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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(MARK ONE)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ________________ TO ________________
COMMISSION FILE NUMBER 1-5152
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PACIFICORP
(Exact name of registrant as specified in its charter)
STATE OF OREGON 93-0246090
(State or other jurisdiction (I.R.S. Employer Identification
of incorporation or organization) No.)
825 N.E. MULTNOMAH, PORTLAND, OREGON 97232
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (503) 813-5000
Securities registered pursuant to section 12(b) of the Act:
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NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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<S> <C>
Common Stock............................................................................... New York Stock Exchange
Pacific Stock Exchange
8 3/8% Quarterly Income Debt Securities (Junior Subordinated Deferrable Interest
Debentures, Series A).................................................................... New York Stock Exchange
8.55% Quarterly Income Debt Securities (Junior Subordinated Deferrable Interest Debentures,
Series B)................................................................................ New York Stock Exchange
8 1/4% Cumulative Quarterly Income Preferred Securities, Series A, of PacifiCorp Capital
I........................................................................................ New York Stock Exchange
7.70% Cumulative Quarterly Income Preferred Securities, Series B, of PacifiCorp Capital
II....................................................................................... New York Stock Exchange
</TABLE>
Securities registered pursuant to Section 12(g) of the Act:
TITLE OF EACH CLASS
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5% Preferred Stock (Cumulative; $100 Stated Value)
Serial Preferred Stock (Cumulative; $100 Stated Value)
No Par Serial Preferred Stock (Cumulative; Various Stated Values)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES /X/ NO / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. /X/
On February 1, 1999, the aggregate market value of the shares of voting and
nonvoting common equity of the Registrant held by nonaffiliates was
approximately $6.5 billion.
As of March 1, 1999, there were 297,331,433 shares of the Registrant's
common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement of the Registrant for the 1999 Annual
Meeting of Shareholders are incorporated by reference in Part III.
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TABLE OF CONTENTS
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PAGE
NO.
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Definitions......................................................................................................... ii
Part I
Item 1. Business................................................................................... 1
The Organization........................................................................... 1
Domestic Electric Operations............................................................... 2
Australian Electric Operations............................................................. 12
Other Operations........................................................................... 18
Discontinued Operations.................................................................... 18
Employees.................................................................................. 18
Item 2. Properties................................................................................. 19
Item 3. Legal Proceedings.......................................................................... 21
Item 4. Submission of Matters to a Vote of Security Holders........................................ 22
Item 4A. Executive Officers of the Registrant....................................................... 22
Part II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters...................... 23
Item 6. Selected Financial Data.................................................................... 23
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations...... 23
Item 7A. Quantitative and Qualitative Disclosures about Market Risk................................. 51
Item 8. Financial Statements and Supplementary Data................................................ 51
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure....... 96
Part III
Item 10. Directors and Executive Officers of the Registrant......................................... 96
Item 11. Executive Compensation..................................................................... 96
Item 12. Security Ownership of Certain Beneficial Owners and Management............................. 96
Item 13. Certain Relationships and Related Transactions............................................. 96
Part IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K............................ 97
Signatures.......................................................................................................... 100
Appendices
Statements of Computation of Ratio of Earnings to Fixed Charges
Statements of Computation of Ratio of Earnings to Combined
Fixed Charges and Preferred Stock Dividends
Subsidiaries of the Company
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DEFINITIONS
When the following terms are used in the text they will have the meanings
