods accounted for 53 per cent. of appliance sales, brown goods accounted for 43 per cent. of appliance sales and small appliances, such as toasters, kettles and vacuum cleaners, accounted for 4 per cent. of appliance sales. The majority of the Company's high street shops are within the Authorised Area. These shops also provide customer services for the Company's other business activities, including bill payment facilities for its electricity business. In 1993, Norweb Retail embarked on a programme of expansion, particularly in out-of-town developments. Over the last five years, Norweb Retail sales space has increased from approximately 142,500 square feet as at 31st March, 1990 to 434,000 square feet as at 31st March, 1995. Over the same period sales revenue increased 98.6 per cent. from £104.5 million to £207.5 million. In addition to the growth in out-of-town shops, the Company's extended credit sale arrangements and deferred payment plans have been important factors in sales growth.
Electrical Contracting Business NORWEB Contracting is an operating division of the Company and is engaged in a wide range of industrial, commercial and domestic electrical installation work on both a main contractor and subcontractor basis. These activities are not governed by the PES Licence and NORWEB Contracting operates both inside and outside the Authorised Area. In addition to electrical installation work, NORWEB Contracting also supplies and installs security systems and energy saving products such as double glazing and cavity wall insulation.
Natural Gas Business Regulations governing the UK natural gas market permit competition in the supply of natural gas to customers consuming 2500 Therms or more per annum. British Gas plc ("British Gas") currently has the exclusive right to supply natural gas to customers in the UK consuming less than 2500 Therms per annum. Suppliers, such as the Company, purchase natural gas from producers and enter into supply contracts with end users. The natural gas is distributed via a gas distribution system owned by British Gas and British Gas remains responsible for metering, regulatory and safety requirements in its transportation. In April 1992 the Company established Northern Gas Limited, renamed Norweb Gas Limited ("NORWEB Gas") from April 1994, a joint venture limited liability company owned 75 per cent. by the Company and 25 per cent. by United Gas Company Limited, a subsidiary of Utilicorp Inc, a US utility, in order to supply natural gas to end users in the 2500 Therm per annum and above market. The objective of the joint venture is to utilise the Company's depth of customer service and energy management expertise to extend into the UK gas supply market as it is progressively opened to competition over the next few years. NORWEB Gas receives gas supplies from United Gas Company Limited and British Gas and by the end of the financial year 1994/95 had entered into contracts to supply over 5,000 sites in the UK with natural gas.
21 Telecommunications During 1994/95 the Company launched a telecommunications business aiming principally at small to medium sized corporate enterprises and education and leisure organisations in the North West of England.
REGULATION
General The distribution and supply of electricity in England and Wales is subject to the regulatory regime established under the Electricity Act 1989. The Department of Trade and Industry ("DTI") and the Director General of Electricity Supply ("DGES") are the principal regulators of the industry and each has specific responsibilities under the Electricity Act 1989. The DTI and the DGES are charged with ensuring that all reasonable demands for electricity are satisfied and that the Regional Electricity Companies ("RECs") are able to finance their responsibilities. The DTI and the DGES must also promote competition in the generation and supply of electricity. The DGES is charged with the protection of the electricity consumers supplied by the RECs in relation to charges levied by the RECs, terms of supply, continuity of supply and quality of services. In addition, the DGES is required to promote efficiency and economy, research and development and ensure that measures exist to promote health and safety and the protection of the public in general. The current DGES is Professor Stephen Littlechild.
PES Licences Each REC is required to have a PES Licence. The Company's PES Licence was issued on 30th March, 1990 and continues until terminated, by not less than 25 years' notice, given by the Secretary of State. The Secretary of State may not give a termination notice prior to 31 st March, 2000. PES Licences may be revoked by the DGES in certain specific circumstances such as insolvency or the failure of a REC to comply with an enforcement order issued by the DGES. The Company's PES Licence distinguishes between the distribution of electricity and the supply of electricity to end users. The Company is required to account separately for its distribution, supply and generation businesses. The PES Licence prohibits the giving or receiving of any cross subsidy between any of these businesses and requires that electricity generation be carried out by, or through, a separate wholly owned subsidiary. The PES Licence imposes limits on the amount of generation capacity in which the Company may hold an interest. This limit may only be exceeded with the DGES's consent. An accountable interest in generation capacity includes participation in partnerships, joint ventures or other profit sharing arrangements, as well as being a direct operator. A REC which supplies electricity outside its Authorised Area requires a Second Tier Licence. The Company presently supplies electricity to nearly 300 customers outside its Authorised Area.
