1
Private & Confidential
DATED 22ND OCTOBER 1999
YORK WATERWORKS ENTERPRISES LIMITED (1)
INDEPENDENT ENERGY HOLDINGS PLC (2)
AND
KELDA GROUP PLC (3)
AGREEMENT
FOR THE SALE AND PURCHASE OF THE
ENTIRE ISSUED SHARE CAPITAL OF
YORK GAS LIMITED
[▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ & CO. LOGO]
▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ & CO.
2
CONTENTS
CLAUSE HEADING PAGE
1 Definitions 1
2 Sale and purchase 3
3 Consideration 3
4 Completion 4
5 Warranties 6
6 Non-competition and confidentiality 7
7 Taxation 8
8 Employees 8
9 Further assurance 8
10 Costs 9
11 Period to Completion 9
12 General 10
13 Interpretation provisions 12
14 Proper law 13
15 Notices 13
SCHEDULE
1 The Company 14
2 Warranties 15
3 Property 21
Part 1 - Description of Property 21
4 Provisions for the protection of the Seller 22
5 Taxation 26
Part 1 - General 26
Part 2 - Tax Covenant 36
Part 3 - Taxation Warranties 38
3
6 Preparation of Completion Accounts and determination of
Net Assets Value 43
Part 1 - Principles for preparation of Completion Accounts 43
Part 2 - Procedure for preparation of Completion Accounts
and determination of Net Assets Value 46
7 Intellectual Property 49
AGREED FORM DOCUMENTS
1 THE SHARED SERVICES AGREEMENT
2 THE SECONDMENT AGREEMENTS
3 THE LEASE OF THE PROPERTY
4
THIS AGREEMENT is made on 22nd October 1999 BETWEEN:
(1) YORK WATERWORKS ENTERPRISES LIMITED (company number 3050705) whose
registered office is at ▇ ▇▇▇ ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇, ▇▇▇
▇▇▇ ("THE SELLER"),
(2) INDEPENDENT ENERGY HOLDINGS PLC (registered in England and Wales under
number 3033606) whose registered office is at ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇
▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇ ▇▇▇("▇▇▇ BUYER"), and
(3) KELDA GROUP PLC (Company number 2366627) whose registered office is at
▇ ▇▇▇ ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇, ▇▇▇ ▇▇▇ ("KELDA").
IT IS HEREBY AGREED as follows:
1 DEFINITIONS
1.1 In this Agreement the following definitions apply, unless the context
requires otherwise:
"ACCOUNTS" means the audited accounts of the Company for the financial
year ended on the Accounts Date;
"ACCOUNTS DATE" means 31st March 1999;
"AFFILIATE" means in relation to any person, any holding company or
subsidiary of that person or any subsidiary of such holding company and
"holding company" and "subsidiary" shall have the meaning given to them
in section 736 of the Companies ▇▇▇ ▇▇▇▇;
"AUDITED ACCOUNTS" means the audited accounts of the Company for the
period from 1st April 1999 midnight on 31st October 1999 to be prepared
by the Company pursuant to clause 3.3 and Schedule 6;
"AUDITORS" means Messrs Ernst & Young, the auditors of the Company
immediately prior to Completion;
"BUSINESS DAY" means a day (excluding a Saturday, Sunday or public
holiday) on which clearing banks are open for business in the City of
London;
"COMPANY" means York Gas Limited, a company registered in England and
Wales under number 3061131, particulars of which are set out in
schedule 1;
"COMPLETION" means completion of the sale and purchase of the Shares
pursuant to this Agreement in accordance with its provisions;
"COMPLETION ACCOUNTS" means the balance sheet of the Company as at
Completion on 1st November 1999 to be prepared in accordance with
clause 3.3;
"COMPLETION DATE" means 1st November 1999;
"DESIGNATED ACCOUNT" means the bank account at the National Westminster
Bank plc, Leeds City office; Account Number ▇▇▇▇▇▇▇▇; Sort Code: 60 60
05; and Account Name: Kelda Group plc;
"DISCLOSURE LETTER" means the letter dated the same day as this
Agreement written by the Seller to the Buyer qualifying the Warranties;
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"DOMESTIC CUSTOMERS" means those persons who have signed the York Gas
domestic gas supply agreement and have not delivered to the Company
notice of termination of that agreement;
"DUE DILIGENCE MATERIALS" means the Information Memorandum, the
preliminary due diligence pack, the files called "York Gas Limited Due
Diligence pack" volumes 1-5 and the documents sent to the Buyer on
23rd, 28th and 29th September 1999 all as they appear in the bundle of
documents attached to the Disclosure Letter;
"GAS SUPPLIER LICENCE" means a licence granted pursuant to section
7A(1) of the Gas ▇▇▇ ▇▇▇▇ (as amended);
"INDUSTRIAL AND COMMERCIAL CUSTOMERS" means those persons who have
signed the York Gas commercial gas supply agreement and have not
delivered to the Company notice of termination of that agreement;
"INFORMATION MEMORANDUM" means the document with the name "York Gas
Limited Information Memorandum" a copy of which appears in the Due
Diligence Materials;
"INTELLECTUAL PROPERTY" means patents (including supplementary
protection certificates), trade marks, service marks, registered
designs, utility models, design rights, topography rights, copyrights,
inventions, trade secrets and other confidential information, know-how,
business or trade names, get-up, and all other intellectual property
and neighbouring rights and rights of a similar or corresponding
character in any part of the world (whether or not the same are
registered or capable of registration) and all applications and rights
to apply for or for the protection of any of the foregoing;
"INTELLECTUAL PROPERTY RIGHTS" means the Intellectual Property which is
listed in schedule 7;
"NET ASSETS VALUE" means a sum (whether positive or negative) equal to
the paid up share capital of the Company plus or minus (as the case may
be) the amounts standing to the credit or debit of the capital and
revenue reserves (including profit and loss account) of the Company at
the Completion Date, all as shown in the Completion Accounts;
"PERSON" includes a body corporate and an unincorporated body of
persons;
"PROPERTY" means the leasehold property specified in part 1 of schedule
3 and any part of it;
"PURCHASE PRICE" means the sum set out in clause 3.2 plus or minus any
adjustment to be made pursuant to clause 3.3;
"SHARES" means the 5,000 "A" Ordinary shares of Pound Sterling1 each
and the 5,000 "B" Ordinary shares of Pound Sterling1 each in the
Company together with all the shares to be issued pursuant to clause
4.5 being the whole of the issued share capital of the Company at
Completion;
"TAX COVENANT" means the covenant contained in part 2 of schedule 5;
"1988 TAXES ACT" means the Income and Corporation Taxes ▇▇▇ ▇▇▇▇; and
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"WARRANTIES" means the warranties referred to in clause 5 and set out
in schedule 2, part 2 of schedule 3 and part 3 of schedule 5.
1.2 A document expressed to be "in the Agreed Form" is a document whose
form has been agreed, and for identification purposes signed, by or on
behalf of the parties to this Agreement.
1.3 Words and phrases which are defined for the purposes of the Companies
▇▇▇ ▇▇▇▇ shall, unless the context requires otherwise, bear the same
meanings in this Agreement.
1.4 A person shall be treated as "connected with" another person for the
purpose of this Agreement if he would be so treated under section 839
of the 1988 Taxes Act.
1.5 References in this Agreement to "TAX" and "TAXATION" shall be construed
in accordance with the Tax Covenant.
2 SALE AND PURCHASE
2.1 On and subject to the provisions of this Agreement the Seller shall
sell with full title guarantee the Shares and the Buyer shall purchase
the Shares on and with effect from Completion, in each case free from
any mortgage, charge, pledge, lien, equity, option, encumbrance or
other third party right or claim, and free from any outstanding
agreement or commitment to give or create any of the foregoing,
together with all rights and benefits attached or accruing to the
Shares on or after Completion (including without limitation the right
to receive all dividends and distributions declared, made or paid on or
after Completion).
2.2 The Seller hereby waives any rights of pre-emption conferred on him by
the Articles of Association of the Company or otherwise over any of the
Shares.
3 CONSIDERATION
3.1 The consideration for the sale of the Shares shall be the payment by
the Buyer to the Seller in accordance with the following provisions of
this clause 3 of the Purchase Price in cash.
3.2 The sum of Pound Sterling4,400,000 on account of the Purchase Price
shall be payable on Completion to the Designated Account by way of
electronic funds transfer for same day value.
3.3 Following Completion the Buyer shall prepare drafts of the Audited
Accounts and the Completion Accounts in accordance with schedule 6, and
following agreement or determination of the Net Asset Value in
accordance with that schedule, if the Net Asset Value is:
(a) an amount which is more than Pound Sterling839,000, the Buyer
shall pay to the Seller in accordance with clause 3.4 a sum
equal to the difference between the Net Assets Value and Pound
Sterling689,000;
(b) an amount which is less than Pound Sterling539,000, the Seller
shall pay to the Buyer in accordance with clause 3.4 a sum
equal to the difference between the Net Assets Value and Pound
Sterling689,000; or
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(c) equal to or between Pound Sterling839,000 and Pound
Sterling539,000, no payment or further payment from the Buyer
to the Seller, or from the Seller to the Buyer shall be made
pursuant to this clause 3.3.
3.4 Every sum payable under clause 3.3 shall be paid:
(a) within 5 business days after the date of agreement or
determination of the Net Asset Value by electronic funds
transfer for same day value:
(i) (where such sum is expressed to be payable to the
Seller) to the Designated Account; or
(ii) (where such sum is expressed to be payable to the
Buyer) to such account as is designated by the Buyer.
4 COMPLETION
4.1 Prior to Completion the accounting reference date shall be changed to
31st October 1999.
4.2 Completion shall take place at the offices of ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ & Co of
▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇ ▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇, ▇▇▇ ▇▇▇ on the
Completion Date.
4.3 At Completion the Seller shall deliver to the Buyer:
(a) the transfers of the Shares, duly executed by the registered
holders, in favour of the Buyer or its nominee, together with
the relevant share certificates;
(b) the common seal, certificate(s) of incorporation and statutory
books, written up to but excluding Completion, of the Company;
(c) letters of resignation (with effect from the end of the
relevant board meeting referred to in clause 4.4) under seal
in the Agreed Form from ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇,
▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇▇ and ▇▇▇▇ ▇▇▇▇▇ ▇'▇▇▇▇ resigning from all
their offices within the Company;
(d) a copy of each bank mandate of the Company;
(e) the accounting records and all cheque books, paying in books
and unused cheques of the Company accompanied by bank
statements of all its bank accounts as at the close of
business on the date not more than 2 business days prior to
Completion;
(f) a copy of the resolutions of the directors of the Seller
(certified as true by its secretary or a director) authorising
the execution and delivery of, and performance of its
obligations under, this Agreement and the other documents to
be entered into by it in relation to this Agreement;
(h) the certificates of registration for all Intellectual Property
Rights which are registered together with evidence of all
renewals of such registrations
and shall use all reasonable endeavours to procure that the lease of
the Property in substantially the Agreed Form has been executed by the
parties thereto and duly stamped before Completion and shall deliver
unconditional receipts for rent and any service charges due in respect
of the Property.
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4.4 At Completion the Seller will procure that a meeting of the board of
directors of the Company and a meeting of its shareholders is held, at
which:
(a) the transfers of Shares are approved and, subject to stamping,
the entry of the transferee(s) in the relevant register of
members as holder(s) of such shares is approved;
(b) ▇▇▇ ▇▇▇▇▇▇▇ and ▇▇▇▇ ▇▇▇▇▇▇ are appointed directors and ▇▇▇
▇▇▇▇▇▇▇ is appointed as secretary of the Company;
(c) all the Company's authorities and instructions to bankers
(including bank mandate forms) are modified or replaced, as
directed by the Buyer;
(d) the sending to the Registrar of Companies of a notice changing
the Company's registered office to that of the Buyer is
approved; and
(e) the actions required to be taken by the Company to effect
clause 4.5 and 4.6 are taken and approved.