indicated:
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<CAPTION>
TERM MEANING
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BPA.................................... Bonneville Power Administration
Company................................ PacifiCorp and its subsidiaries
FERC................................... Federal Energy Regulatory Commission
Hazelwood.............................. Hazelwood Power Partnership, a 19.9% indirectly owned investment of
Holdings
Holdings............................... PacifiCorp Group Holdings Company, a wholly owned subsidiary of the
Company and its wholly owned subsidiary, PacifiCorp International
Group Holdings Company
PGC.................................... Pacific Generation Company, a wholly owned subsidiary of Holdings until
its sale in November 1997, and its subsidiaries
PFS.................................... PacifiCorp Financial Services, Inc., a wholly owned subsidiary of
Holdings, and its subsidiaries
PacifiCorp............................. PacifiCorp, an Oregon corporation
Pacific Power.......................... Pacific Power & Light Company, the assumed business name of the Company
under which it conducts a portion of its retail electric operations
PPM.................................... PacifiCorp Power Marketing, Inc., a wholly owned subsidiary of Holdings
PTI.................................... Pacific Telecom, Inc., a wholly owned subsidiary of Holdings until its
sale in December 1997, and its subsidiaries
Powercor............................... Powercor Australia Limited, an indirect, wholly owned subsidiary of
Holdings, and its immediate parent companies, PacifiCorp Australia
Holdings Pty Ltd and PacifiCorp Australia LLC
TPC.................................... TPC Corporation, a wholly owned subsidiary of Holdings, and its
subsidiaries
Utah Power............................. Utah Power & Light Company, the assumed business name of the Company
under which it conducts a portion of its retail electric operations
</TABLE>
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PART I
ITEM 1. BUSINESS
THE ORGANIZATION
The Company is an electricity company in the United States and Australia. In
the United States, the Company conducts its retail electric utility business as
Pacific Power and Utah Power, and engages in power production and sales on a
wholesale basis under the name PacifiCorp. Holdings, a wholly owned subsidiary
of the Company, holds the stock of subsidiaries conducting businesses not
regulated as domestic electric utilities. Holdings indirectly owns 100% of
Powercor, the largest of the five electric distribution companies in Victoria,
Australia.
The Company's strategic business plan is to focus on its electricity
businesses in the western United States and Australia. As part of its strategic
business plan, the Company will sell its other domestic and international
businesses, and terminate all of its business development activities outside of
the United States and Australia. Holdings continues to liquidate portions of the
loan, leasing, real estate and affordable housing investment portfolio of PFS.
PFS presently expects to retain only its tax-advantaged investments in leveraged
lease assets and limit its pursuit of tax-advantaged investment opportunities.
See "DISCONTINUED OPERATIONS" and "OTHER OPERATIONS."
On December 6, 1998, PacifiCorp signed an Agreement and Plan of Merger with
Scottish Power plc ("ScottishPower") and NA General Partnership. ScottishPower
subsequently announced its intention to establish a new holding company for the
ScottishPower group pursuant to a court approved reorganization in the U.K.
Accordingly, on February 23, 1999, the parties executed an amended and restated
merger agreement (the "Agreement") under which PacifiCorp will become an
indirect, wholly owned subsidiary of the new holding company, which will be
renamed Scottish Power plc ("New ScottishPower"), and ScottishPower will become
a sister company to PacifiCorp. The combined company will have seven million
customers and 23,500 employees worldwide and will be headquartered in Glasgow,
Scotland. PacifiCorp will continue to operate under its current name, and its
headquarters will remain in Portland, Oregon.
In the merger, each share of PacifiCorp's common stock will be converted
into the right to receive 0.58 New ScottishPower American Depositary Shares
("ADS") (each New ScottishPower ADS represents four ordinary shares), which will
be listed on the New York Stock Exchange, or, upon the proper election of the
holders of PacifiCorp's common stock, 2.32 ordinary shares of New ScottishPower,
which will be listed on the London Stock Exchange. Based on the issued and
outstanding shares of ScottishPower and PacifiCorp on February 1, 1999, the
holders of PacifiCorp's common stock will receive approximately 36% of the total
issued share capital of New ScottishPower upon consummation of the merger. Based
on the market prices of the ScottishPower ordinary shares and PacifiCorp's
common stock on February 26, 1999, holders of PacifiCorp's common stock would
receive a premium of approximately 17% over the closing sale price of
PacifiCorp's common stock of $18.00.
If the proposed reorganization is not completed, the parties will proceed
under the original agreement, and PacifiCorp will become an indirect, wholly
owned subsidiary of ScottishPower. The merger is not conditional on the
reorganization becoming effective nor is the reorganization conditional upon the
merger becoming effective.