Distribution Price Control Approximately 86 per cent. of the operating income of the Company's distribution business is controlled by an RPI+Xd formula (the "Distribution Price Control Formula") which determines the maximum distribution revenue that the Company is permitted to earn in any financial year from distribution services which are subject thereto. Every REC is subject to the Distribution Price Control Formula. However, initially the Xd term (as described below) was not necessarily the same for each REC. Generally in any year the Company is currently permitted to increase its maximum average price per unit distributed by the percentage change between the average Retail Price Index numbers from July to December in the previous year and such average from July to December in the current year (the RPI portion of the formula) as announced by the UK Central Statistical Office minus a factor of 2 per cent. (the Xd portion of the formula). In determining the maximum average price per unit distributed, account is taken of the different costs of distributing electricity at various voltages and at various times of the day. The initial value of the Xd term in the Distribution Price Control Formula was plus 1.4 per cent. for the five year period ending March 1995 and was set forth in the Company's PES Licence and was fixed by the Secretary of State having regard to projections of growth in Units distributed, scope for cost control and future capital expenditure requirements. In August 1994 the DGES announced the results of a mandated review of the Distribution Price Control Formula. Changes to the formula had the effect of reducing the income from distribution services for individual RECs by between 11 and 17 per cent. for the financial year commencing April 1995. The reduction required by NORWEB for such year is 14 per cent. In the subsequent
22 four years every REC will have the increase which it may charge in the maximum average price per Unit distributed restricted to 2 per cent. less than the increase in Retail Price Index. Distribution price control remains in force for the duration of the PES Licence unless the Company serves a disapplication request to the DGES. If the DGES failed to refer the matter to the Monopolies and Mergers Commission (the "MMC") within the required time period or if, after a timely referral, the MMC concluded that the cessation of the distribution price control would not be against the public interest, the Company would be permitted to serve a notice terminating distribution price control within 30 days of the publication of the MMC report. In August 1994, the Company announced that it had accepted the DOES proposals. At the same time it announced that it would be seeking to reduce its costs substantially by reducing staff numbers by some 1200 over the next five years, of which some 800 would be effected in the period up to 31st March, 1996 through the implementation of a selective voluntary severance package. The balance would be achieved by normal retirements and resignations. In setting its distribution charges each year the Company is obliged to use its best endeavours not to exceed the permitted maximum average price per Unit distributed. Each year the Company makes a projection of the permitted maximum average price per Unit distributed for the following year. If the forecast results in overcharging or undercharging the Company must correct this in the following year, adjusting the Distribution Price Control Formula by a correction factor. Such over or undercharge is known as the over or under recovery. If the Company has overcharged in the previous year, the maximum average price per Unit chargeable in the following year is reduced by an amount to reflect the excess income received plus interest at the rate of 4 per cent. per annum over Base Rate. In the event of an undercharging, the maximum average price per Unit distributed is increased to allow the Company to recover the shortfall in income plus interest at Base Rate. There are penalties which can be assessed against the Company for excessive and/or consistent overcharging. To date, none of these penalties have been imposed against the Company. There are a number of items of income excluded from distribution price control. These include income from Units distributed to EHV premises, connection charges, repositioning mains, services or meters under certain statutory obligations or at a customer's request, special metering and associated services. From 1st April, 1995, all customers have been able to have their supply connected by independent operators. Although connection charges do not fall under distribution price control, they are limited to a level which enables the Company to recover not more than the appropriate proportion of the costs incurred by the Company in connection therewith and a reasonable rate of return on the capital employed. Any dispute on connection charges may be referred to the DGES for determination. The DGES has further indicated that it is likely that he will impose regulatory changes which would entitle electricity customers to have their meters installed and read by independent operators.
Supply Price Control The Company's supply business is controlled by an RPI -Xs +Y formula (the "Supply Price Control Formula") which determines the maximum supply revenue that a REC is permitted to earn in any financial year from supply services subject to the supply price control. It is currently estimated that approximately 70 per cent. of the Company's supply business will be subject to such formula. The maximum average charge per Unit supplied (in pence per Kilowatt hour) charged by a REC to its franchise customers, is controlled by the RPI -Xs +Y formula. The Y term is a pass through of those costs which are either largely outside the control of the REC or have been regulated elsewhere. It thus covers a REC's electricity purchase costs, including both direct Pool purchase costs and costs of contracts for difference, transmission charges made by NGC, distribution charges made by its own and other REC distribution businesses and the Fossil Fuel Levy. The RPI -Xs component covers profit and those costs (i.e., supply business own costs) not directly passed into prices through the Y term. Certain supply business own costs depend on the number of customers rather than customer consumption. In order to reflect changes in the mix of sales between higher and lower volume customers, the maximum average charge per Unit supplied is calculated by reference to a basket of supply categories, in a similar way to the maximum average charge per Unit distributed for purposes of the Distribution Price Control Formula. For any financial year, the permitted maximum average charge per Unit supplied is calculated as the Y term plus the weighted average of the amount per Unit supplied for the various supply categories in the previous year increased by RPI -Xs. The previous year's allowed amounts per Unit supplied are the opening values specified for each REC in its PES licence, increased by RPI -Xs up to the previous year. The initial value of Xs 23 was set at zero for all RECs to 31st March, 1990. As with the Distribution Price Control Formula, RPI is taken as the percentage change between the average Retail Price Index numbers from July to December in the previous year and such average from July to December in the current year. The Supply Price Control Formula was redetermined by the DGES during 1993 and, for the Company, was set at RPI -2 per cent. with effect from 31st March, 1994. This will apply for the period to 31st March, 1998. In setting its supply charges each REC is obliged to use its best efforts not to exceed the permitted maximum average charge per Unit supplied. In setting prices each year the Company makes a projection of the permitted maximum average charge per Unit for the following year. The projections take account of forecasts of the total number of Units supplied in each category, the resultant income, the increase in RPI and of the applicable Y term. Failure to forecast accurately may result in over or undercharging; this is taken into account the following year through a correction factor in the Supply Price Control Formula. If a REC has overcharged in the previous year, the permitted maximum average charge per Unit supplied is reduced by an amount to reflect the excess income received, to which is added interest calculated at a rate equal to 2 per cent. over Base Rate. In the event of undercharging, the Supply Price Control Formula allows the REC to recover the shortfall in income plus interest at Base Rate. There are additional penalties for excessive or consistent overcharging. To date none of these penalties has been imposed against the Company. As with the Distribution Price Control Formula, the Supply Price Control Formula will remain in force for the duration of each PES Licence unless a REC serves a disapplication request. The same provisions apply in relation to this request as set out for the distribution price control above.