4.5 Immediately prior to Completion the Seller shall procure that:
(a) the Company shall transfer a sum equal to the net aggregate
credit balance on all the Company's bank accounts to the
Seller in satisfaction of a capital sum equal to such amount
in respect of amounts owed by the Company to the Seller; or
(b) if there is a net aggregate debit balance on all of the
Company's bank accounts, the Seller shall transfer a sum equal
to any such net aggregate debit balance to a bank account of
the Company.
4.6 Any outstanding amounts due to the Seller from the Company after clause
4.4 is complied with shall be capitalised by the Seller and used to
fund the subscription by the Seller for "A" Ordinary Shares of Pound
Sterling1 each per share in the capital of the Company with a nominal
value equal to the amounts outstanding at that time following which
subscription all such outstanding amounts shall be completely
discharged.
4.7 The Seller hereby declares that so long as it remains the registered
holder of any of the shares after Completion it will:
(a) hold the Shares and the dividends and other distribution of
profits or surplus or other assets declared, paid or made in
respect of them now or after the date hereof and all rights
arising out of or in connection with them in trust for the
Buyer and its successors in title; and
(b) deal with and dispose of the Shares and all such dividends,
distributions and rights as are described in sub-clause (a)
only as the Buyer or any such successor may direct.
4.7 Within 14 business days following Completion, the Buyer shall procure
the unconditional release (and deliver to the Seller the original
document effecting such release) of all obligations under the first
demand without proof or conditions Bond (the "BOND") dated 8th October
1997 given by York Waterworks Limited in favour of Ofgem and shall, if
so required by Ofgem as a condition of such release, enter into any
bond or other security arrangement in the form and in respect of the
principal sum required by Ofgem. The Buyer shall
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indemnify the Seller (as trustee for York Waterworks Limited) against
all costs, claims and liabilities of York Waterworks under the Bond
arising by reason of a claim under such Bond after Completion.
4.8 At Completion, the Seller and the Company shall enter into the Shared
Services Agreement and the Secondment Agreements each in the Agreed
Form.
4.9 The Seller confirms that ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇▇ and ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ have
both agreed to enter into the Secondment Agreements each in the Agreed
Form.
5 WARRANTIES
5.1 The Seller warrants to the Buyer (for itself and as trustee for its
permitted successors in title) in the terms of the Warranties as at the
date of this Agreement. The Seller acknowledges that the Buyer is
entering into this Agreement on the basis of and in reliance upon the
accuracy of each Warranty. Liability under any Warranty shall not be
confined to breaches discovered before Completion nor in any way be
modified or discharged by Completion.
5.2 The Buyer shall not have any claim under the Warranties in respect of
any matter which is fairly disclosed in or deemed disclosed by the
Disclosure Letter or by the Due Diligence Materials.
5.3 Each Warranty which is, or could be, set out in a separate clause shall
be construed independently of the others and, save as expressly
provided otherwise, shall not be limited or curtailed as a result of
any other provision of this Agreement.
5.4 Where a statement in this Agreement is qualified by the expression "so
far as the Seller is aware" or any similar expression the Seller shall
be deemed to have the knowledge of all employees of the Seller and its
subsidiaries other than the Company and in addition the Seller is
deemed to have the knowledge it would have acquired after reasonable
diligent enquiry of ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ but shall not be deemed to have
further knowledge of any other person.
5.5 Neither any failure to exercise, or delay in exercising, any right or
remedy of the Buyer in relation to this Agreement or Completion, shall
operate as a waiver of any such right or remedy and a single or partial
exercise of such a right or remedy shall not preclude any other
exercise by the Buyer of that or any other right or remedy.
5.6 All claims by the Buyer for damages or compensation in respect of any
claim by the Buyer or the Company against the Seller under this
Agreement shall be subject to the provisions for the protection of the
Seller in schedule 4.
6 NON-COMPETITION AND CONFIDENTIALITY
6.1 The Seller covenants with the Buyer (for itself and as trustee for the
Company and its permitted successors in title) that (always subject to
Clause 6.2) it will not directly or indirectly in any capacity within
Great Britain within 12 months after the Completion Date apply for a
gas licence to supply gas under the Gas ▇▇▇ ▇▇▇▇ or be interested in an
undertaking which has an existing licence to supply gas under the Gas
▇▇▇ ▇▇▇▇.
6.2 Clause 6.1 shall not prevent the Seller from having an interest in
securities which are traded on a recognised public market if that
interest does not
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constitute a notifiable interest for the purpose of section 199(2)
Companies ▇▇▇ ▇▇▇▇ or purchasing any company or business which includes
a business which carries out operations of the type specified in clause
6.1 provided they do not comprise the majority of such company's or
business's operations.
6.3 If the undertakings in clauses 6.1 or 6.5 would be void unless
modified, they shall be modified to the extent necessary to make them
enforceable.
6.4 The Seller covenants with the Buyer that it shall not for a period of 2
years after the Completion Date (except under the authority of the
court or other legal or regulatory obligation) divulge to any other
person or use otherwise than for the benefit of the Company, any secret
or confidential information relating to the businesses of the Company,
including its customers, processes and dealing terms, which was
obtained by it from its ownership of shares in the Company or position
in the Company.
6.5 Kelda covenants with the Buyer (for itself and as trustee for the
Company and its permitted successors in title) that it will not and
will procure that no subsidiary of Kelda will during the period of 2
years from the Completion Date enter into an agreement with any person
who is a Domestic Customer or Industrial and Commercial Customer of the
Company at the Completion Date for the supply of electricity by Kelda
or any such subsidiary or solicit any such person in connection with
such an agreement provided that this covenant shall not apply to sales
of electricity generated by Yorkshire Windpower Limited or sales of
electricity generated by any generating facility in which Kelda or any
subsidiary of Kelda has become interested in or will become interested
in the future.
6.6 Kelda covenants with the Buyer (for itself and as trustee for the
Company and its permitted successors in title) that it will not and
will procure that no subsidiary of Kelda will during the period of 2
years from the Completion Date enter into an agreement with any person
who is a Domestic Customer or Industrial and Commercial Customer of the
Company at the Completion Date for the supply of gas by Kelda or any
such subsidiary or solicit any such person in connection with such an
agreement.
7 TAXATION
7.1 The provisions of schedule 5 shall have effect.
8 EMPLOYEES
8.1 The Buyer undertakes to the Seller and to Kelda that it will not, and
will procure that the Company will not, dismiss or transfer to a
location outside the City of York any of the permanent employees of the
Company at the Completion Date during the period of 6 months starting
on the Completion Date and that during such period it will procure that
the Company maintains such employees in their current posts on the same
terms (save for any increase in salary and variations to pension
arrangements which are necessary as a result of completion of this
Agreement) as applied to them at the Completion Date. The Buyer further
undertakes that if following such period (but before the expiry of 9
months from the Completion Date) the Company wishes to terminate the
post of such an employee at the Property it will, or will procure that
the Company will, offer alternative employment on at least as
beneficial terms to such employee.
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8.2 The Buyer accepts that a monetary claim would not be an adequate remedy
for breach of clause 8.1 and that the Seller is entitled to an order
for specific performance of the Buyer's obligations under clause 8.1.
8.3 Notwithstanding clauses 8.1 and 8.2, nothing in this Agreement shall
prevent the Company from exercising any rights or remedies available to
it arising from any employee's breach of the terms and/or conditions of
his/her employment.
9 FURTHER ASSURANCE
9.1 The Seller shall, at the request and expense of the Buyer, execute and
deliver all such instruments and any further document, including a
power of attorney in favour of the Buyer or its nominee, and perform
any further act which may be required by the Buyer to effectually vest
title to the Shares in the Buyer.
9.2 Save as (but only to the extent) expressly required by law or by the
London Stock Exchange or by the relevant national or supra-national
regulatory, governmental or quasi-governmental authority, all
announcements or circulars by, or on behalf of the parties hereto and
relating to the terms of this Agreement or any document entered into
pursuant to it shall be in terms to be agreed between the parties in
advance of issue and the terms of this Agreement and of the documents
entered into pursuant to it shall otherwise be kept confidential by the
parties.
9.3 Subject always to use of the Intellectual Property Rights by the Buyer
and/or the Company, the Buyer shall not at any time following
Completion represent or allow representations to be made that it, any
associated company of the Buyer or the Company is in any way connected
to the Seller or Kelda or any subsidiary thereof.
10 COSTS
10.1 Each party shall pay its own costs and expenses in relation to the
negotiation, preparation, execution and implementation of this
Agreement and the documents referred to herein.
11 PERIOD TO COMPLETION
11.1 The Seller undertakes with the Buyer that from the date of this
Agreement to the Completion (both dates inclusive) it will procure that
the business of the Company will be carried on in the normal and
ordinary course and will procure that the Company will not (without the
prior written consent of the Buyer) other than as provided for in this
Agreement:
(a) enter into any material transaction, contract or arrangement
material for the purpose of this clause 11.1(a) being a
transaction contract or arrangement for a principal amount
which exceeds or could exceed Pound Sterling10,000;
(b) enter into any lease, hire purchase or other agreement or
arrangement for payment on deferred terms;
(c) grant a lease, licence or third party right in respect of any
of the Properties or otherwise transfer or dispose of any of
its interests in any of the Properties;
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(d) make any loan;
(e) dispose of or grant any option or right of pre-emption in
respect of any part of its assets (except in the ordinary
course of trading);
(f) borrow any money or make any payment out of or drawings on its
bank accounts (except routine payments in the ordinary course
of trading);
(g) incur any expenditure exceeding Pound Sterling5,000 on capital
account; or
(h) declare, make or pay any dividend or other distribution; or
(i) grant, issue or redeem any mortgage, charge, debenture or
other security or give any guarantee or indemnity; or
(j) vary any class rights attaching to any shares, create or allot
or issue any shares, grant any option over any shares or
uncalled capital or issue any securities convertible into
shares;
(k) capitalise any amount standing to the credit of any reserve or
redeem or repurchase any shares or otherwise reorganise its
share capital save as expressly envisaged in clause 4.5;
(l) admit any person (other than a party to this Agreement),
whether by subscription, transfer or transmission, as a
member;
(m) acquire or (enter into any agreement to acquire) the shares of
any other company or the whole or any part of the undertaking
of any company or person;
(n) enter into any joint venture, partnership or European Economic
grouping;
(o) enter into any contract or commitment or any transaction
otherwise than at arms length and for full value;
(p) make any appointment of or engage any additional director or
any employee;
(q) enter into any negotiations relating to or agree any change in
the terms and conditions upon which it employs its employees
(including, without limitation, relating to increases in
remuneration or the payment of bonuses or benefits);
(r) incur, agree or pay any management charge, charge in the
nature of a management charge or bonus save for the management
charge of Pound Sterling5,000 payable to York Waterworks
Limited in respect of the month of October 1999; or
(s) enter into any transaction, commitment or agreement with, or
make any payment to, the Seller not provided for in this
Agreement;
(t) appoint new auditors.
11.2 The Seller shall procure that pending Completion:
(a) the Buyer and all persons authorised by it are given promptly
on request all such facilities and information regarding the
business, assets, liabilities and affairs of the Company and
all such access to books and records or the Company as the
Buyer may reasonably require;
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(b) the Buyer is provided with copies of all board papers and
management reports and accounts relating to the Company
together with such other information as the Buyer may
reasonably require;
(c) no material decision concerning the business, assets or
affairs of the Company is taken without the prior written
consent of the Buyer;
(d) a representative of the Buyer is entitled to attend and speak
at all the board and management meetings of the Company.
11.3 The Seller shall not and shall procure the Company shall not take any
action pending Completion which would have placed the Seller in breach
of the Warranties had they been repeated at Completion.
12 GENERAL
12.1 In the event that the Seller shall not have procured the execution by
the parties thereto and the stamping of the lease of the Property
substantially in the Agreed Form before Completion the Seller and Kelda
shall until the earlier of such execution and stamping or the expiry of
6 months from Completion:
(a) use reasonable endeavours to procure that the Company may
continue to occupy the Property as licensee;
(b) jointly and severally indemnify and keep indemnified the Buyer
and the Company against all losses liabilities costs and
expenses arising by reason of claims made by the landlord or
the relevant owners of the Property by reason of the
occupation of the Property by the Company following Completion
other than payment of rent and other outgoings payable under
the terms of the lease and always subject to the Company
observing the terms of the lease as if it were the tenant
named thereunder;
(c) jointly and severally indemnify and keep indemnified the Buyer
and the Company against all reasonable costs expenses and
liabilities incurred or suffered in relocating the business of
the Company to alternative premises to include without
limitation legal, agents and other professional fees in the
event that the Company shall be required to vacate the
Property but always excluding rental payments and any
increased rental payments.