Both companies' boards of directors have approved the Agreement. However,
before the transactions under the Agreement can be consummated, a number of
conditions must be satisfied, including obtaining approvals and consents from
shareholders of both companies, FERC, the United States Nuclear Regulatory
Commission, the regulatory commissions in certain of the states served by the
Company and Australian regulatory authorities. Generally, approval by the state
regulatory commissions is subject to a finding that the transaction is in the
public interest. Hearings on the merger have been scheduled for July and August
1999 by the Utah, Oregon, Wyoming and Idaho Commissions. The parties have
received early termination of the waiting period under the provisions of the
Hart-Scott-Rodino Antitrust Improvement
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Act. Both companies expect to have shareholder meetings in mid-1999 requesting
shareholder approval of the merger.
See ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS and Note 2, Proposed ScottishPower Merger, of Notes to
Consolidated Financial Statements under ITEM 8.
During 1997 and 1998, the Company sought to acquire The Energy Group PLC
("TEG"), a diversified international energy group with operations in the United
Kingdom, the United States and Australia. The Company made three tender offers
for TEG, with the last offer valued at $11.1 billion, including the assumption
of $4.1 billion of TEG's debt. In March 1998, another United States utility made
a tender offer at a higher price and, on April 30, 1998, the Company announced
that it would not increase its offer for TEG.
For the year ended December 31, 1998, 87% of the Company's revenues from
operations were derived from Domestic Electric Operations, Australian Electric
Operations contributed 11% and Other Operations contributed 2%. Note 17 of Notes
to Consolidated Financial Statements, included under ITEM 8, contains
information with respect to the revenue and income from operations contributed
by each of the Company's industry segments for the past three years and the
identifiable assets attributable to each segment at the end of each of those
years.
From time to time, the Company may issue forward-looking statements that
involve a number of risks and uncertainties. The following factors are among the
factors that could cause actual results to differ materially from the
forward-looking statements: utility commission practices; regional, national and
international economic conditions; weather variations affecting customer usage,
competition in bulk power and natural gas markets and hydroelectric and natural
gas production; energy trading activities; environmental, regulatory and tax
legislation, including industry restructure and deregulation initiatives;
technological developments in the electricity industry; foreign exchange rates;
the pending ScottishPower merger; proposed asset dispositions; and the cost of
debt and equity capital. Any forward-looking statements issued by the Company
should be considered in light of these factors.
The Company's common stock (symbol PPW) is traded on the New York and
Pacific Stock Exchanges. The Company's 8 3/8% Quarterly Income Debt Securities
(Junior Subordinated Deferrable Interest Debentures, Series A) and 8.55%
Quarterly Income Debt Securities (Junior Subordinated Deferrable Interest
Debentures, Series B) are traded on the New York Stock Exchange. The 8 1/4%
Cumulative Quarterly Income Preferred Securities (Series A Preferred Securities)
of PacifiCorp Capital I, a wholly owned subsidiary trust, and the 7.70% Trust
Preferred Securities (Series B Preferred Securities) of PacifiCorp Capital II, a
wholly owned subsidiary trust, are also traded on the New York Stock Exchange.
DOMESTIC ELECTRIC OPERATIONS
The Company conducts its domestic retail electric utility operations as
Pacific Power and Utah Power, and engages in wholesale electric transactions
under the name PacifiCorp. Pacific Power and Utah Power provide electric service
within their respective service territories. Power production, wholesale sales,
fuel supply and administrative functions are managed on a coordinated basis.
SERVICE AREA
The Company serves 1.5 million retail customers in service territories
aggregating about 135,800 square miles in portions of six western states: Utah,
Oregon, Wyoming, Washington, Idaho, and California. In addition, prior to the
November 1998 sale of its Montana distribution assets to Flathead Electric
Cooperative, Inc., the Company served 35,000 retail electric customers in
Montana. The Company's service area contains diversified industrial and
agricultural economies. Principal industrial customers include oil and gas
extraction, lumber and wood products, paper and allied products, chemicals,
primary
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metals, mining companies, high technology, and agribusiness. Agricultural
products include potatoes, hay, grain and livestock.