Non-Fossil Fuel Obligation and Fossil Fuel Levy The Electricity Act 1989 authorises the Secretary of State to issue Non-Fossil Fuel Orders requiring RECs to contract for a specified amount of their electricity requirements from Non-Fossil Fuel Sources (the "NFFOs"). The Secretary of State has imposed NFFOs on all the RECs. In order to comply with the NFFOs, the Company has entered into collective contracts with other RECs through the Non-Fossil Fuel Purchasing Agency Limited (the "NFPA") for the capacity and output of nuclear generating stations in the UK. The Company has a fixed share of these collective contracts and the current obligation under these contracts is 690.312MW. The Company has also entered into similar collective contracts through the NFPA to satisfy the NFFOs which oblige the RECs to contract for electricity from other renewable generating sources and the Company's current obligation under its fixed share of these collective contracts is 25.41MW. The RECs are permitted to pass on the cost of the Fossil Fuel Levy to their customers as part of the price regulation formula applicable to their supply businesses. The Government has announced, however, its intention to abolish the levy in 1996 which should lead to a reduction in customers' electricity bills of approximately 8 per cent.
Competition Law The Electricity Act 1989 obliges the Secretary of State and the DGES to promote competition in the generation and supply of electricity. The Electricity Act 1989 also obliges the RECs, including the Company, to develop and maintain an efficient, coordinated and economical system of electricity supply. In accordance with the Fair Trading Act 1973, the DGES has the power to modify the Company's PES Licence where such a modification in the opinion of the DGES would be in the public interest or would prevent a monopoly. The DGES and the Secretary of State also have the power under the Competition Act 1980 to prevent anti-competitive practices which have an economic effect and harm the public interest. The Restrictive Trade Practices Act 1976 requires the Company to register with the Office of Fair Trading agreements which it has entered into with third parties which impose restrictions on the terms and conditions of the supply of goods, the charges and conditions of supply and the availability of suppliers. The term goods includes electricity. The UK Director General of Fair Trading can refer an agreement to the Restrictive Practices Court. The Restrictive Practices Court can prevent parties to an agreement from implementing restrictions set forth therein, although there are certain exemptions.
European Community Legislation In January 1993 the UK implemented the European Community (EC) Procurement Directive through the Utilities Supply and Works Contract Regulations 1992. Pursuant to the regulation most of the Company's contracts will have to be awarded through a competitive process involving advertisement in the EC Official
24 Journal. Suppliers and contractors who believe they have suffered harm through the Company's failure to follow the procedural requirements are entitled to institute proceedings in the High Court.
Environmental Regulation The Company's businesses are subject to numerous regulatory requirements with respect to the protection of the environment.
REMAINING GOVERNMENT INTERESTS HM Government holds £153,000,000 of unsecured debentures issued by the Company on privatisation which are redeemable in two tranches, the first, of £77,000,000, is payable in September 1999 and the second, of £76,000,000, is payable in September 2008. HM Government also holds a number of ordinary shares (less than 1 per cent. of the issued share capital of the Company) in order to meet any unresolved bonus share entitlements.
EMPLOYEES During the financial year 1994/95 the Company had an average of 7,617 full time equivalent employees all of whom were located within the UK.
RECENT DEVELOPMENTS Electrical Retailing Business Sales space was further increased in June 1995, with the acquisition from South Western Electricity plc of 18 out-of-town sites and a licence to operate 16 high street shops by South West Stores Limited, a wholly owned subsidiary of the Company. This makes the Company one of the largest electrical retailers in the UK with 95 high street shops and 64 out-of-town superstores.
Regulation With effect from 1st April, 1995 the 14 per cent. reduction in distribution income, announced in the distribution review in August, 1994 became effective. As a result, and to lessen the impact of the reduction in income, the Company has implemented measures to increase efficiency and reduce costs. On 6th July, 1995, Professor Littlechild as DGES announced the results of the further distribution review, the effect of which is that the income from distribution services will decline by 11 per cent. for the financial year commencing 1st April, 1996 and in the following three years the increase in distribution income will be restricted to 3 per cent. less the increase in the Retail Price Index. The consequence of this review is that the PES Licence for the Company will be amended before 31st March, 1996 to reflect the change. Whilst, if implemented, the proposals announced on 6th July, 1995, will be material for the distribution business, the Company does not consider them to be material to the interests of the Bondholders as action will be taken by the Company to significantly mitigate their effects.
Annual General Meeting Resolutions have been passed at the Annual General Meeting to enable the Company to make market purchases of its own ordinary shares up to a maximum of 15,585,487 ordinary shares (10 per cent. of issued share capital) and to delete Article 40 of the Company's Articles of Association which limits maximum shareholdings to 15 per cent. of issued capital.
25 SUBSIDIARIES The Group's principal operating companies as at 31st March, 1995 are set out below. Except where indicated all are incorporated in Great Britain, registered in England and Wales and operate within the United Kingdom. Proportion of ordinary share capital owned Nature of Business Subsidiary undertakings Carefree Insurance Limited *† 100% Provision of re-insurance services Talbot Insurance Limited*† 100% Provision of insurance service Northern Hydro Limited 100% Electricity generation Norweb Generation Limited† 100% Investment in electricity generation Norweb CPS Limited 80% Installation and sale of combined heat and power equipment Norweb Gas Limited 75% Sales of gas South West Stores Limited† 100% Electrical retailing Norweb North America Corporation ** 100% Investment
Associated undertakings CPS (Central) Limited 50% Installation and sale of combined heat and power equipment Keadby Power Limited 50% Electricity generation Norweb Land Fill Gas Limited 50% Electricity generation Combined Power Systems Limited 29.9% Installation and sale of combined heat and power equipment Gordonsville Energy Limited Partnership@ 50% Electricity generation
* Incorporated and operating in the Isle of Man † Direct subsidiary of NORWEB plc. All others are indirect subsidiaries held through a number of intermediate companies. @ Limited partnership operating in the United States of America ** Operating in Eire
26 DIRECTORS The address for each of the Executive Directors and the Non-Executive Directors of the Company is Talbot Road, Manchester M16 0HQ and their functions and principal activities are as follows: Executive Directors Outside Activities Name Mr K G Harvey Chairman and Director of Royal Exchange Theatre Company Chief Executive Limited and Greater Manchester Buses South Holdings Limited Mr M G Faulkner Marketing Director Director of INWARD and of the Energy Savings Trust Mr G P McTague Retail Director None Mr A Simmons Operations Director None Mr BJ Wilson Finance Director None Non-Executive Directors Sir Alan Cockshaw Deputy Chairman Chief Executive and Chairman of AMEC plc Mr A T Booth Director Chairman of Refuge Group Plc Mr J M Green-Armytage Director Director of N M Rothschilds and Sons Limited and Chief Executive of William Baird plc and Chairman of MCIT plc Mr P L Salsbury Director Managing Director of Marks & Spencer plc
27 FINANCIAL INFORMATION The text on pages 28 to 32 has been extracted from the Chairman/Chief Executive's announcement of the preliminary results of the Company for the year ended 31st March, 1995 made on 21st June, 1995:
1994/95 was another successful year for NORWEB. The cost reduction and efficiency improvement programme remains on target and despite the many challenges that lie ahead I am sure that NORWEB will continue to be a company that is well regarded for being successful in an increasingly competitive environment.