12.2 The Seller and Kelda jointly and severally agree to indemnify and keep
indemnified the Buyer and the Company against all costs claims losses
expenses and liabilities arising by reason of:
12.2.1 any claim by Regency Marketing (UK) Limited for payment of their
invoice No 000149 dated 7th October 1999 for Pound Sterling409,163.49
plus Pound Sterling71,603.61 Value Added Tax, or any claim arising
therefrom;
12.2.2 any claims against the Company for payments due to any agent or sales
representatives of the Company in respect of domestic gas customers or
alleged potential gas customers who had been referred to the Company by
such agents or sales representatives prior to Completion, or for
compensation or other payments due for breach or termination of
agreements with such agents or representatives
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prior to Completion, save to the extent that such amounts have been
provided for in the Completion Accounts;
in each case a "Claim"
PROVIDED THAT:
(a) The Buyer will not, and will procure that the Company does
not, make any admission or enter into any correspondence,
discussions or negotiations with any person or company
whatsoever in relation to any Claim (without the express prior
written consent of the Seller), nor take any action which the
Buyer or the Company should reasonably have known could
prejudice any defence to that Claim.
(b) The Buyer will not, and will procure that the Company will
not, compromise or settle any Claim without the consent of the
Seller.
(c) The Buyer and the Company will promptly notify the Seller of
any communication received in relation to any Claim.
(d) The Buyer and the Company shall procure that the Company shall
take such action to appeal, protest against, mitigate, reduce,
avoid, dispute, resist, compromise or accept any Claim as the
Seller may by written notice reasonably request provided that
Kelda and the Seller shall indemnify the Buyer and the Company
against any liabilities which they may incur as a result of
taking such actions.
(e) The Buyer and the Company will permit the Seller to have
conduct of each Claim subject to the Buyer and the Company
being secured and indemnified to their reasonable
satisfaction.
(f) The Buyer will make available, and procure that the Company
shall make available to the Seller all information and
documentation and reasonable assistance required by the Seller
(at the Company's cost) in connection with each Claim.
(g) The Buyer will provide, and will procure that the Company
provides, access to any of its employees, secondees (including
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇) and consultants who may have documents
information or evidence which may have a bearing on the Claim
and to permit the Seller to obtain witness statements from
such persons, and to require them to attend any meetings or
hearing in connection with the Claim and provide contact
details of any former employees who may have documents,
information or evidence which may have a bearing on the Claim.
(h) In the case of a Claim under Clause 12.2.2, Kelda and the
Seller shall have been notified in writing of such Claim prior
to 31st March 2000.
(i) The aggregate liability of Kelda and the Seller in respect of
any Claim under Clause 12.2.2 shall be limited to Pound
Sterling100,000.
(j) The provisions of paragraphs 1.1(b) (provided that the
reference therein to 30 business days after the date on which
proceedings referred to in clause 8 of this schedule are
concluded adversely against the Company shall be deemed to be
a reference to 30 days after conclusion of the conduct of the
Claim by the Seller (if any) pursuant to sub-clause (e)
15
above), 4.1(b), 4.1(d) (with the exclusion of the reference to
any note in the Accounts or the Completion Accounts), 5.1(a),
6.1, 7.1, 8 and 9 of schedule 4 in respect of a claim for
breach of Warranty and/or the Tax Covenant shall apply mutatis
mutandis to any claim under the indemnity given in this clause
12.2.
12.2.3 The Buyer will use its best endeavours to, and will procure that the
Company will use its best endeavours to, retain all documents and
records pertaining to any entitlement to commission by any agent or
sales representative until the later of 31st March 2000 and the final
determination of any Claim.
12.3 The Seller and Kelda shall use reasonable endeavours to procure that on
Completion the Company is released from all guarantees and indemnities
given by it in respect of obligations or liabilities of the Seller
and/or any company within the group of companies of which the Seller
forms part and/or any associate or person connected with the Seller
(including for avoidance of doubt the banking cross-guarantees).
12.4 The Seller and Kelda agree that pending such release to indemnify and
keep indemnified the Buyer and the Company against all actions,
proceedings, losses, costs, claims, damages, liabilities, and expenses
which the Buyer or the Company may suffer or incur in respect of any
claim made under any guarantee or indemnity referred to in clause 12.3.
13 INTERPRETATION PROVISIONS
13.1 References to any enactment, statute or statutory provision shall
include any subordinate legislation made under it, any provision which
it has superseded or re-enacted (whether with or without modification),
and any provision superseding it or re-enacting it (whether with or
without modification) provided that this provision shall not operate to
increase the Seller's liability under this Agreement above that which
applies as a result of any such legislation in force at the date of
this Agreement.
13.2 References to a clause, schedule, part, section or paragraph are to a
clause in this Agreement, a schedule to this Agreement or a section,
part or paragraph of such a schedule respectively.
13.3 The headings in this Agreement shall not affect its construction or
interpretation.
13.4 This Agreement shall be binding upon, and enure for the benefit of, the
parties' successors in title but rights arising in connection with this
Agreement (including the benefit of the Warranties) are not assignable
other than to a party's Affiliates always provided that where such
assignment occurs, the aggregate liability of the non-assigning party
to the assignee and assignor shall be no greater than it would have
been to the assigning party if the assigning party had not assigned its
rights.
13.5 This Agreement and the documents entered into pursuant to it set out
the entire agreement between the parties and supersedes all prior
agreements,
16
understandings and arrangements between them, and representations by
them, whether oral or written, which relate to the subject matter of
this Agreement.
13.6 No variation of any provision of this Agreement shall be effective
unless it is in writing, refers specifically to this Agreement and is
duly executed by each party.
13.7 Time shall be of the essence of this Agreement, both as regards any
time, date or period mentioned in this Agreement and as to any agreed
time, date or period substituted for it.
13.8 This Agreement may be executed in 2 or more counterparts, each of which
shall constitute an original but which when taken together, shall
constitute 1 instrument,
13.9 In this Agreement the words and phrases "other", "including" and "in
particular" shall not limit the generality of any preceding words or be
construed as being limited to the same class as the preceding words
where a wider construction is possible.
14 PROPER LAW
14.1 This Agreement shall be governed by, and construed in accordance with,
English law. The courts of England are to have exclusive jurisdiction
to settle any dispute which may arise out of or in connection with this
Agreement.
15 NOTICES
15.1 Any notice in connection with this Agreement shall be in writing and
delivered personally or sent by first class air mail pre-paid post to
the relevant party at their registered office or such other address as
the recipient may have previously notified to the sender in accordance
with this clause or by telex or facsimile transmission to the then
current telex or facsimile number of the recipient. Proof of posting or
despatch shall be deemed to be proof of receipt:
(a) in the case of a letter, on the business day after posting,
and
(b) in the case of a telex or facsimile transmission, at the time
of despatch.
This Agreement is entered into on the date specified above.
17
SCHEDULE 1
The Company
1 AUTHORISED SHARE CAPITAL
1.1 Pound Sterling10,000 divided into 5,000 "A" Ordinary shares of Pound
Sterling1 each and 5,000 "B" Ordinary shares of Pound Sterling1 each.
2 NAMES OF DIRECTORS
2.1 ▇▇▇▇▇▇ ▇▇▇
▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇ ▇'▇▇▇▇
3 NAME OF SECRETARY
3.1 ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇.
4 REGISTERED OFFICE
4.1 ▇ ▇▇▇ ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇, ▇▇▇ ▇▇▇.
5 ACCOUNTING REFERENCE DATE
5.1 31st March.
18
SCHEDULE 2
Warranties
1. CAPACITY OF THE SELLER
1.1 The Seller has the requisite power and authority to enter into and
perform this Agreement.
1.2 The execution and delivery of, and the performance by the Seller of its
obligations under, this Agreement does not require the consent of any
other person and will not result in a breach of or default under any
agreement or instrument to which any Seller is a party or any
commitment or court order by which the Seller is bound.
1.3 None of the Shares has been the subject of a transfer at an undervalue
(within the meaning of sections 238 or 339 Insolvency Act 1986) within
the period of 5 years prior to the date of this Agreement.
2. ACCURACY OF INFORMATION
2.1 The information in schedule 1 is accurate.
3. CONSTITUTIONAL MATTERS
3.1 The Shares comprise the whole of the issued share capital of the
Company.
3.2 All the issued shares of the Company are fully paid. The Company has
not claimed or exercised a lien over any share.
3.3 There is no outstanding agreement or commitment (including any
pre-emption and conversion rights) which may require the allotment or
issue of, or may give to any person a right (whenever exercisable and
whether unconditional or not) to call for the allotment or issue of,
any share in the Company.
3.4 There is no shadow director of the Company.
3.5 Copies of the memorandum and articles of association of the Company
(having attached thereto copies of all such resolutions as are required
to be attached thereto) are attached to the Disclosure Letter.
4. SUBSIDIARIES AND ASSOCIATED COMPANIES
4.1 The Company:
(a) has no legal or beneficial interest in the share capital of or
other investment in any other person (whether incorporated in
the United Kingdom or elsewhere) and has not agreed to acquire
any such shares or investments; and
(b) does not hold and has not agreed to any investment or other
interest in any partnership, joint venture, consortium or
other unincorporated association or arrangement for sharing
profits or receivables and has no branch, agency, place of
business or establishment outside the United Kingdom.
19
5. THE ACCOUNTS
5.1 The Accounts:
(a) comply with the requirements of the Companies ▇▇▇ ▇▇▇▇ and
1989 and with accounting principles and practices generally
accepted in the United Kingdom at the relevant time,
(b) give a true and fair view of the financial position and state
of affairs of the Company as at the Accounts Date and of the
profit or loss of the Company for the financial year ended on
the Accounts Date.
5.2 The bases and policies of accounting adopted for the purpose of
preparing the Accounts are the same as those adopted in preparing the
audited accounts of the Company for the 2 preceding financial years.
5.3 All the accounting records and VAT records of the Company are in its
possession and give a reasonably accurate view of the trading
transactions and the financial position of the Company.
6. EVENTS SINCE THE ACCOUNTS DATE
6.1 Since the Accounts Date:
(a) the business of the Company has been carried on in the
ordinary and normal course, and
(b) the Company has not declared, made or paid any distribution
within the meaning of the 1988 Taxes Act.
7. FINANCE AND CAPITAL COMMITMENTS
7.1 There is no debt of the Company for a sum exceeding Pound
Sterling20,000 and which has been outstanding for a period of more than
60 days since the invoice date.
7.2 Since the Accounts Date, the Company has not made or agreed to incur
any item of capital expenditure exceeding Pound Sterling10,000 or
disposed or agreed to dispose of any capital asset with a book value in
excess of Pound Sterling10,000.
7.3 No guarantee, indemnity, suretyship obligation or security has been
given or agreed to be given by, or for the benefit of, the Company.
7.4 The Company has not factored any of its debts, or engaged in any other
financing which need not be shown in its audited accounts.
7.5 The Company has not received any material government grant.
8. CONTRACTS
8.1 So far as the Seller is aware, there is no ground on which any material
contract of the Company could be avoided, prematurely determined or
declared to be invalid and the Company has not received notice
indicating that such a claim is foreseeable.
8.2 Copies of all material contracts (including all amendments or
variations thereto) to which the Company is a party are attached to the
Disclosure Letter.
8.3 At the date of this Agreement:
20
(a) the number of Industrial and Commercial Customers currently
taking gas is not less than 700; and
(b) the number of current Domestic Customers currently taking gas
confirmed on supply points is not less than 37,000 and there
are not less than 5,000 Domestic Customers who are not yet
confirmed as supply points which have not been rejected by
Transco or not yet objected to by any other gas supplier.
8.4 So far as the Seller is aware, the Company has not agreed to acquire or
dispose of any material assets or assumed or incurred or agreed to
assume or incur any material expenditure or material liabilities
(including contingent liabilities) following Completion.