The geographical distribution of the Company's retail electric operating
revenues for the year ended December 31, 1998 was Utah, 38%; Oregon, 33%;
Wyoming, 12%; Washington, 8%; Idaho, 6%; California, 2%; and Montana, 1%.
CUSTOMERS
Electric utility revenues and energy sales, by class of customer, for the
three years ended December 31, 1998 were as follows:
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1998 1997 1996
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Operating Revenues (Dollars in millions):
Residential............................................. $ 806.6 17% $ 814.0 22% $ 801.4 27%
Commercial.............................................. 653.5 14 640.9 18 623.3 21
Industrial.............................................. 705.5 15 709.9 20 719.3 25
Government, Municipal and Other......................... 30.2 1 31.7 1 32.5 1
---------- --- ---------- --- --------- ---
Total Retail Sales.................................... 2,195.8 47 2,196.5 61 2,176.5 74
Wholesale Sales and Market Trading...................... 2,583.6 53 1,428.0 39 738.8 26
---------- --- ---------- --- --------- ---
Total Energy Sales.................................... 4,779.4 100% 3,624.5 100% 2,915.3 100%
--- --- ---
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Other Revenues.......................................... 65.7 82.4 76.5
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Total Operating Revenues.............................. $ 4,845.1 $ 3,706.9 $ 2,991.8
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Kilowatt-hours Sold (kWh in millions):
Residential............................................. 12,969 9% 12,902 12% 12,819 17%
Commercial.............................................. 12,299 9 11,868 11 11,497 15
Industrial.............................................. 20,966 15 20,674 20 20,332 27
Government, Municipal and Other......................... 651 -- 705 1 640 1
---------- --- ---------- --- --------- ---
Total Retail Sales.................................... 46,885 33 46,149 44 45,288 60
Wholesale Sales and Market Trading...................... 94,077 67 59,143 56 29,665 40
---------- --- ---------- --- --------- ---
Total kWh Sold........................................ 140,962 100% 105,292 100% 74,953 100%
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</TABLE>
The Company's service territory has complementary seasonal load patterns. In
the western sector, customer demand peaks in the winter months due to space
heating requirements. In the eastern sector, customer demand peaks in the summer
when irrigation and cooling systems are heavily used. Many factors affect per
customer consumption of electricity. For residential customers, within a given
year, weather conditions are the dominant cause of usage variations from normal
seasonal patterns. However, the price of electricity is also considered a
significant factor.
During 1998, no single retail customer accounted for more than 1.7% of the
Company's retail utility revenues and the 20 largest retail customers accounted
for 13.9% of total retail electric revenues.
COMPETITION
During 1998, Domestic Electric Operations continued to operate its
electricity distribution and retail sales business as a regulated monopoly
throughout most of its franchise service territories. However, Domestic Electric
Operations is facing increasing competition, principally as a result of industry
restructuring, deregulation and increased marketing by alternative energy
suppliers. In addition, many large industrial customers have the option to build
their own generation or cogeneration facilities or to use
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alternative energy sources, such as natural gas. These competitive pressures
enable these customers to negotiate lower prices through special tariffs or
contracts.
Beginning in April 1998, California retail electric energy sales have been
subject to open market competition. The Company's provision of tariffed services
in California will continue to be regulated while any competitive sales of
electricity will be unregulated. In addition to California, the other states in
the Company's service territory have enacted legislation or initiated studies of
retail competition or are considering retail competition as part of industry
restructuring. Most of these states are involved in multi-year studies of the
impacts of competition in the electric industry, resulting in a slower move
towards competition than was originally anticipated by the Company. See
"Regulation." The Company supports increased customer choice only if it takes
place under terms and conditions that are equitable to all involved. The Company
will support direct access and other restructuring initiatives only when the
terms are fair to all customers, the Company and its shareholders.