1994/95 saw profits before tax increase by 15.2 per cent. from £178.3m to £205.4m enabling the Directors to recommend a final dividend of 20.2p per ordinary share and bringing the total dividend for the year to 28.4p. This compares with 23.0p in 1993/94. The increase reflects the continuing strategy of growing dividends in real terms and the full pass through of the benefits of the buy back of over 17m shares.
The revised distribution price control formula set by the Director General of Electricity Supply (DGES) from 1st April, 1995 is challenging and reduces NORWEB's income from its distribution business by 14 per cent. in 1995/96 and by a further 2 per cent. below inflation in each of the four succeeding years. In total it means a reduction in income over the five year period of approximately £300m compared with the previous price controls. In March 1995, the DGES announced a further review of the formula, the results of which are due shortly and will need very careful consideration.
As part of the Company's process of continuous improvement, major reorganisations are now underway to reduce costs and streamline customer service to meet the challenges of developing competition in the supply of electricity and the need for improved efficiency in the Distribution business.
Financial Overview Profit before tax at £205.4m against £178.3m in 1993/94 was up 15.2 per cent. Tax at £51.7m gave an effective tax rate of 25.2 per cent. compared with 26.4 per cent. in 1993/94.
Dividend The Directors recommend a final dividend of 20.2p net per share. This, together with the interim dividend of 8.2p net per ordinary share paid on 10th February, 1995, gives 28.4p for the year, representing a 23.5 per cent. increase on the full year dividend of 23.0p for 1993/94. The increase is a result of increased profits, a lower effective tax rate and the full pass through of the benefits of the buy back of over 17m shares. The total dividend per share is covered 3.4 times by earnings per share.
Review of Business Distribution In the core Distribution business, turnover rose by 6.0 per cent. from £363.8m to £385.8m. Operating profit was £159.Om, 6.4 per cent. up on 1993/94. Total units distributed were up 1 per cent. to 22,076m units (21,857m in 1993/94). Within this total, units distributed to domestic customers decreased by 0.6 per cent. mainly due to a mild winter, but commercial increased by 3.8 per cent. and industrial by 1.2 per cent.
Units distributed by tariff basket GWH % Change LV1 1105 6.3 LV2 1583 (2.2) LV3 10997 — HV 7478 3.6 EHV 913 (6.7) 22076 1.0
In order to maintain profitability against the background of the falling revenue stream the Distribution business has reorganised so that from 1st April, 1995 its operations are based on three Regions instead of the previous five Areas. To increase efficiency and reduce costs, some support services are being centralised and the supply chain for goods and services has been rationalised.
28 Once again the reliability of supplies to customers was excellent, with a performance of 99.987 per cent. To ensure sustained reliability of one of the oldest distribution networks in Britain, the programme of asset replacement continues. Total gross capital expenditure during the year was £107.9m (£98.3m in 1993/94). Asset replacement was £41.5m (£45.1m in 1993/94) and £23.6m (£23.4m in 1993/94) related to new business activity. Controllable costs per customer were again reduced in real terms by 2.0 per cent. compared with 1993/94. Overall performance against the guaranteed standards of service improved to 99.99 per cent. NORWEB continues to be amongst the best of the regional electricity companies for service standards.
Supply For the fifth successive year since privatisation, the Supply business has increased profits. On a turnover of £1212.3m, profit of £30.1m has been achieved despite increased competition in the over 100 kW (non franchise) market and revised price controls in the franchise market. In the competitive non franchise market NORWEB successfully retained 70 per cent. of its existing customers while obtaining new contracts with nearly 300 customers now supplied outside the Company's geographic boundary.
Information published by OFFER in their 1994 Annual Report shows that over the last four years, NORWEB has reduced prices to domestic customers by more than any other Regional Electricity Company. The 6 per cent. decrease in dometic electricity prices in April 1994 followed by a reduction in the domestic standing charge of £1.50 per quarter in January 1995 means that NORWEB's domestic customers still enjoy the lowest prices in the UK. If inflation is taken into account prices are now up to 20 per cent. lower, before VAT, than they were in 1991.
Retail Progress continued with turnover increasing by 11 per cent. from £187m to £207.5m. Operating profit rose from £7.1m to £8.1m. Out of town stores now account for about 58 per cent. of sales. Like for like sales in superstores were up 33 per cent. compared with a market which was flat in the regions in which the stores trade. Since the end of the year we have acquired the bulk of the retail business of SWEB comprising 18 superstores and a licence to operate a further 16 high street shops across the South West and South Wales. This was a unique opportunity to gain entry to a key market that complements our existing store portfolio and, in terms of turnover, makes the business one of the largest electrical retailers in the UK.