8.5 The Company has not entered into any agreement with Kelda or any
subsidiary of Kelda otherwise than by way of bargain at arms length.
8.6 The Company has not entered into any contracts for the purchase of gas
save as contained in the Disclosure Bundle and in the case of the
purchase of gas for the supply to Industrial and Commercial Customers
has only contracted to acquire gas under the arrangements with Aquila
Energy Limited described in clause 8.7.
8.7 The gas prices charged by Aquila Energy in respect of Industrial and
Commercial Customers is fixed for the duration of that customer's
contract and provided that there are no significant changes in the
transportation charges levied by TRANSCO and that Industrial and
Commercial Customers consume gas in accordance with the estimated
annual quantity for that customer's site set by TRANSCO, the prices
charged to each such customer should result in a gross profit for the
Company.
9. TRADING AND TRADING PRACTICES
9.1 Save for any warranty implied by law or contained in its standard terms
of sale (copies of which are attached to the Disclosure Letter), the
Company has not given any warranty or guarantee, or made any
representation, in respect of goods or services supplied or agreed to
be supplied by it.
9.2 So far as the Seller is aware, the Company has not received
notification of any claim that it is under a liability to replace or
remedy defects to any goods which have been sold by it or to make good
any errors or omission to services which have been supplied by it.
10. OWNERSHIP AND CONDITION OF ASSETS
10.1 Having regard to their age, all of the plant and machinery used by the
Company in connection with its business is in reasonably good repair
and condition, fair wear and tear excepted, and has been serviced and
maintained and complies with compulsory safety regulations.
10.2 The Company is the absolute owner of and is in actual possession of all
the material assets used in the course of its business with full right
and power to sell the same in each case with full title guarantee. No
person has the right to call for any payment in respect of any of those
assets and the Company has not created or agreed to create any charge,
debenture, mortgage, pledge, lien, assignment or
21
other form of encumbrance or security interest over any part of its
undertaking or assets.
11. EMPLOYEES
11.1 The Disclosure Letter contains materially accurate details of the
identities, dates of appointment to office or commencement of
continuous employment, emoluments, notice periods and other terms of
employment of each officer and employee of the Company including
benefits provided by custom or practice.
11.2 Since the Accounts Date no change has been made in the terms of
engagement of any officer or employee of the Company and so far as the
Seller is aware none is expected within 6 months of the date of this
Agreement.
11.3 The Company is not a party to any consultancy agreement.
11.4 There is no existing, pending or, so far as the Seller is aware,
threatened dispute between the Company and any material number or
category of its employees and so far as the Seller is aware there are
no circumstances which are likely to give rise to any such dispute
provided that it is acknowledged that the Seller has no knowledge of
employees' intentions following the change of control of the Company
contemplated by this Agreement
11.5 Save as set out in the Disclosure Letter there are no agreements,
arrangements or practices for the provision of pension or lump sum
benefits on or in anticipation of the retirement or death of any person
to which the Company is a party.
12. INTELLECTUAL PROPERTY
12.1 The Company is the sole and absolute legal and beneficial owner of the
Intellectual Property Rights.
12.2 All the Intellectual Property Rights are valid, subsisting and
enforceable and so far as the Seller is aware no claims have been made
challenging their use or such validity, subsistence or enforceability
and so far as the Seller is aware no grounds exist which might support
any such claims.
12.3 So far as the Seller is aware, there is and has been no infringement or
threatened infringement of any of the Intellectual Property Rights by
any third party or of any third party Intellectual Property by the
Company and no claim concerning such infringement has been made or
considered by the Seller.
12.4 Save as disclosed in the Disclosure Letter there are no subsisting or
proposed licences or other arrangements from or with third parties
("THIRD PARTY ARRANGEMENTS") nor are any Third Party Arrangements
required for the exercise of any of the Intellectual Property Rights or
for the use or disclosure of any of the subject matter thereof.
12.5 All current advertising and marketing materials ("THE MATERIALS") used
or proposed to be used directly by the Company itself complies with the
Company's Gas Supplier Licence and all relevant Codes of Practice and
so far as the Seller is aware the Materials used or proposed to be used
in connection with the Company's business by persons other than the
Company comply with the Company's Gas Supplier Licence and all relevant
Codes of Practice.
22
12.6 The Company is registered under the Data Protection Act 1984 and so far
as the Seller is aware has complied with the this legislation.
13. COMPETITION
13.1 So far as the Seller is aware, the Company is not, nor has at any
material time been, a party to, or otherwise bound by, any agreement,
practice, concerted practice or obligation which is in contravention of
any anti-trust or similar legislation anywhere where the Company has
assets or carries on or intends to carry on business.
14. LITIGATION AND DISPUTES
14.1 Apart from the collection of debts in the ordinary course of the
business, there are no proceedings (that is to say, civil, criminal and
arbitration proceedings and administrative proceedings of a litigious
nature which involve the Company, or any of its employees or agents in
relation to a matter for which the Company may have a liability) which:
(a) are current,
(b) are being contemplated by the Company, or
(c) so far as the Seller is aware, are pending, threatened or
expected to be brought against the Company or its agents or
employees,
and so far as the Seller is aware, there is no circumstance (including
without limitation any allegation made to Ofgem as to any breach or
purported breach of the Company's Gas Supplier Licence) which may give
rise to any proceedings.
15. INSOLVENCY
15.1 No administrative receiver, receiver, manager or receiver and manager
has been appointed of the whole or any part of the assets or
undertaking of the Company and so far as the Seller is aware no such
appointment has been threatened.
15.2 So far as the Seller is aware, no order has been made or petition
presented or threatened or resolution passed for the winding up of the
Company or for an administrator to be appointed in respect of the
Company.
15.3 The Company is not insolvent nor has it stopped payment of its debts
within the meaning of section 123 Insolvency ▇▇▇ ▇▇▇▇.
15.4 No distress, execution or other process has been levied or so are as
the Seller is aware threatened in respect of any asset of the Company.
15.5 So far as the Seller is aware, there is no unfulfilled or unsatisfied
judgment or court order outstanding against the Company.
15.6 So far as the Seller is aware, no proposal has been made for a
voluntary arrangement in relation to the Company to be implemented
under section 1 Insolvency ▇▇▇ ▇▇▇▇.
16. INSURANCE
16.1 Particulars of all insurance policies maintained by the Company and
currently in force are contained in the Disclosure Letter.
23
16.2 The Company has in place at Completion all insurances required by law
to be effected by it.
16.3 So far as the Seller is aware all the insurance policies in which the
Company has an interest are in full force and effect, all premiums have
been paid on time and there is no fact or circumstance which might lead
to any liability under those policies being avoided by the insurers or
the premiums being increased.
16.4 No claim is outstanding under any insurance policy in which the Company
has an interest.
17. LEGAL AND REGULATORY REQUIREMENTS
17.1 So far as the Seller is aware:
(a) the Company is conducting, and has at all material times
conducted, its business in accordance with all applicable laws
and regulations of Great Britain and has no liability for any
unlawful act committed by any other person;
(b) no licence, consent or authority is necessary to enable the
Company to carry on its business effectively in the places and
manner in which it is carried on which the Company has not
obtained; and
(c) all returns, particulars and other documents required to be
filed with the Registrar of Companies in respect of the
Company have been properly filed.
24
SCHEDULE 3
Property
Part 1 - Description of Property
The Basement and Ground floors of "Club ▇▇▇▇▇▇▇▇" Museum Street in the City of
York.
Part 2 - Warranties relating to Property
1. The Property comprises all the freehold and leasehold land and premises
owned occupied or used by the Company. The particulars of the Property
set out in part 1 of this schedule 3 are true and accurate.
2. So far as the Seller is aware, no notices affecting the Property have
been served by any person or body or local or other competent authority
which have not been complied with or are outstanding and so far as the
Seller is aware there are no circumstances known which are likely to
result in any such notice being served.
3. There are no outstanding claims, notices or recommendations under the
provisions of the ▇▇▇▇▇▇▇▇▇ ▇▇▇ ▇▇▇▇, the Offices Shops and Railway
Premises ▇▇▇ ▇▇▇▇, the Fire Precautions ▇▇▇ ▇▇▇▇ relating to the
Property.
4. All payments of rent and other sums due to the landlord under the lease
have been duly paid on time and so far as the Seller is aware all
covenants and provisions of the lease have been duly observed and there
are no outstanding notices from the landlord concerning breach of
covenant, rent review, determination of term, state of repair of the
Property or otherwise.
5. The Company has no accrued or contingent liabilities whether as
original lessee or guarantor or surety or by virtue of any indemnity or
otherwise under or in connection with any property formerly occupied by
it or in which it owned or held any interest or in connection with
which it acted as surety.
25
SCHEDULE 4
Provisions for the protection of the Seller
1 TIME LIMITS
1.1 Notwithstanding anything to the contrary in this Agreement, the Seller
shall have no liability for any claim made against it under this
Agreement (including in relation to the Warranties or the Tax
Covenant):
(a) unless written notification of the claim giving reasonable
particulars of the grounds on which it is based and, so far as
is reasonably practicable, details of the amount of the claim
is given to it within 1 year after the Completion Date (other
than in the case of claims in respect of Tax, where such
notification must be given within 6 years after the Completion
Date); and
(b) if the Buyer or the Company does not issue proceedings in
respect of any claim within 6 months after notification of the
claim or, if later and if applicable, within 30 business days
after the date on which proceedings referred to in clause 8 of
this schedule are concluded adversely against the Company.
2 FINANCIAL LIMITS
2.1 Notwithstanding anything to the contrary in this Agreement, the Seller
shall have no liability for any claim made against it in relation to
the Warranties or the Tax Covenant:
(a) where the liability of the Seller in respect of that matter is
less than Pound Sterling2,000;
(b) unless and to the extent that, subject to the other provisions
of this clause, the aggregate of the liability of the Seller
under the Warranties and under the Tax Covenant exceeds Pound
Sterling150,000 and, once such level has been reached, the
Buyer and the Company shall be entitled, subject as above, to
claim for the full amount and not just the excess; or
(c) which would cause the aggregate liability of the Seller under
this Agreement and the Tax Covenant to exceed the Purchase
Price.
2.2 The limitations on the liability of the Seller set out in this
paragraph 2 shall not apply to any claim made in relation to the
Warranties or the Tax Covenant if the claim arises as a result of fraud
on the part of the Seller or where it is proved that the Seller
intentionally withheld any material disclosure relating to such claim,
in each case on or prior to Completion.
3 NO RESCISSION
3.1 The Buyer shall have no right to rescind or treat this Agreement as
repudiated, whether before or after Completion, for breach of any of
the Warranties or under the provisions of the ▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇
▇▇▇▇ or for any other reason and the Buyer's sole remedy for a claim
under this Agreement or the Tax Covenant shall be a monetary claim.
26
4 EXCLUSIONS
4.1 The liability of the Seller in relation to the Warranties and the Tax
Covenant shall not apply in
respect of:
(a) any matter expressly provided for in this Agreement;
(b) any matter or thing done or omitted to be done prior to
Completion at the written request of, or with the written
approval of, the Buyer;
(c) a claim which would not have arisen but for some voluntary act
or omission (which the Buyer knew or ought reasonably to have
known would give rise to such a claim) undertaken by the Buyer
or any other member of the group of companies of which the
Buyer is a member, for the time being, including the Company,
(the "BUYER'S GROUP"), or any of their respective officers,
agents or successors in title on or after Completion; and
(d) any matter or thing for which a specific provision or reserve
or note was made in the Accounts or the Completion Accounts.
5 CREDITS
5.1 Any liability of the Seller under the Warranties and under the Tax
Covenant shall be reduced by an amount equal to:
(a) the amount of or by which any Taxation for which any of the
Buyer's Group is accountable is extinguished or reduced as a
result of the claim giving rise to the liability; and
(b) the amount by which any provision for Taxation not being a
provision for deferred Taxation, bad or doubtful debts or
contingent or other liabilities contained in the Accounts
proves after Completion to have been excessive, except by
reason of a reduction in Tax rates.