Competition has transformed the electric utility industry at the wholesale
level. The Energy Policy Act, passed in 1992, opened wholesale competition to
energy brokers, independent power producers and power marketers. In 1996, the
FERC ordered all investor-owned utilities to allow others access to their
transmission systems for wholesale power sales. This access must be provided at
the same price and terms the utilities would apply to their own wholesale
customers. Competition is also influenced by availability and price of alternate
energy sources and the general demand for electrical power.
The Company has formulated strategies to meet these new challenges. The
Company is marketing power supply services to other utilities in the western
United States, including dispatch assistance, daily system load monitoring,
backup power, power storage and power marketing, and services to retail
customers that encourage efficient use of energy. Effective January 1, 1998, the
California Public Utilities Commission ("CPUC") adopted rules regulating the
nontariffed sale of energy and energy products and services by utilities and
their affiliates. The Company has decided to refrain from marketing products and
services to retail customers in California but intends to remain active in the
wholesale business selling to utilities in California and marketers elsewhere in
the western United States.
In July 1998, the Company announced its intent to sell its California and
Montana electric distribution assets. This action was in response to the
continued decline in earnings on the assets and changes in the legislative and
regulatory environments, including fixing prices, in these states. The Company
issued requests for proposals to interested parties on July 20, 1998. On
November 5, 1998, the Company sold its Montana electric distribution assets to
Flathead Electric Cooperative, Inc. and received proceeds of $89 million, net of
taxes and customer refunds. The Company returned $4 million of the $8 million
gain on the sale to Montana customers as negotiated with the Montana Public
Service Commission (the "MPSC") and the Montana Consumer Counsel. The Company
has received bids for its California electric distribution assets. These bids
remain open and the Company is holding discussions with the bidders.
CURRENT POWER AND FUEL SUPPLY
The Company's generating facilities are interconnected through its own
transmission lines or by contract through the lines of others. Substantially all
generating facilities and reservoirs located within the Pacific Northwest are
managed on a coordinated basis to obtain maximum load carrying capability and
efficiency.
The Company's transmission system connects with other utilities in the
Pacific Northwest having low-cost hydroelectric generation and with utilities in
California and the southwestern United States having higher-cost, fossil-fuel
generation. The transmission system is available for common use consistent with
regulatory requirements. In periods of favorable hydroelectric generation
conditions, the Company utilizes lower-cost hydroelectric power to supply a
greater portion of its load and attempts to sell its displaced higher-cost
thermal generation to other utilities. In periods of less favorable
hydroelectric generation conditions, the Company seeks to sell its excess
thermal generation to utilities that are more
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dependent on hydroelectric generation than the Company. During the winter, the
Company is able to purchase power from utilities in the southwestern United
States, either for its own peak requirements or for resale to other Pacific
Northwest utilities. During the summer, the Company is able to sell excess power
to utilities in the southwestern United States to assist them in meeting their
peak requirements. See "Wholesale Marketing and Purchased Power."
The Company owns or has interests in generating plants with an aggregate
nameplate rating of 9,001 MW and plant net capability of 8,445 MW. See "ITEM 2.
PROPERTIES." With its present generating facilities, under average water
conditions, the Company expects that approximately 5% of its energy requirements
for 1999 will be supplied by its hydroelectric plants and 59% by its thermal
plants. The balance of 36% is expected to be obtained under long-term purchase
contracts, interchange and other purchase arrangements. During 1998,
approximately 6% and 53% of the Company's energy requirements were supplied by
its hydroelectric and thermal generation plants, respectively, and the remaining
41% by purchased power.
The Company currently purchases 1,100 MW of firm capacity annually from BPA
pursuant to a long-term agreement. The purchase amount declines to 925 MW
annually beginning in July 2000, declining again to 750 MW annually in July 2003
and continuing through August 2011. The Company's current annual payment under
this agreement is $74 million. The agreement provides for the amount of the
payment to decline proportionately as the amount of power purchased declines and
also to change at the rate of change of BPA's average system cost. The next
change to BPA's average system cost is expected to occur in 2001 and will be
determined by BPA in future rate proceedings.