Generation Norweb Generation Limited and its subsidiaries continued to pursue investments in a varied portfolio of generating projects. The first overseas investment was completed in May 1994 with a 50 per cent. interest in a 240 MW combined heat and power generating station in Gordonsville, Virginia, USA which made a positive contribution to profit in 1994/95. The Roosecote power station, in which NORWEB has a 20 per cent. interest, has been in operation since 1992 and made a positive contribution to profits. Investment continues to be made in developing renewable energy sources. As well as landfill gas generation, of particular interest was the opening of a hydro-electric scheme on the Manchester Ship Canal, exactly 100 years after the canal was first opened, and the purchase of Balgonie hydro station on the River Leven in Fife, Scotland.
The project at Keadby, South Humberside, in which Norweb Generation Limited has a 50 per cent. interest was due to be commissioned in January 1995. Owing to technical problems with the gas turbines which are being addressed by the contractor and by the manufacturer, commissioning has been delayed but it is not anticipated that the financial return on the investment will be materially affected.
Contracting Profitability continued to improve in the Contracting business up £0.6m to £1.1m (1993/94 £0.5m).
29 The benefits of the restructuring in 1993/94 flowed through into 1994/95 with further cost reductions. The introduction of new working practices resulted in better productivity and the quality of the industrial order book was significantly improved.
Gas Norweb Gas Limited first entered the retail gas market in 1992 when regulatory changes allowed customers consuming in excess of 2,500 therms to choose their supplier. Whilst the market place is very competitive, the business supplies over 5,000 sites throughout the country and made a profit for the year of £0.5m on turnover of £20.9m (1994 £0.6m and £18.Om) The strategic aim when entering the business was to be well placed to take advantage of further opening up of the gas market after 1996. This remains a valid aim and whilst competitive pressures are likely to result in slim margins and limited profitability in 1995/96, the business looks forward to the opportunities presented by full deregulation of the market in 1998.
Communications In June 1994 NORWEB launched a Communications business aiming principally at North West based small to medium sized corporate enterprises and education and leisure organisations. As the infrastructure and support network are being built, mainly in anticipation of a future income stream, the business made a loss in 1994/95.
Staff Major changes are taking place in the regulated businesses which have significant implications for employees. One consequence is a planned reduction of 1,200 staff over the next five years which will be achieved by voluntary severance and natural wastage. The Distribution business has moved from five Areas to three Regions and customer services' activities are centralising on Bolton, providing customers with advice and other services at times during the day when they most demand them.
Customer service Further improvements in customer service have been achieved, making NORWEB overall arguably the best performing company during 1994 in meeting the standards set by the Director General of Electricity Supply (DGES). Out of over 640,000 appointments made, there was a failure on only 38 occasions to keep to the time promised compared with 154 failures in 1993. The number of complaints received from customers by the end of December 1994 fell by 50 per cent. compared to the previous year, down from 1,118 to 564. Overall performance against the guaranteed standards of service was 99.99 per cent.
The National Grid Holding plc On 20th April, 1994, the Board of The National Grid Holding plc ("NGH"), in which NORWEB has an 8.2 per cent. holding, announced that it had decided to put in hand a study of its options in relation to the future of The National Grid Company plc. Preparations for a possible flotation of NGH are continuing and further announcements will be made in due course.
Conclusion The cost reduction and efficiency improvement programme initiated last summer remains on target. NORWEB has made a strong start to 1995/96. Many challenges lie ahead, but I am confident that your Company and its staff will be successful in meeting them. NORWEB's strategy continues to be to provide outstanding shareholder value whilst keeping electricity prices as low as possible and giving excellent customer service.
30 GROUP HISTORICAL COST PROFIT AND LOSS ACCOUNT for the year ended 31st March, 1995 1995 1994 £m £m Turnover 1,510.6 1,470.6 Operating profit 198.4 173.5 Income from fixed asset investments 17.0 16.0 Share of losses of associated undertakings (1.0) (0.4) Net interest payable (9.0) (10.8) Profit on ordinary activities before taxation 205.4 178.3 Tax on profit on ordinary activities (51.7) (47.1) Profit on ordinary activities after taxation 153.7 131.2 Minority interests (0.1) 0.0 Profit for the financial year 153.6 131.2 Distribution to shareholders (43.0) (39.1) Profit retained 110.6 92.1 Earnings per share 95.3 p 76.2p Dividend per share - paid 8.2p 6.7p - proposed 20.2p 16.3p 28.4p 23.0p
GROUP HISTORICAL COST BALANCE SHEET 31st March, 1995 1995 1994 £m £m Fixed assets Tangible assets 616.0 560.0 Investments 155.3 102.4 771.3 662.4 Current assets 463.6 504.2 Current liabilities 408.3 313.4 Net current assets 55.3 190.8 Total assets less current liabilities 826.6 853.2 Unsecured bonds 153.0 153.0 Other liabilities and provisions 81.4 67.2 Net assets 592.2 633.0 Capital and reserves Called up share capital 77.9 86.4 Share Premium Account 0.9 0.0 Other reserves 8.8 0.2 Profit and loss account 504.5 546.3 Equity Shareholders Funds 592.1 632.9 Equity Minority interests 0.1 0.1 592.2 633.0 Net debt 173.0 (39.8) Gearing 29.2% -6.3%
31 GROUP CASH FLOW STATEMENT for the year ended 31st March, 1 995 1995 1994 £m £m Net cash inflow from operating activities 160.7 270.3 Net cash outflow from returns on investments and servicing of finance (39.1) (36.1) Taxation (37.9) (40.4) Net cash outflow from investing activities (160.6) (96.5) Net cash outflow from financing (11.2) — (Decrease(/Increase in cash and cash equivalents (88.1) 97.3