6 TAXATION AND CHANGES IN LAW
6.1 No liability shall attach to the Seller for any claim in relation to
the Warranties or the Tax Covenant to the extent that:
(a) such claim arises as a consequence of a change in any law,
rule or regulation (or their interpretation) or administrative
practice of any government, governmental department, agency or
regulatory body taking effect after the date of this
Agreement;
(b) such claim arises as a result of a change of accounting or
Taxation policy or practice by the Buyer or the Company
introduced on or after the Completion Date; or
(c) such claim arises as a result of any increase in the rates of
Taxation made after the date of this Agreement.
7 INSURANCE
7.1 The Seller shall not have any liability under this Agreement or the Tax
Covenant in respect of any claim to the extent that it has been
recovered under any policy of insurance effected by the Company or the
Buyer.
27
8 THIRD PARTY CLAIMS
8.1 Where any member of the Buyer's Group is entitled to recover any amount
from some other person, including any amount in respect of Taxation, in
respect of any matter giving rise to a breach of the Warranties or a
claim under the Tax Covenant, it shall first take steps (including the
commencement and prosecution of proceedings in circumstances where the
Seller and the Buyer consider that there is a reasonable chance of
recovery) to enforce such recovery before taking steps against the
Seller. If the Seller pays to any member of the Buyer's Group an amount
in respect of a claim under the Warranties or under the Tax Covenant
and subsequently any member of the Buyer's Group recovers from a third
party a sum which is referable to that payment then the Buyer shall
forthwith procure the repayment to the Seller of so much of the amount
recovered from the third party less costs of recovery and tax payable
in respect of the amount recovered as does not exceed the sum so paid
to the Buyer's Group. The Buyer shall use and shall procure that each
other member of the Buyer's Group uses all reasonable endeavours to
enforce any right to recover any such sum.
8.2 If grounds for any claim against the Seller arise in relation to this
Agreement or the Tax Covenant as a result of, or in connection with, a
claim by, or alleged liability to, a third party (a "THIRD PARTY
CLAIM"), the third party claim shall not be compromised or settled
without the consent of the Seller, not to be unreasonably withheld. If
requested promptly in writing by the Seller and, subject to its being
indemnified to its reasonable satisfaction by the Seller against all
costs and liabilities which may be incurred by the Seller as a result,
the Buyer shall:
(a) take, and shall procure that the Company takes, all such
action as the Seller may reasonably request to avoid, dispute,
resist, appeal or compromise the third party claim; and
(b) make available, and procure that the Company shall make
available, to the Seller on request all information and
reasonable assistance which is relevant for that purpose. The
Seller shall not use or disclose any such information for any
other purpose.
9 MITIGATION
9.1 The provisions of this schedule 4 are without prejudice to the
obligations of the Buyer and the Company to mitigate any loss or
liability which might give rise to a claim under this Agreement or the
Tax Covenant.
10 ACCESS TO INFORMATION
10.1 If any claim under this Agreement or the Tax Covenant is notified, and
without prejudice to its validity, the Buyer shall procure that the
Company allows the Seller and their professional advisers to
investigate the basis for that claim. For such purpose the Buyer shall
procure that the Company gives such reasonable access to any relevant
documents or other information in the possession of the Company. The
Seller shall pay the reasonable costs and expenses of the Buyer and/or
the Company in providing or procuring such assistance.
28
11 WARRANTIES AND TAX COVENANT
11.1 Where a claim may be made under the Warranties or the Tax Covenant in
respect of the same subject matter the claim shall be made and pursued
under the Warranties before a claim is made under the Tax Covenant for
the same matter save in circumstances where the time period for
bringing claims under the Warranties in accordance with paragraph
1.1(a) of this schedule has expired.
11.2 A claim brought under the Tax Covenant shall be reduced by the amount
recovered under a claim for breach of the Warranties in respect of the
same matter, and vice versa.
12 NO OTHER WARRANTIES
12.1 The Buyer acknowledges that it does not enter into this Agreement in
reliance on any warranty, representation, covenant or indemnity by or
on behalf of the Seller which is not embodied in this Agreement or the
Tax Covenant.
13 EFFECT ON CONSIDERATION
13.1 Any amounts payable by the Seller to the Company or the Buyer under
this Agreement or the Tax Covenant shall constitute a reduction of the
consideration received by it under this Agreement.
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SCHEDULE 5
Taxation
Part 1 - General
1 INTERPRETATION
1.1 In this schedule (unless the context otherwise requires):
"ACTUAL TAXATION LIABILITY" means a liability to make an actual payment
of Taxation whether or not such Taxation is also or alternatively
chargeable against or attributable to any other person;
"CAA" means the Capital ▇▇▇▇▇▇▇▇▇▇ ▇▇▇ ▇▇▇▇;
"CLAIM" means any assessment, notice, demand or other document issued
or action taken by or on behalf of any Taxation Authority or any form
of return, computation or self-assessment required by law from which it
appears that the Company is subject to or is sought to be made subject
to, or will or might become subject to, any Taxation Liability or that
a breach of any Taxation Warranty has occurred;
"DEEMED TAXATION LIABILITY" means:
(a) the setting off of a Post-Completion Relief against an Actual
Taxation Liability of the Company in respect of which the
Seller would have been liable under paragraph 1.1(a) of part 2
or (as the case may be) against income, profits or gains which
would have given rise to such an Actual Taxation Liability (a
"SET OFF LIABILITY"), in which event the amount of the Set Off
Liability is the amount of the earliest Actual Taxation
Liability of the Company to arise which would not have arisen
or could have been avoided by the use of that Post-Completion
Relief but for that setting off;
(b) the unavailability of a right to repayment of Taxation treated
as an asset in the Completion Accounts in consequence of an
Event occurring on or before Completion in which event the
amount of the Deemed Taxation Liability is the amount of
Taxation which would have been repaid but for such
unavailability (an "UNAVAILABLE REPAYMENT LIABILITY");
"EVENT" means any event, omission, occurrence, transaction, or act
whatsoever;
"FA" means Finance Act;
"GROUP RELIEF" has the meaning given to that expression by section 402
ICTA;
"ICTA" means the Income and Corporation Taxes ▇▇▇ ▇▇▇▇;
"IHTA" means the Inheritance Tax ▇▇▇ ▇▇▇▇;
"INDEPENDENT EXPERT" means a member of the Chartered Institute of
Taxation or the Institute of Chartered Accountants in England and Wales
independent of the parties who has had a specialised Taxation practice
for at least ten years and who shall be appointed by agreement between
the relevant parties or (failing such agreement and upon the first
application made by any such party) by the President of the Chartered
Institute of Taxation or the Institute of Chartered Accountants in
England and Wales;
30
"POST-COMPLETION RELIEF" means any Relief which arises in consequence
of or by reference to an Event occurring or deemed to occur after
Completion and not in consequence of or by reference to any Event
occurring or deemed to occur on or before Completion (but shall not
include any Relief referred to in paragraph 4.2);
"RELIEF" means any loss, allowance, exemption, set-off, deduction,
credit or other relief from any Taxation or in the computation of
income, profits or gains for the purpose of any Taxation and any right
to a repayment of Taxation;
"TAXATION" means:
(a) any form of tax, and any levy, duty, impost, deduction, or
withholding in the nature of tax whenever created or imposed
and whether of the United Kingdom, or elsewhere but not
including uniform business rates, water rates, community
charge, council tax or stamp duty or any tax, charge, rate or
duty similar to, corresponding with, replacing or replaced by
any of them; and
(b) all charges, surcharges, interest, penalties and fines
relating to any Taxation falling within paragraph (a) of this
definition;
"TAXATION AUTHORITY" means any authority or person, whether of the
United Kingdom or elsewhere, competent to impose, assess or collect any
Taxation Liability;
"TAXATION LIABILITY" means any Actual Taxation Liability, any Deemed
Taxation Liability and any costs, fees and expenses falling within
paragraph 1.1(d) of part 2;
"TAX REFUND" means a tax refund relating to an accounting period within
the meaning of section 102 FA 1989;
"TCGA" means the Taxation of Chargeable Gains ▇▇▇ ▇▇▇▇;
"VATA" means the Value Added Tax ▇▇▇ ▇▇▇▇; and
"SELLER'S RELIEF" means any Relief which is or becomes available to the
Company in respect of an accounting period of the Company ended prior
to Completion, other than a Post-Completion Relief;
1.2 In this schedule (unless the context otherwise requires):
(a) references to persons include an individual, corporation,
partnership, unincorporated association, or body of persons
and any state or any agency thereof;
(b) references to parts are references to parts of this schedule
and reference in any part to a paragraph shall, unless
otherwise stated, be to the paragraph of that part.
31
1.3 Any payments made pursuant to this schedule or for breach of any
Warranty shall, so far as possible, be treated as an adjustment to the
consideration paid by the Buyer for the Shares under this Agreement.
2 EXCLUSIONS AND LIMITATIONS
2.1 The Seller shall not be liable for breach of any Taxation Warranty in
respect of any Taxation Liability (or where the loss, liability or
damage arising in consequence of a breach of any Taxation Warranty is
any Taxation Liability) or under part 2 in respect of any Taxation
Liability to the extent that:
(a) specific provision or reserve for it is made in the Completion
Accounts or payment or discharge of it is taken into account
therein;
(b) any Seller's Relief is or becomes available (or is made
available) to the Company to mitigate the Taxation Liability
or breach;
(c) In relation to a breach of Tax Warranties only (and not so as
to apply to a claim under part 2 of this schedule) it arises
in consequence of any fact or matter which was disclosed or
expressed to be disclosed in the Disclosure Letter or which
was in the public domain at Completion.
(d) it arises in consequence of, or would have been reduced or
eliminated but for:
(i) any act or omission of the Company after Completion
otherwise than in the ordinary course of the business
of the Company as carried on at Completion and
otherwise than pursuant to a legally binding
obligation of the Company in existence at Completion;
(ii) the Company ceasing to carry on any trade or business
after Completion or effecting a major change after
Completion in the nature or conduct of any trade or
businesses carried on by it, the Company changing the
date to which it makes up its accounts or changing
any of its accounting policies, bases or practices
(including, without limitation, the treatment of
timing differences and the bases on which the Company
values its assets) in either case after Completion
other than in order to comply with generally accepted
accounting principles;
(iii) the failure by the Company after Completion to make
any claim, election, surrender or disclaimer or to
give any notice or consent or to do any other thing,
the making, giving or doing of which was permitted by
law and which is taken in account:
(A) in computing and so reducing any provision
which appears in the Completion Accounts (or
eliminating any provision which would
otherwise have appeared in the Completion
Accounts); or
(B) in computing any right to repayment of
Taxation which appears in the Completion
Accounts;
and which in each case was disclosed in sufficient
detail and time by the Seller to the Buyer to enable
the same reasonably to be made, given or done, or the
withdrawal or amendment by the
32
Company after Completion of any such claim, election,
surrender, disclaimer, notice or consent made by the
Company prior to Completion;
(iv) any claim, election, surrender, disclaimer, notice or
consent made by the Company after Completion, the
making or doing of which was not taken into account:
(A) in computing and so reducing any provision
which appears in the Completion Accounts (or
eliminating any provision which, would
otherwise have appeared in the Completion
Accounts); or
(B) in computing any right to repayment of
Taxation which appears in the Completion
Accounts.
(v) any failure by the Buyer or the Company to comply
with its obligations under paragraph 5 ("APPEALS AND
CONDUCT OF CLAIMS") or paragraph 7 ("TAXATION
COMPUTATIONS") to the extent (but only to the extent)
that such failure by the Buyer results in an increase
in Taxation Liability;
(vi) any legislation or any change in the rate of any
Taxation or any imposition of Taxation or change in
the published practice of, or published concession
operated by, any Taxation Authority in each case
coming into effect after Completion;
(vii) the earning, receipt or accrual for any Taxation
purpose of any income, profit or gain prior to
Completion which is not recognised in the Completion
Accounts but would have been had all the relevant
facts been known;
(viii) the rate or average rate of any Taxation for any
period which is applicable to the Company increasing
as a result of the sale and purchase of the Company
under the Agreement, including the Company ceasing to
be subject to corporation tax at the small companies'
rate (or qualifying for relief under section 13(2)
ICTA) and becoming subject to corporation tax at the
rate applicable to companies generally;
33
(e) the Buyer has recovered damages or any other amount under this
Agreement (whether for breach of warranty, under this schedule
or otherwise) in respect of the same loss, liability, damage
or Event or the Buyer or the Company have otherwise obtained
reimbursement or restitution from the Seller.