Under the requirements of the Public Utility Regulatory Policies Act of
1978, the Company purchases the output of qualifying facilities constructed and
operated by entities that are not public utilities. During 1998, the Company
purchased an average of 98 MW from qualifying facilities, compared to an average
of 114 MW in 1997. See Note 13 of Notes to the Consolidated Financial Statements
under ITEM 8 for additional details relating to the Company's purchase of power
under long-term arrangements.
The Company plans and manages its capacity and energy resources based on
critical water conditions. Under critical or better water conditions in the
Pacific Northwest, the Company believes that it has adequate reserve generation
capacity for its requirements. The Company's historical total firm peak load
(including both retail and firm wholesale sales) of 10,871 MW occurred on August
22, 1997, and its historical on-system firm peak load of 7,909 MW occurred on
December 21, 1998.
WHOLESALE MARKETING AND PURCHASED POWER
Wholesale sales of power contribute significantly to total revenues. The
Company's wholesale sales complement its retail business and enhance the
efficient use of its generating capacity. In 1998, the Company's wholesale
marketing revenues increased 81% and its wholesale energy volume sold increased
59% over the prior year, accounting for 67% of its total energy sales and 53% of
its total energy revenues. This rate of increase is expected to decline in 1999
due to a reduced focus on short-term wholesale sales.
In addition to its base of thermal and hydroelectric generation assets, the
Company utilizes a mix of long-term and short-term firm power purchases and
nonfirm purchases to meet its load obligations and to make sales to other
utilities. Long-term firm power purchases supplied 9% of the Company's total
energy requirements in 1998. Short-term firm and nonfirm power purchases
supplied 32% of the Company's total energy requirements in 1998.
During October 1998, the Company decided to dispose of its energy trading
business in the eastern United States (see "DISCONTINUED OPERATIONS"). The
Company amended its FERC tariff and PPM assumed the energy trading business in
the western United States at substantially reduced levels from that previously
conducted by Domestic Electric Operations. Certain regulatory constraints,
however, preclude this business from utilizing the Company's utility assets. In
addition, the business intends to add assets in the western United States to
support its marketing and trading activity.
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PROPOSED ASSET ADDITIONS AND DISPOSITIONS
In accordance with the Company's long-range integrated resource planning
process, the Company considers various future demand and supply options for
providing customers with reliable, low-cost energy services. See "Projected
Demand."
The Klamath Cogeneration Project is a 500 MW natural gas-fired power plant
to be constructed near Klamath Falls, Oregon. The City of Klamath Falls will own
the plant and the Company's energy trading subsidiary will be responsible for
management and operations. In addition, the energy trading subsidiary will
purchase 200 MW of output from the plant for resale to third parties and market
on behalf of the City the remaining output to municipal and commercial buyers in
the Pacific Northwest and northern California. Proceeds from revenue bonds
issued by the City of Klamath Falls will be used to finance the project.
Construction is expected to begin in early summer 1999 with commercial operation
by mid-2001.
The utility partners who own the 1,340 MW coal-fired Centralia Power Plant
in Washington have hired an investment advisor to pursue the possible sale of
the plant and the adjacent Centralia coal mine. The sale is being considered by
the owners, in part, because of emerging deregulation, competition in the
electricity industry and the need for environmental compliance expenditures as
discussed under "Environmental Issues." The Company operates the plant and owns
a 47.5% share. In addition, the Company owns and operates the adjacent Centralia
coal mine. The Company is investigating the effect of a potential sale on the
reclamation costs for the Centralia coal mine. Preliminary studies indicate that
reclamation costs for the Centralia coal mine could be significantly higher than
previous estimates, assuming the mine is closed, with the Company's portion
being 47.5% of the final total amount. At December 31, 1998, the Company had
approximately $24 million accrued for its share of the Centralia mine
reclamation costs. The final amount and timing of any charge for additional
reclamation at the mine are dependent upon a number of factors, including the
results of the sale process, completion of reclamation studies at the mine and
the reclamation procedure used. The Company will seek to recover through rates
any increase in the reclamation costs for the mine.
PROJECTED DEMAND
The Company continues to benefit from positive economic conditions in
several portions of its service territory and retail kilowatt-hour ("kWh") sales
for the Company have experienced compound annual growth of 2.0% since 1993.