SEGMENTAL ANALYSIS Turnover Operating Profit 1995 1994 1995 1994 £m £m £m £m Distribution 385.8 363.8 159.0 149.4 Supply 1,212.3 1,215.6 30.1 16.1 Retail 207.5 187.0 8.1 7.1 Other 51.6 48.6 1.2 0.9 Inter Business Adjustment (346.6) (344.4) — — 1,510.6 1,470.6 198.4 173.5
32 CAPITALISATION OF NORWEB plc The following table sets out the audited consolidated capital and reserves of the Group as at 31st March, 1995 and the borrowings of the Group at such date:— As at 31st March, 1995 (£ millions) Capital and reserves Share Capital Authorised 250,000,000 Ordinary Shares of 50p each 125.0 1 special rights redeemable Preference Share of £1 — 125.0 Allotted, called up and fully paid 155,839,330 Ordinary Shares of 50p each 77.9 Share premium account 0.9 Capital redemption reserve 8.6 Statutory reserve 0.2 Profit and loss account 504.5 Equity Shareholders' funds 592.1 Equity minority interests 0.1 Total capital and reserves 592.2
Borrowings Unsecured amounts falling due within one year Commercial paper 124.4 Bank loans and overdrafts 38.1 Unsecured amounts falling due after one year 12.661% Bonds due 1999 (Note 2) 77.0 12.365% Bonds due 2008 (Note 2) 76.0 Total borrowings 315.5 As at 31 st March, 1995, the Group had money market investments of 132.8
Notes: (1) The table does not include indebtedness in respect of the Bonds now being issued. (2) These issues are held by HM Treasury. (3) There has been no material change in the consolidated capital and reserves of the Group since 31st March, 1995. However, on 25tk July, 1995 the Group received shareholder approval to buy back up to 10 per cent. of its allotted share capital. (4) Save for the issue of the Bonds, there has been no material change in the consolidated borrowings of the Group since 31st March, 1995. (5) Save as disclosed above, the Group did not have on 31st March, 1995 any loan capital outstanding or created but unissued, term loans, borrowings or indebtedness in the nature of borrowings, including bank overdrafts and liabilities under acceptances (other than normal trade bills) or acceptance credits, mortgages, charges, hire purchase or finance lease commitments, guarantees or other material contingent liabilities. (6) The Group has no secured borrowings.
33 UNITED KINGDOM TAXATION The comments below are of a general nature based on the Issuer's understanding of current United Kingdom law and Inland Revenue practice and are not intended to be exhaustive. The comments relate to the position of persons who are the absolute beneficial owners of their Bonds and Coupons appertaining thereto and may not apply to certain classes of persons such as dealers. Prospective Bondholders who are in any doubt as to their tax position or who may be subject to tax in a jurisdiction other than the United Kingdom should consult their professional advisers. On 10th July, 1995 the UK Government announced a major change to the UK tax treatment of bonds and other debt. The change, if enacted, will affect the way in which interest, profits and losses on the Bonds are subject to tax, but is unlikely to affect withholding tax rules (as outlined in paragraphs 1 -5 below). The new regime will apply from 1st April, 1996 for corporate Bondholders and from 6th April, 1996 for other Bondholders. Paragraphs 6-8 below outline the positions both under current law and once the new regime applies. It should be noted that draft legislation to give effect to the new regime is not yet available. To date only an outline of the proposed new regime has been given and many details remain subject to consultation with the Inland Revenue. It is therefore possible that the tax treatment under the new regime summarised below may change during the legislative process. 1. Interest on Registered Bonds will be paid after deduction of United Kingdom income tax at the basic rate (currently 25 per cent.), subject to any direction to the contrary by the Inland Revenue under the provisions of an applicable double taxation treaty. 2. The Bearer Bonds will constitute "quoted Eurobonds" within the terms of section 124 of the Income and Corporation Taxes Act 1988 provided they remainin bearer form and continue to be quoted on a "recognised stock exchange" within the meaning of section 841 of that Act. Accordingly, payments of interest on such Bearer Bonds may be made without deduction or withholding for or on account of United Kingdom income tax where:— (a) the payment is made by a paying agent outside the United Kingdom; or (b) the payment is made by a paying agent inside the United Kingdom; and either (i) the Bond and related Coupons are held in a "recognised clearing system" (Cedel and Euroclear have each been designated as a "recognised clearing system" for this purpose); or (ii) it is proved to the satisfaction of the Commissioners of Inland Revenue, on a claim made in that behalf, that the person who is the beneficial owner of the Bond and the relevant Coupon (or, where the provisions of United Kingdom tax legislation deem the interest to be that of some other person, that person) is not resident in the United Kingdom for tax purposes. In all other cases interest will be paid under deduction of United Kingdom income tax at the basic rate (currently 25 per cent.) subject to any direction to the contrary by the Inland Revenue under the provisions of an applicable double taxation treaty. 3. In respect of Bearer Bonds, a collecting agent in the United Kingdom obtaining payment of interest whether in the United Kingdom or elsewhere from which United Kingdom income tax has not already fallen to be deducted or realising in the United Kingdom any interest on behalf of a Bondholder or Couponholder may be required to withhold or deduct United Kingdom income tax at the basic rate unless it is proved, on a claim in that behalf made in advance to the Inland Revenue, that the person who is the beneficial owner of the Bearer Bond and entitled to the interest is not resident in the United Kingdom and the interest is not deemed for United Kingdom tax purposes to be the income of any other person.