3 MITIGATION OF LIABILITY
3.1 The Seller may, in particular but without limitation, by notice in
writing to the Buyer avoid or reduce any liability which the Seller
would, apart from this paragraph 3.1, have under part 2 or for breach
of any Taxation Warranty by surrendering or procuring the surrender to
the Company of Group Relief, advance corporation tax or a Tax Refund
(without the Buyer or the Company being liable to make any payment in
consideration for such surrender) and the liability of the Sellers
under part 2 or for breach of any Taxation Warranty shall be satisfied
or avoided to the extent of the amount of Taxation which could be
satisfied or avoided as a result of such surrender. The Buyer shall
procure that the Company takes all such steps, including (without
limitation) making and giving all such claims and consents as the
Seller may reasonably request to effect any such surrender.
4 OVER-PROVISIONS AND RELIEFS
4.1 The Buyer shall at the request of the Seller require the auditors for
the time being of the Company ("the Auditors") to determine as experts
and not as arbitrators (and at the expense of the Seller) whether:
(a) any provision for Taxation, the surrender of a Tax Refund or
the surrender of advance corporation tax in the Completion
Accounts has proved to be an over-provision and if so its
amount;
(b) any right to a repayment of Taxation treated as an asset in
the Completion Accounts has proved to be understated and if so
its amount or, where no right to repayment of Taxation was
treated as an asset in the Completion Accounts, whether any
such amount should have been treated as an asset in the
Completion Accounts and if so the amount; or
(c) any Actual Taxation Liability which arises or would otherwise
have arisen (other than one which would otherwise have given
rise to a corresponding liability of the Seller under
paragraph 1 of part 2) is avoided or reduced or any repayment
of an amount of Taxation is obtained in either case by the use
of a Seller's Relief, and, if so, the amount of Taxation so
saved or the amount of that repayment; and
if the Auditors determine that there has proved to be any such
over-provision, understatement or amount, the amount of such
over-provision, understatement or amount (as the case may be) shall be
dealt with in accordance with paragraph 4.3.
4.2 The Buyer shall at the request of the Seller require the Auditors to
determine as experts and not as arbitrators and (at the expense of the
Seller) whether any Taxation Liability (or the Event giving rise to
such Taxation Liability or the discharge of it) which has resulted in
any sum having been paid or becoming payable by the Seller under part 2
or for breach of any Taxation Warranty has
34
given rise to a Relief (or would give rise to a Relief assuming that
all reasonable steps are taken to obtain such Relief) which would not
otherwise have arisen, and:
(a) a liability of the Company or any member of the Buyer's group
to make an actual payment or increased payment of Taxation has
been satisfied or avoided in whole or in part by the use of
that Relief; or
(b) a right to a repayment of Taxation has arisen as a result of
the use of that Relief;
and, if the Auditors so determine, the amount by which that liability
has been or could have been satisfied or avoided or an amount equal to
the amount of that repayment (as the case may be) shall be dealt with
in accordance with paragraph 4.3.
4.3 Where it is provided under paragraph 4.1 or 4.2 that any amount is to
be dealt with in accordance with this paragraph 4.3:
(a) the amount shall first be set off against any payment then due
from the Seller under part 2 or be taken into account in
assessing any loss for breach of any Warranty or set off
against any payment due under part 2 as the case may be;
(b) to the extent there is an excess, the remainder of that excess
shall be carried forward and set off against any future
payment which becomes due from the Seller under part 2 or for
breach of any Warranty.
4.4 Where such determination by the Auditors as is mentioned in paragraph
4.1 or 4.2 has been made, the Seller or the Buyer may request the
Auditors to review such determination (at the expense of the person
making the request) in the light of all relevant circumstances,
including any facts which have become known only since such
determination, and to determine whether such determination remains
correct or whether, in the light of those circumstances, the amount
that was the subject of such determination should be amended.
35
4.5 If the Auditors determine under paragraph 4.4 that an amount previously
determined should be amended, that amended amount shall be substituted
for the purposes of paragraph 4.1 or 4.2, as the case may be, in place
of the amount originally determined and such adjusting payment (if any)
as may be required by virtue of such substitution shall forthwith be
made by the Seller to the Buyer or, as the case may be, by the Buyer to
the Seller.
5 APPEALS AND CONDUCT OF CLAIMS
5.1 If the Buyer or the Company (or any of their officers, employees,
servants or agents) becomes aware of a Claim, the Buyer shall or shall
procure that the Company shall as soon as reasonably practicable give
written notice of the Claim to the Seller and, in any event, where a
statutory or other time limit is applicable for responding to or
appealing against the Claim or to any assessment, notice, demand or
other document issued (or deemed to be issued) or action taken which
constitutes the Claim, the Buyer shall give written notice of the Claim
to the Seller at least 14 days prior to the expiry of such time limit.
Such written notice shall include to the extent it is reasonable to do
so an estimate of the Seller's liability under this schedule in respect
of such Claim and such details of the Claim as are then available to
the Buyer or the Company.
5.2 The Buyer shall, and shall procure that the Company shall, take such
action to appeal, protest against, mitigate, reduce, avoid, dispute,
resist or compromise the Claim and make available such documents,
information and assistance in connection with the Claim as the Seller
may by written notice request provided the Seller shall indemnify the
Buyer and the Company against all reasonable costs and expenses which
the Buyer or the Company incurs as a result of taking such action or
providing such information and assistance.
5.3 The Seller may elect to have any action referred to in paragraph 5.2
conducted by professional advisers acting in the name of the Company
but reporting to the Seller in which event the provisions of paragraph
5.4 shall apply. Such appointment shall be subject to the prior written
approval of the Buyer, such approval not to be unreasonably withheld or
delayed.
5.4 The Seller hereby undertakes to the Buyer to
(a) keep the Buyer informed of all matters relating to the action
and deliver to the Buyer copies of all material correspondence
relating to the action;
(b) obtain the prior written approval of the Buyer (not to be
unreasonably withheld or delayed) to the content and sending
of written communications and to the content of material oral
communications relating to the action to a Taxation Authority;
and
(c) obtain the prior written approval of the Buyer (not to be
unreasonably withheld or delayed) to:
(i) the settlement or compromise of the Claim which is
the subject of the action; and
(ii) the agreement of any matter in the conduct of the
action which is likely to affect the amount of the
Claim.
36
5.5 The Buyer shall not be obliged to procure that the Company take any
action under this clause which involves contesting any matter beyond
the first appellate body (excluding the Taxation Authority which has or
shall have made the Claim in question and the General and Special
Commissioners) unless the Seller furnishes the Buyer with the written
opinion of Counsel of at least five years call who is experienced in
the subject matter of the Claim to the effect that an appeal in respect
of the matter in question is on the balance of probabilities likely to
be won.
5.6 If at any time the Seller has not exercised the election referred to in
paragraph 5.3 but requests that the Buyer take, or procure that the
Company take, any action referred to in paragraph 5.2, the provisions
of paragraph 5.4 shall apply as if references to "the Seller" are
references to "the Buyer" and reference to "the Buyer" are references
to "the Seller".
5.7 The Buyer shall not be obliged to take any action or cause the Company
to take any action under this clause 5 which will in the opinion of the
Buyer prejudice the business of the Company, the Buyer or a member of
the Group of companies as the Buyer.
6 DISPUTES
6.1 In the event of any dispute under paragraphs 3, 4, 5, or 7 of this
schedule, such dispute shall if the parties so agree be determined by
the Independent Expert (acting as expert and not as arbitrator) and in
the absence of manifest error his determination shall be conclusive and
binding on the parties. The proper charges and disbursements of the
Independent Expert shall be paid and borne on each occasion by the
parties concerned in such proportions as the Independent Expert may in
his absolute discretion consider fair and reasonable.
6.2 If either party is dissatisfied with any determination of the Auditors,
the matter shall be referred to the Independent Expert for
determination in accordance with the provisions of paragraph 6.1.
7 TAXATION COMPUTATIONS
7.1 Subject to complying with the provisions of paragraphs 7.2 and 7.3
below, the Seller or its duly authorised agents shall have the right,
at the cost and expense of the Seller, to prepare the corporation tax
returns of the Company for all accounting periods, ending on or prior
to Completion to the extent that the same shall not have been prepared
before the date hereof. The Seller or its duly authorised agents shall
have the right, at the cost and expense of the Seller, to prepare all
documentation and deal with all matters (including correspondence)
relating to the corporation tax returns of the Company for all
accounting periods ending on or prior to Completion.
7.2 The Seller's rights under paragraph 7.1 are subject to the Seller
informing the Buyer and the Company of its intention to exercise such
rights prior to Completion.
7.3 In the event that the Seller exercises its rights under paragraph 7.1
the Seller shall:
37
(a) keep the Buyer and its duly authorised agents and the Company
informed of all material matters relating to the submission,
negotiation and agreement of such corporation tax returns and
computations;
(b) ensure that no such computations or returns nor any
correspondence pertaining to the negotiations or agreement of
such computations or returns which it proposes to send shall
be transmitted to any Taxation Authority without first being
submitted to the Buyer and the Company or their duly
authorised agents for their comments and for the Buyer's
approval and shall only finally be submitted or transmitted on
the receipt of the written approval of the Buyer or its duly
authorised agent, such approval not to be unreasonably
withheld or delayed.
7.4 The Buyer shall procure that the Company shall cause the returns
mentioned in paragraph 7.3 (and all claims, elections, disclaimers,
surrenders and consents assumed to be made or given therein) to be
authorised, signed and submitted to the appropriate Taxation Authority
and generally do all such things as may be necessary to give effect to
such returns, claims, elections, disclaimers, surrenders or consents
provided that neither the Buyer nor the Company can be required to do
anything which is illegal or unlawful or which does not accord with
standard accounting practice.
7.5 The Buyer shall (if requested in writing by the Seller) procure that
the Company promptly makes or gives such returns, claims, elections,
disclaimers, surrenders and consents in relation to Taxation which it
was assumed would be made or given in computing any provision which
appears in the Completion Accounts (or in eliminating any provision
which would have so appeared) or which relate to any Seller's Relief
and generally does all such things as may be necessary to give effect
to such returns, claims, elections, surrenders or consents.
7.6 If at any time the Seller has not exercised its right pursuant to
paragraph 7.3, the provisions of paragraph 7.3 shall apply as if
reference to "the Seller" are references to "the Buyer", as if
references to "the Buyer" are references to "the Seller" and as if the
words "and the Company" in paragraphs 7.3(a) and 7.3(b) are deleted.
7.7 The Buyer acknowledges that trading losses and other amounts eligible
for surrender by Group Relief by the Company to members of its group
arising in its accounting periods ending on or before Completion are to
be surrendered for no payment to the Seller or other members of its
group nominated by the Seller for the purpose of Group Relief to the
extent allowed by sections 402-413 ICTA 1988. To the extent that any
correspondence concerning or computation implying the date when
arrangements for the transfer of the Company to the Buyer came into
existence or the amount of the trading losses available for the purpose
of Group Relief shall be sent by the Buyer or any person acting on its
behalf to any Taxation Authority, where such correspondence or
computation is requested by a Taxation Authority, such correspondence
or computation shall also be copied to the Seller.
7.8 The Buyer shall procure that the Company keeps the Seller fully
informed of its Taxation affairs in respect of the accounting period of
the Company last ending prior to Completion and shall promptly provide
the Seller with copies of all
38
relevant documents and shall not submit any correspondence or submit or
agree any return or computation for such period to any Taxation
Authority without giving the Seller a reasonable opportunity to make
representations thereon and without the written consent of the Seller
(such consent not to be unreasonably withheld or delayed).
7.9 The Buyer shall provide, and shall procure that the Company provides,
the Seller at the expense of the Seller reasonable access to such
documents, reasonable information and reasonable assistance (including,
without limitation, access to books, accounts, records and personnel)
as the Seller may reasonably require on giving reasonable notice (and
in all circumstances it shall be reasonable on the Seller giving the
Buyer seven days notice) in connection with its conduct of the
Company's Taxation affairs pursuant to this paragraph 7.