However, the downturn in international economic conditions, particularly in the
Far East and Japan have negatively impacted the Company's service territories in
the Pacific Northwest and many of the industries the Company serves. The Company
has a long history of price stability, or as in Utah, significant price
reductions. While the pursuit of price increases is not taken lightly by the
Company, it will pursue such increases in jurisdictions where it does not earn
an appropriate rate of return and will continue to seek operating efficiencies
in every area of business to retain its low-cost status in the industry.
For the period 1999 to 2002, the average annual growth in retail kWh sales
in the Company's franchise service territories is estimated to be about 2.1%.
During this period, the Company may lose energy sales to other suppliers in
connection with deregulation of the electric industry. As the electric industry
evolves toward deregulation, the Company also expects to have opportunities to
gain market share in areas outside its franchise service territories. The
Company's actual results will be determined by a variety of factors, including
the outcome of deregulation in the electric industry, economic and demographic
growth, competition and the effectiveness of energy efficiency programs.
The Company's base of existing resources, in combination with actions
outlined in its integrated resource plan, are expected to be sufficient to meet
load growth expectations through 2012. Actions outlined in the Company's
integrated resource plan include promoting efficiency improvements by customers
(demand-side management), efficiency improvements to existing generation,
transmission and distribution systems, and other cost-effective resource
acquisition opportunities that meet the future needs of the Company, including
renewable resources.
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ENVIRONMENTAL ISSUES
Federal, state and local authorities regulate many of the Company's
activities pursuant to laws designed to restore, protect and enhance the quality
of the environment. These laws have increased the cost of providing electric
service. The Company is unable to predict what impact, if any, changes in
environmental laws and regulations may have on the Company's future operations
and capital expenditure requirements.
Air Quality. The Company's operations, principally its fossil fuel-fired
electric generating plants, are subject to regulation under the Federal Clean
Air Act, individual state clean air requirements and in some cases local air
authority requirements. The primary air pollutants of concern are sulfur dioxide
("SO(2)"), nitrogen oxides ("NO(x)"), particulate matter (currently PM(10)) and
opacities. In addition, visibility requirements impact the coal-burning plants.
Although not presently regulated, emissions of carbon dioxide ("CO(2)") and
mercury from coal-burning facilities generally are of increasing public concern.
Pollutants--Emission controls, low sulfur coal, plant operating practices
and continuous emissions monitoring are all utilized to enable coal-burning
plants to comply with opacity, visibility and other air quality requirements.
All of the Company's coal-burning plants, burn low sulfur coal and are equipped
with controls to limit emissions of particulate matter. Many of the Company's
coal-burning plants representing the majority of its installed capacity, have
been equipped with controls which reduce the quantity of SO(2) emissions. The
SO(2) emission allowances awarded to the Company under the Federal Clean Air
Act, and those allowances expected to be awarded annually in the future, are
sufficient to enable the Company to meet its current and future requirements,
with the exception of the years 2006-2008 when the Company may need to acquire a
relatively small number of additional allowances depending upon the outcome of
the pending sale of the Centralia Plant and other contingencies. In addition,
the Company has taken advantage of opportunities to sell SO(2) allowances to
other entities. The Company recorded sales of surplus SO(2) allowances of $11.5
million in 1998 and $21 million in 1997 and of surplus NO(x) offsets of $0.5
million in 1998. Except for the years 2006-2008, the Company may have
approximately 30,000 to 48,000 tons of surplus SO(2) emission allowances
available for sale each year until 2028.
Visibility--Various federal and state agencies, as well as private groups,
have raised concerns about perceived visibility degradation in some areas which
are in proximity to some of the Company's coal-burning plants. Numerous
visibility studies, including the Grand Canyon Visibility Transport Commission
study, have been completed or are in the process of completion near Company
coal-burning plants in Colorado, Utah, Washington and Wyoming. To date, no
additional emission control requirements have resulted directly from these
studies, although the potential exists for significant additional control
requirements if visibility degradation in the study areas is reasonably
attributed to the Company's coal-burning plants. The United States Environmental
Protection Agency (the "EPA") also has proposed new regulations addressing
regional haze. These proposed regulations have the potential to impose
significant new control requirements on certain of the Company's older
coal-burning plants that are not otherwise subject to strict SO(2) emission
limits.