4. Interest on the Bonds constitutes United Kingdom source income for United Kingdom tax purposes and, as such, remains subject to United Kingdom taxation by direct assessment even where paid without withholding or deduction. However, under Inland Revenue Extra Statutory Concession B13, interest paid without withholding will not be assessed to United Kingdom taxation in the hands of Bondholders who are not resident in the United Kingdom (throughout the year of assessment in which they receive the relevant interest) except where such persons: (a) are chargeable under Section 78 of the Taxes Management Act 1970 in the name of a trustee or other person as defined in Section 72 of that Act, or in the name of an agent or branch in the United Kingdom having the management or control of the interest; or (b) seek to claim relief in respect of taxed income from United Kingdom sources (insofar as the tax on the interest can be recovered by set off against the claim); or
34 (c) are chargeable to United Kingdom corporation tax on the income of a United Kingdom branch or agency to which the interest is attributable; or
(d) are chargeable to United Kingdom income tax on the profits of a trade carried on in the United Kingdom to which the interest is attributable.
However recent legislation contained in the Finance Act 1995 and which has effect from either April 1995 or April 1996 depending on the circumstances replaces the Inland Revenue practice described above and generally limits tax charged to tax, if any, deducted at source where the beneficial owner of such interest is not resident in the United Kingdom unless the interest is attributable to a branch or agency carrying on a trade in the United Kingdom.
5. Bondholders should note that the provisions relating to additional amounts referred to in "Terms and Conditions of the Bonds – 8. Taxation" above do not apply to payments of interest on Registered Bonds and would not apply if the Inland Revenue sought to assess the person entitled to the relevant interest paid on any Bonds directly to United Kingdom tax on income. However, exemption from or reduction of such United Kingdom tax liability might be available under the provisions of an applicable double taxation treaty.
6. Under current law, profits or losses realised on disposal or redemption of Bonds normally have the nature of capital for tax purposes. The Bonds will constitute "qualifying corporate bonds" within the meaning of section 117 of the Taxation of Chargeable Gains Act 1992. As such, neither a chargeable gain nor an allowable loss will arise on a disposal of the Bonds for the purposes of UK taxation of chargeable gains.
7. Under the new regime, gains and losses on the Bonds will be treated as income for tax purposes. For UK resident corporate holders and certain UK branches of non-UK resident companies the qualifying corporate bond exemption will no longer apply and fluctuations in the value of the Bonds will be subject to tax and give rise to tax relief in each accounting period in respect of the profit or loss arising in such period, calculated on either an accruals or mark-to-market basis, depending on the accounting treatment adopted. Such corporate Bondholders will be subject to tax in each accounting period on interest accrued in each period, rather than, as currently, on interest received in the period.
UK resident individuals (including trusts) will remain subject to the present rules unless the aggregate nominal value of their holdings of securities and units in certain unit trusts exceeds £200,000. For UK resident individuals (and trusts) who are subject to the new regime, gains or losses on realisation will be taxed or relieved as income. There will be no gain or loss on death; holdings will pass to personal reprsentatives and legatees at the then market value of the Bonds.
Charities, pension funds and other exempt funds will, under the new regime, continue not to be subject to tax on their holdings of Bonds. Special rules will apply to certain authorised unit trusts and their investors.
Non-UK residents (including non-resident individuals, trusts and companies without a UK branch) will remain subject to the present regime.
Bondholders holding Bonds at the relevant date when the new regime comes into effect will be treated as having disposed of their Bonds at market value on the immediately preceding day, and as having re-acquired them on that day also for market value. The intention is that gains and losses as at that date will remain subject to the current law. It is anticipated that special rules will be introduced to ensure that if the market value of the Bonds at the date the new regime applies is less than the price originally paid by the Bondholder, no tax is suffered unless the value on actual disposal or redemption is greater than the price originally paid.
8. Under current law, a transfer of a Bond by a Bondholder who is resident or ordinarily resident in the UK or who carries on a trade in the UK through a branch or agency to which the Bonds are attributable may give rise to a charge to UK tax, under the accrued income scheme, on income in respect of an amount representing interest on the Bond which has accrued since the preceding interest payment date. The accrued income scheme will not apply to corporate Bondholders and other taxpayers subject to the new regime.
9. No United Kingdom stamp duty or stamp duty reserve tax is payable on the issue of a Bond or on its transfer.
35 SUBSCRIPTION AND SALE Swiss Bank Corporation, NatWest Capital Markets Limited (as agent for National Westminster Bank Plc) and UBS Limited (together, the "Managers") have, pursuant to a Subscription Agreement dated 28th July, 1995 (the "Subscription Agreement"), jointly and severally agreed with the Issuer, subject to the satisfaction of certain conditions, to subscribe for the Bonds at 99.646 per cent. of their principal amount. The Issuer has agreed to pay to the managers a selling commission of 1.875 per cent., and a combined management and underwriting fee of 0.625 per cent. of such principal amount. The Subscription Agreement entitles Swiss Bank Corporation on behalf of the Managers to terminate it in certain circumstances prior to payment being made to the Issuer. The Issuer has agreed to indemnify the Managers against certain liabilities in connection with the issue of the Bonds.
SELLING RESTRICTIONS United States The Bonds have not been and will not be registered under the United States Securities Act of 1993 (the "Securities Act") and may not be offered or sold within the United States or to, or for the account or benefit of, U.S. persons except in accordance with Regulation S under the Securities Act or in certain transactions exempt from the registration requirements of the Securities Act. Terms used in this paragraph have the meanings given to them by Regulation S under the Securities Act. The Bonds are subject to U.S. tax law requirements and may not be offered, sold or delivered within the United States or its possessions or to a United States person, except in certain transactions permitted by U.S. tax regulations. Terms used in this paragraph have the meanings given to them by the U.S. Internal Revenue Code and regulations thereunder. Each of the Managers has agreed that, except as permitted by the Subscription Agreement, it will not offer, sell or deliver the Bonds (i) as part of their distribution at any time or (ii) otherwise until 40 days after the later of the commencement of the offering and the Closing Date within the United States or to, or for the account or benefit of, U.S. persons, and it will have sent to each dealer to which it sells Bonds during the restricted period a confirmation or other notice setting forth the restrictions on offers and sales of the Bonds within the United States or to, or for the account or benefit of, U.S. persons. In addition, until 40 days after the commencement of the offering, an offer or sale of Bonds within the United States by a dealer that is not participating in the offering may violate the registration requirements of the Securities Act.