8 MISCELLANEOUS
8.1 In assessing any damages payable by the Seller for breach of any
Taxation Warranty, the value of the Company shall not be taken as
exceeding the Consideration.
8.2 Nothing in this Agreement shall in any way diminish the Buyer's or the
Company's common law obligation to mitigate its loss.
8.3 If any potential claim for breach of any Taxation Warranty arises in
consequence of a liability of the Company which is contingent only, the
Seller shall not be liable in respect of the claim until such time as
the contingent liability ceases to be contingent and becomes actual
provided always notification of a contingent claim shall be sufficient
for the purposes of paragraph 1 schedule 4.
8.4 The liability of the Seller to the Buyer under part 2 or for breach of
any Taxation Warranty shall cease and any subsisting claim shall be
withdrawn upon the Company ceasing to be controlled whether directly or
indirectly by the Buyer or any Affiliate of the Buyer.
9 BUYER'S COVENANT
9.1 The Buyer covenants with the Seller to pay to the Seller an amount
equal to any Actual Taxation Liability of the Seller or of any company
which is under the control of the Seller at any time after Completion
(and any reasonable costs and expenses incurred by the Seller or the
company in relation to such Actual Taxation Liability or in making any
claim under this paragraph 9.1), where such Actual Taxation Liability
arises as a result of the failure by the Company to discharge after
Completion an Actual Taxation Liability for which the Company is
primarily liable and which is not within part 2.
39
9.2 If the Buyer becomes liable to make a payment under paragraph 9.1, the
Buyer shall pay such amount in cleared immediately available funds on
or before the later of the date 2 business days before that Actual
Taxation Liability is finally due and payable and the date 5 business
days after the date of written demand on the Buyer by the Seller.
40
Part 2 - Tax Covenant
1 COVENANT BY THE SELLER
1.1 Subject to the provisions of part 1 and of schedule 4, the Seller
hereby covenants with the Buyer to pay to the Buyer an amount equal to:
(a) any Actual Taxation Liability of the Company arising as a
result of;
(i) an Event occurring on or before Completion including
the combined results of two or more events the first
of which was outside the ordinary course of business
and took place on or before Completion or which was
deemed for the purposes of Taxation to have taken
place before Completion and the second event which
was inside the ordinary and usual course of the
Company's business as carried on at Completion and
took place after Completion; or
(ii) any income, profits or gains earned, accrued or
received on or before or in respect of any period
ended on or before the date of Completion;
(b) any Deemed Taxation Liability;
(c) any Actual Taxation Liability in respect of inheritance tax
which:
(i) is at Completion a charge on, or gives rise to a
power to sell, mortgage or charge, any of the shares
or assets of the Company; or
(ii) after Completion becomes a charge on, or gives rise
to a power to sell, mortgage or charge, any of the
shares or assets of the Company being an Actual
Taxation Liability arising as a result of the death
of any person within seven years after a transfer of
value (or a deemed transfer of value) if a charge on
or power to sell, mortgage or charge any such shares
or assets could, if the death had occurred
immediately before Completion and the inheritance tax
payable as a result thereof had not been paid, have
existed at Completion; or
(iii) arises as a result of a transfer of value occurring
or being deemed to occur on or before Completion
(whether or not in conjunction with the death of any
person whenever occurring) which increased or
decreased the value of the estate of the Company;
(d) any costs, fees and expenses reasonably incurred by the Buyer
or the Company as a result of any Actual Taxation Liability
within paragraph 1.1(a) or (c) or any Deemed Taxation
Liability within paragraph 1.1(b) or in successfully taking
any action under this part 2.
1.2 With regard to VAT:
41
(a) The Seller covenants with the Buyer that if the Seller is in
breach of the Warranty set out in paragraph 7.2 of Part 3 the
Seller shall pay to the Buyer an amount equal to any liability
of the Company to account for VAT on actual supplies, self
supplies, importations or acquisitions made for VAT purposes
by other members of the group (not being the Company) before
the date of cancellation of group registration
(b) The deeming provisions of Section 43(1)(b) and (c) VATA shall
be disregarded for all periods and (in addition) those of
Section 43(1)(a) shall be disregarded for all periods after
Completion in determining what supplies, self supplies,
importations or acquisitions have been made or are deemed to
have been made by or to any person for the purposes of (a)
above.
2 PAYMENT
2.1 If the Seller is or becomes liable to make a payment under this part 2
in respect of:
(a) an Actual Taxation Liability, the Seller shall pay such amount
in cleared funds on or before the date 5 business days after
the date of written notice from the Buyer to the Seller of the
amount which the Seller is required to pay and requesting
payment or, if later, the business day before the date on
which the Actual Taxation Liability in question is due for
payment;
(b) a Deemed Taxation Liability, the Seller shall pay such amount
in cleared funds 5 business days after the date of written
notice from the Buyer to the Seller of the amount which the
Seller is required to pay and requesting payment, and:
(i) in the case of a Set Off Liability, the date on which
the Actual Taxation Liability referred to in the
definition of that term would otherwise have become
due for payment;
(ii) in the case of an Unavailable Repayment Liability,
the date on which the repayment of Taxation would
have been made but for that unavailability;
(c) any amount within paragraph 1.1(d) the Buyer will notify the
Seller in writing of such amount specifying details of the
services for which those costs, fees and expenses were
incurred and the circumstances in which they were obtained and
the Seller shall pay such amount on or before the date 5
business days after the date of such notice.
42
2.2 Sums not paid by the Seller on the dates specified in paragraphs 2.1
and 2.2 shall bear interest (which shall accrue from day to day after,
as well as before, judgment at 2% above the base rate from time to time
of Lloyds Bank plc) from the date following the specified date up to
and including the day of actual payment of such sums.
3 TAX ON PAYMENTS BY SELLER
3.1 The Seller shall be entitled to deduct or withhold from any payment
made under this part 2 or for breach of any Warranty any deduction or
withholding (whether in respect of Taxation or otherwise) required by
law provided always that the provisions of paragraph 3.2 of this part 2
shall operate.
3.2 If any amount paid to the Buyer under this part 2 is subject to
Taxation (whether by deduction or withholding or otherwise), the Seller
covenants to pay to the Buyer such further sum as will ensure that the
Buyer receives and retains a net amount (after taking into account such
Taxation) equal to the full amount which it would have received and
retained had the payment in question not been subject to Taxation,
provided that the Seller shall not be obliged to pay such additional
amount if the payment received by the Buyer is subject to Taxation as a
result of a voluntary act of the Buyer or the Company occurring after
Completion which causes the payment to fall outside the scope of the
Inland Revenue's Extra Statutory Concession D33 or otherwise become
subject to Taxation.
Part 3 - Taxation Warranties
1. COMPLIANCE
1.1 There is no dispute between the Company and any Taxation Authority, the
Company is not the subject of an investigation, audit or review by any
Taxation Authority and as far as the Seller is aware there are no facts
which are likely to give rise to any such dispute, investigation, audit
or review.
1.2 The Company is not liable to pay any penalty, fine, surcharge, interest
or similar amount in relation to Taxation and as far as the Seller is
aware there are no facts which are likely to cause it to become liable
to pay any such penalty, fine, surcharge, interest or similar amount.
1.3 Within the last 6 years, the Company has duly and punctually complied
with all its obligations to deduct Taxation from payments made by it
and to account for such Taxation to any Taxation Authority.
2. CLOSE COMPANIES
2.1 The Company is not and has never been a close company within the terms
of section 414 ICTA.
43
3. DISTRIBUTIONS AND PAYMENTS
3.1 No distribution (within the meaning of sections 209 and 210 ICTA) has
been made by the Company during the 6 years ended on the Accounts Date
(except as provided in the Accounts).
3.2 The Company has not made or received any exempt distribution within the
meaning of section 213 ICTA, and has at no time been a relevant company
in relation to an exempt distribution for the purposes of that section
or concerned in an exempt distribution for the purposes of section 214
ICTA.
3.3 The Company has not at any time received a capital distribution to
which section 189 TCGA could apply.
3.4 The Company has not paid, and has not elected that any dividend it has
paid or declared be treated as, a foreign income divided as described
in Chapter VA Part VI ICTA.
3.5 The Company has not on or after 6th April 1965:
(a) repaid, redeemed or purchased or agreed to repay, redeem or
purchase any of its share capital; or
(b) capitalised or agreed to capitalise in the form of shares or
debentures, any profits or reserves of any class or
description, or otherwise issued or agreed to issue share
capital otherwise than for new consideration (as defined in
section 254 ICTA).
4. GROUP TRANSACTIONS
4.1 The Company is not liable to make any payment for any Group Relief, a
Tax Refund or advance corporation tax surrendered or to be surrendered
to it and there are no amounts due or which may become due to the
Company in respect of the surrender of any Group Relief, a Tax Refund
or advance corporation tax. The Company is not liable to surrender any
Group Relief, a Tax Refund or advance corporation tax under those
provisions. There are no arrangements whereby the Company may become
liable to repay any sums paid to it for the surrender of any Group
Relief, a Tax Refund or advance corporation tax.
4.2 The Company has not within the last 6 years:
(a) acquired any capital asset from any company which at the time
of the acquisition was a member of the same group of companies
as defined in section 170 TCGA;
(b) joined in the making of any election pursuant to section 247
ICTA or paid any dividend without paying ACT or made any
payment without deduction of income tax in circumstances such
that ACT ought to have been paid or income tax ought to have
been deducted as mentioned in section 247(6) ICTA;
44
(c) been the subject of or otherwise involved in any agreements as
are referred to in section 240(11) or 410 ICTA;
(d) acquired an asset as trading stock from a member of the same
group where the asset did not form part of the trading stock
of any trade carried on by the other member, as mentioned in
section 173(1) TCGA, or disposed of an asset which formed part
of the trading stock of any trade carried on by the Company to
another member of the same group which acquired the asset
otherwise than as trading stock of a trade carried on by the
other member, as mentioned in section 173(2) TCGA; and
(e) been, and there are no circumstances by virtue of which the
Company could be, assessed or charged to corporation tax by
virtue of the provisions of section 178(9), 179(11), 190 or
191 TCGA and is not entitled to recover or liable to have
recovered from it any sums pursuant to any of those sections.
5. RESIDENCE AND OFFSHORE INTERESTS
5.1 The Company is and has at all times been resident in the United Kingdom
for Tax purposes and is not and has not been treated as resident or as
having a branch or permanent establishment in any other jurisdiction
for any Taxation purpose (including under any double taxation treaty or
agreement).
5.2 The Company is not liable for any Taxation as the agent or Tax
representative of any other person or business and does not constitute
a permanent establishment of any other person, business or enterprise
for any Taxation purposes.
5.3 The Company does not and has at no time owned a beneficial interest in
the capital of a company which is resident outside the United Kingdom
and which would be a close company if it were resident in the United
Kingdom, in circumstances such that a chargeable gain accruing to that
other company could be appointed to the Company under section 13 TCGA.
6. NON-ARM'S LENGTH TRANSACTIONS
6.1 There is no outstanding Inland Revenue charge (as defined in section
237 IHTA) over any asset of the Company or over any of the Shares and
there are no circumstances in which such a charge could arise.
6.2 There are in existence no circumstances by virtue of which any such
power as is mentioned in section 212 IHTA could be exercised in
relation to any asset of the Company or to any of the Sale Shares or by
virtue of which any such power could be exercised but for the
provisions of section 204(6) IHTA.
6.3 The Company has not been a party to associated operations in relation
to a transfer of value within the meaning of section 268 IHTA.
6.4 The Company has not received any asset by way of gift as mentioned in
section 282 TCGA.
45
6.5 No expenditure incurred by the Company on the acquisition of any shares
is liable to be reduced under the provisions of section 125 TCGA.
7. VAT
7.1 The Company is duly registered for the purposes of VATA. Such
registration is not subject to any conditions imposed by or agreed with
the Commissioners of Customs and Excise. Within the last 3 years, the
Company has complied in all material respects with VATA and all orders,
provisions, directions or other conditions made or imposed thereunder
or under any other law relating to VAT.