United Kingdom Each Manager has represented and agreed that: (1) it has not offered or sold and will not offer or sell any Bonds to persons in the United Kingdom prior to admission of the Bonds to listing in accordance with Part IV of the Financial Services Act 1986 (the "Act") except to persons whose ordinary activities involve them in acquiring, holding, managing or disposing of investments (as principal or agent) for the purposes of their businesses or otherwise in circumstances which have not resulted and will not result in an offer to the public in the United Kingdom within the meaning of the Public Offers of Securities Regulations 1995 or the Act; (2) it has complied and will comply with all applicable provisions of the Act with respect to anything done by it in relation to the Bonds in, from or otherwise involving the United Kingdom; and (3) it has only isued or passed on and will only issue or pass on in the United Kingdom any document received by it in connection with the issue of the Bonds, other than any document which consists of or any part of listing particulars, supplementary listing particulars or any other document required or permitted to be published by listing rules under Part IV of the Act, to a person who is of a kind described in Article 11(3) of the Financial Services Act 1986 (Investments Advertisements) ( Exemptions) Order 1995 or is a person to whom such document may otherwise lawfully be issued or passed on.
36 GENERAL INFORMATION Listing The listing of the Bonds on the London Stock Exchange will be expressed as a percentage of their nominal amount (excluding accrued interest). Transactions will normally be effected for settlement in sterling and for delivery on the third business day after the date of the transaction. It is anticipated that such listing will be granted on 2nd August, 1995 subject only to the issue of the Global Bond and any Registered Bonds. Prior to the official listing, however, dealings will be permitted by the London Stock Exchange in accordance with its rules.
Euroclear and Cedel The Bearer Bonds have been excepted for clearance through Cedel and Euroclear with a Common Code number 5895731. The ISIN is XS0058957316.
Significant or Material Change Save as disclosed herein there has been no significant change in the financial or trading position of the Issuer or the Group since 31st March, 1995 (being the date of its last published accounts) and, since such date, save as disclosed herein there has been no material adverse change in the financial position or prospects of the Issuer or the Group.
Litigation There are no legal or arbitration proceedings, including any which are pending or threatened of which the Issuer is aware, which may have or have had during the 12 months prior to the date hereof a significant effect on the financial position of the Issuer or the Group.
Auditors The Auditors of the Group, who have audited the Group's accounts, without qualification, in accordance with generally accepted auditing standards in the United Kingdom for each of the financial years ended 31st March, 1993 and 1994 were BDO Binder Hamlyn, Chartered Accountants and Registered Auditors, and for the financial year ended 31st March, 1995 were Binder Hamlyn, Chartered Accountants and Registered Auditors. As from 25th July, 1995 Price Waterhouse, Chartered Accountants and Registered Auditors, became the Auditors of the Group.
Financial Information The information under "Financial Information" on pages 28 to 32 above does not constitute statutory accounts (within the meaning of Section 240 of the Companies Act 1985 (the "Act")) of the Company. Statutory accounts for the years ended 31st March, 1994 and 31st March, 1995 have been delivered to the Registrar of Companies in England and Wales. BDO Binder Hamlyn or Binder Hamlyn (as the case may be), the Company's auditors for those years, have made reports under Section 235 of the Act on the statutory accounts for the years ended 31st March, 1994 and 1995 which were not qualified (within the meaning of Section 262 of the Act) and did not contain a statement made under Section 237(2) or Section 237(3) of the Act.
Documents available for Inspection Copies of the following documents may be inspected at the offices of Norton Rose, Kempson House, Camomile Street, London EC3A 7AN during usual business hours on any weekday (Saturdays and public holidays excepted) during the period of 14 days from the date of this document: (i) the Memorandum and Articles of Association of the Issuer; (ii) the financial statements of the Group in respect of the financial years ended 31st March, 1994 and 1995; (iii) drafts, subject to modification, of each of the Trust Deed (which contains the forms of the Global Bond, the definitive Bonds (in bearer and registered form) and the Coupons) and the Agency Agreement; and (iv) the Subscription Agreement.
37 REGISTERED AND HEAD OFFICE OF THE ISSUER Talbot Road Manchester M16 0HQ
TRUSTEE The Law Debenture Trust Corporation p.l.c. Princes House 95 Gresham Street London EC2V 7LY
PRINCIPAL PAYING AGENT Morgan Guaranty Trust Company of New York 60 Victoria Embankment London EC4Y 0JP
PAYING AGENTS Morgan Guaranty Trust Company of New York ßanque Paribas Luxembourg S.A. Avenue des Arts 35 10A Boulevard Royal B-1040 Brussels L-2093 Luxembourg
REGISTRAR The Royal Bank of Scotland plc Registrar's Department PO Box 39 Caxton House Redcliffe Way Bristol BS99 7ZF
LEGAL ADVISERS To the Issuer To the Managers and the Trustee Norton Rose Allen & Overy Kempson House One New Change Camomile Street London EC4M 9QQ London EC3A 7AN
AUDITORS OF THE ISSUER AUDITORS OF THE ISSUER up to 25th July, 1995 from 25th July, 1995 Binder Hamlyn Price Waterhouse Bank House Southwark Towers 9 Charlotte Street 32 London Bridge Street Manchester M1 4EU London SE1 9SY
LISTING AGENT SBC Warburg 1 Finsbury Avenue London EC2M 2PP BUCKLEY DEANE WAKEFIELD