7.2 The Company is not a member of a group for the purpose of section 43
VATA.
7.3 The Company has not within the two years ending on the date of this
Agreement been served with any penalty liability notice under section
64 VATA or any surcharge liability notice under section 59 VATA or been
issued with any written warning under section 76(2) VATA.
7.4 The Company has not registered, and is not required to register, for
VAT purposes (or for the purposes of any similar tax on added value or
turnover) in any country other than the United Kingdom.
8. STAMP DUTY AND STAMP DUTY RESERVE TAX
8.1 All documents which confer any right or title upon the Company to which
the Company was a party as a purchaser, lessee or assignee and which
attract stamp or transfer duty in the United Kingdom have been duly
stamped.
8.2 The Company has not been party to any transaction whereby the Company
is or could become liable to or to account for stamp duty reserve tax.
9. CAPITAL ALLOWANCES
The aggregate book value of each of the assets of the Company,
exclusive of any value attributable to an asset in excess of its cost,
on which an entitlement to Industrial Building Allowances or other
allowances in respect of capital expenditure has arisen under the CAA,
in or adopted for the purposes of the Accounts, does not exceed the
aggregate residue of expenditure or written down value attributable to
such assets for the purposes of that Act, and the aggregate book value
(exclusive of any value attributable to an asset in excess of its cost)
of plant and machinery allocated to a pool of plant and machinery on
which an entitlement to capital allowances has arisen under Part II CAA
does not exceed the written-down value of the qualifying expenditure in
respect of each such pool under that Act.
10. CHARGEABLE GAINS
The book value in or adopted for the purposes of the Accounts as the
value of each of the assets of the Company on the disposal of which a
chargeable gain or allowable loss could arise does not exceed the
amount deductible under s 38
46
TCGA plus an indexation allowance computed as though each asset were
disposed of on the date of signing of this Agreement.
11. TAX CLEARANCES
The Disclosure Letter contains details of all transactions, schemes or
arrangements in respect of which the Company has been a party or has
otherwise been involved in respect of which a statutory clearance
application was made, together with copies of all relevant applications
for clearances and copies of all clearances obtained pursuant thereto,
all such clearances having been obtained on the basis of full and
accurate disclosure of all material facts and considerations relating
thereto, and all such transactions, schemes or arrangements have been
implemented strictly in accordance with the terms of such clearances.
47
SCHEDULE 6
Preparation of Completion Accounts and determination of Net Assets Value
Part 1 - Principles for preparation of Completion Accounts
1.1 The draft Audited Accounts shall be prepared in the same format as the
Accounts and in accordance with the accounting, principles, bases and
practises used in preparation of the Accounts and subject thereto and
in accordance with UK GAAP.
The Buyer shall procure that the Company shall employ Messrs Ernst &
Young as its auditors in relation to the preparation of the Audited
Accounts.
1.2 The draft Completion Accounts shall be prepared:
(a) in the same format as the Accounts;
(b) in accordance with the accounting principles, policies, bases
and practices used in the preparation of the Accounts; and
(c) notwithstanding the provisions of clauses 1.2(a) and 1.2(b),
in accordance with the specific matters mentioned in paragraph
1.3.
1.3 The following accounting principles, policies, bases and practices
shall be used in the preparation of the Completion Accounts:
(a) There shall be no provision for deferred taxation;
(b) The Completion Accounts shall be prepared on the basis that
the period from (and including) the opening of business on the
day following the Accounts Date to (and including) the
Completion Date were an accounting reference period of the
Company;
(c) There shall be no provision or accrual for the cost of future
pension contributions;
(d) Accrual shall be made for unbilled domestic accounts
calculated using the following method:
The number of unbilled days shall be the number of days
between the date the customer was last billed and the
Completion Date or where the customer has yet to be billed the
date when the customer first commenced taking gas and the
Completion Date. The number of unbilled days shall then be
applied to the annual quantity for the site which shall then
be profiled in accordance with an average domestic profile
covering all LDZ's. The relevant tariff for each payment type
shall then be applied to the quantities derived. To this shall
be added the standing charge for the days unbilled.
48
In relation to industrial and commercial customers turnover in
the Completion Accounts will comprise the amount billed to
customers in respect of all periods up to 31 October 1999. The
Buyer will use reasonable endeavours to procure that the
Company shall ▇▇▇▇ customers in respect of gas consumed in
October 1999 in time for this to be included within the
Completion Accounts. If the Buyer has been unable to ▇▇▇▇ then
October 1999 turnover shall be based on the turnover for
September 1999 uplifted to take account of seasonal factors
using a profile which reflects the Company's customer base.
(e) Cost of sales shall comprise gas and transportation charges,
metering charges (including charges for failing to provide
OMR's) and risk management fees (all of which will be included
in the sums invoiced by Aquila Energy) plus Quantum charges,
any other sums levied by Aquila Energy and an allowance to
reflect the difference between the volume profiles
incorporated in the accrued sales figure and the Aquila
billing in accordance with the procedure used by the Company
since 1 April 1999 and up to completion set out below.
Because the customer base was predominantly in NE1 LDZ at 1st
April 1999, the adjustment made reflects the difference
between the York Gas average domestic profile applied in
determining the accrued sales and the NE1 profile. The
difference between these two profiles is used to calculate an
accrual or a pre-payment value to be added to the cost of gas
and transportation. The difference in kWh determined from the
comparison is applied to the prevailing rates for gas risk
management and the commodity element of the transportation
charge.
Where a reconciliation by difference invoice has not been
received for any period in respect of which the accounts have
been prepared, a provision shall be made of Pound
Sterling5,000 for each month where a reconciliation by
difference invoice has not been received.
Cost of sales for industrial and commercial customers shall
comprise the Aquila Energy invoices in respect of the quantity
of gas supplied up to Completion.
(f) Agents commission payable in respect of domestic contracts
shall be provided for in full in the month in which the
contract is received. A deduction to the commissions payable
shall be made to reflect any contract where commission has
been paid but the contract is subsequently cancelled or
objected to up to and including the date for which the
Completion Accounts are presented to the Seller provided
always that provisions exist in the relevant contract to
enable such monies to be recovered.
(g) Commission due to agents providing commercial contracts shall
be amortized over the period of the gas supply contract to
which they relate.
49
(h) Apart from specific provisions for recognised bad and doubtful
debts, bad and doubtful debts shall be provided at the rate of
4.5% of domestic turnover including unbilled amounts and 1% of
the commercial turnover including unbilled amounts.
(i) Depreciation shall be provided on all tangible fixed assets so
as to provide for the cost less residual value of these assets
over their expected useful lives which are estimated as
follows:
Office equipment and Furniture 5 years
Computer Software and Hardware 5 years
Residual values of assets shall be those previously used in
the preparation of the Accounts.
(j) No provision shall be made in respect of the claim for
commissions made against the Company by Regency Marketing
Limited which is referred to in the Disclosure Letter in the
disclosure against clause 14 of schedule 2 of this Agreement.
50
Part 2 - Procedure for preparation of Completion Accounts and determination of
Net Assets Value
2.1 The Buyer shall procure that as soon as practicable following the
Completion Date, and in any event not later than 60 days after that
date, a draft of the Completion Accounts ("THE DRAFT COMPLETION
Accounts") and a draft of the Audited Accounts ("THE DRAFT AUDITED
ACCOUNTS") shall be prepared by the Company in accordance with part 1
of this Schedule and delivered to the Seller.
2.2 As soon as practicable after delivery of the draft Completion Accounts
and draft Audited Accounts to the Seller and in any event not later
than the later of 30 days after such delivery and 14 days after the
date on which the Buyer has complied in full with all requests for
access, information or assistance made by the Seller under paragraph
2.7 ("THE REVIEW PERIOD"), the Seller shall review the draft Completion
Accounts and draft Audited Accounts and notify the Buyer of what
adjustments (if any) need to be made to them in order for them to
comply with part 1 of this Schedule.
2.3 If the Seller and the Buyer are unable to agree within 30 days of the
notification by the Seller under paragraph 2.2 on
(a) whether adjustments need to be made to the draft Completion
Accounts and draft Audited Accounts;
(b) the adjustments to be made thereto; or
(c) the amount of the Net Assets Value
then such matter or matters (but no other matters) shall thereupon be
referred to in the case of the draft Completion Accounts or the draft
Audited Accounts such firm of independent chartered accountants as the
Sellers and the Buyer may agree within 14 days of a request by either
of them to the other or, failing such agreement within such time, as
the President for the time being of the Institute of Chartered
Accountants in England and Wales may nominate on the application of the
Sellers or the Buyer.
("THE INDEPENDENT ACCOUNTANTS").
2.4 The matters referred to the Independent Accountants shall be referred
for determination on the following basis:
(a) the Independent Accountants shall be instructed to notify the
Sellers and the Buyer of their determination of any such
matter within 30 days of such referral;
(b) the Independent Accountant shall be instructed to specify what
adjustments should be made to the draft Audited Accounts and
draft Completion Accounts in order for them to comply with
part 1 of this schedule;
51
(c) the Seller and the Buyer shall be entitled to make written
submissions to the Independent Accountants, but subject
thereto the Independent Accountants shall have power to
determine the procedure to be followed in relation to their
determination;
(d) in making such submissions the Seller and the Buyer shall
state their respective best estimates of monetary amounts of
the matters referred for determination;
(e) in making their determination the Independent Accountants
shall act as experts and not as arbitrators, their decision as
to any matter referred to them for determination shall in the
absence of manifest error be final and binding in all respects
on the parties and shall not be subject to question on any
ground whatsoever; and
(f) the fees and expenses of the Independent Accountants shall be
borne and paid as the Independent Accountants shall direct
save that the fees and expenses of Messrs Ernst & Young in
relation to the Audited Accounts shall be borne by the Seller.
2.5 Following any agreement between the Sellers and the Buyer under
paragraph 2.3 or any determination by the Independent Accountants in
accordance with paragraph 2.4, the Buyer shall procure that the Company
shall incorporate into and reflect in the draft Completion Accounts or
draft Audited Accounts in the manner specified by the Independent
Accountants or agreed between the Buyer and Seller the matters agreed
between the Seller and the Buyer and/or determined by the Independent
Accountants and the Completion Accounts or draft Audited Accounts as
amended and the amount of the Net Assets Value stated therein shall be
the Completion Accounts, Audited Accounts and the Net Assets Value
respectively for all purposes of this Agreement, shall in the absence
of manifest error be final and binding on the parties.
2.6 Within four weeks of the Audited Accounts becoming final and binding in
accordance with paragraph 2.5 the Buyer shall procure that such
accounts are laid before and received and adopted at a general meeting
of the Company and filed with the Registrar of Companies as the Audited
Accounts of the Company for the relevant period.
2.7 Until the Net Assets Value shall have been agreed or determined the
Buyer shall:
(a) give or procure that the Seller and, if appointed, the
Independent Accountants are given access at all reasonable
times to all books and records which are or may be relevant to
the Completion Accounts which are in the possession or under
the control of the Company or the Buyer (as the case may be);
and
(b) generally provide the Seller and, if appointed, the
Independent Accountants with such other information and
assistance as it may reasonably require (including access to
and assistance at reasonable times to personnel employed by
the Company or the Buyer, as the case may be), in relation to
the review, agreement or determination of the Completion
Accounts and the determination of the Net Assets Value.
52
SCHEDULE 7
Intellectual Property
- York Gas trade marks registered as a series of two marks under number
2143342
- Software licensed to the Company:
- Mview Licence
- Microsoft office
53
Signed by )
for and on behalf of YORK )
WATERWORKS ENTERPRISES )
LIMITED
in the presence of: )
Witness
Signature
--------------------------------------------
Name
-------------------------------------------------
Address
----------------------------------------------
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Signed by )
for and on behalf of INDEPENDENT )
ENERGY HOLDINGS PLC )
in the presence of: )
Witness
Signature
--------------------------------------------
Name
-------------------------------------------------
Address
----------------------------------------------
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54
Signed by )
for and on behalf of KELDA GROUP )
PLC in the presence of: )
Witness
Signature
--------------------------------------------
Name
-------------------------------------------------
Address
----------------------------------------------
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