Climate Change--CO(2) emissions are the subject of growing world-wide
discussion and action in the context of global warming, but such emissions are
not currently regulated. All of the Company's coal-burning plants emit CO(2). In
late 1997, the United States and other parties to the United Nations Framework
Convention on Climate Change adopted the Kyoto Protocol regarding the control
and reduction of so-called greenhouse gas emissions (including CO(2)). The
United States signed the protocol in November 1998, but the United States
Congress has not yet ratified it. The Kyoto Protocol, if ultimately ratified,
has the potential to impose significant new costs and operational restrictions
on the Company's coal-burning plants.
Mercury--The Company's coal-burning plants, along with all other major
coal-burning plants in the United States, are participating in an effort to
gather additional information about mercury emissions pursuant to a request
issued by the EPA. Based in part on this effort, the EPA will decide whether and
how to regulate mercury emissions from coal-burning plants. If passed, new
mercury emission requirements
7
<PAGE>
have the potential to impose significant new control and operational constraints
on the Company's coal-burning plants.
Air Operating Permits--During 1998, the Company received Title V Air
Operating Permits for most of its coal and natural gas-fired power plants. Title
V permits that were not received during 1998 are expected to be issued during
1999. A citizen group has challenged the issuance of the operating permits for
the Company's Naughton and Jim Bridger power plants, but the EPA has not yet
acted on that challenge. The Company believes that it currently has all required
permits and management systems in place to assure compliance with operating
permit requirements.
Enforcement--In addition to general regulation, the Company is subject to
ongoing enforcement action by regulatory agencies and private citizens regarding
compliance with air quality requirements. A federal lawsuit filed in 1996 by the
Sierra Club against the owners, including the Company, of units one and two of
the Craig Generating Station alleged, among other things, violations of opacity
requirements. The lawsuit seeks civil monetary penalties and an injunction. See
"ITEM 3. LEGAL PROCEEDINGS."
The Company-operated Centralia plant, in which the Company owns a 47.5%
interest, has been the subject of a series of lawsuits and regulatory agency
actions regarding emissions and visibility issues. In February 1998, the
Southwest Washington Air Pollution Control Authority ("SWAPCA") issued a revised
order requiring the Centralia plant to meet new SO(2), NO(x), particulate matter
and carbon monoxide emission limits in 2002. These new limits resulted from the
application of the Reasonably Available Control Technology ("RACT") process as
mandated by SWAPCA and the State of Washington air quality requirements. The new
emission limits will require significant reduction of SO(2) and NO(x) emissions.
Compliance with the new limits will require the Centralia plant to install two
scrubbers and low NO(x) burners at a projected cost of $240 million. A private
citizen has appealed the SWAPCA decision asserting that it is not stringent
enough. An appeal hearing was held in late January 1999 with the Pollution
Control Hearings Board, which has taken the matter under advisement. A ruling is
expected in the spring of 1999, but it is not known at this time whether the
appeal process will impact the schedule or budget for implementing the SWAPCA
order. In addition, the Northwest Environmental Advocates, an environmental
citizen group, filed a federal lawsuit against SWAPCA, the State of Washington
and the EPA alleging failure to enforce visibility requirements throughout
Washington, including requirements relating to the Centralia plant. Portions of
that suit relating to the Centralia plant appear to be resolved, but a final
settlement has not been reached. See additional discussion of Centralia Plant
under "Proposed Asset Additions and Dispositions."
Electromagnetic Fields. A number of studies have examined the possibility
of adverse health effects from electromagnetic fields ("EMF"), without
conclusive results. Certain states and cities have enacted regulations to limit
the strength of magnetic fields at the edge of transmission line rights-of-way.
Other than in California, none of the state agencies with jurisdiction over the
Company's operations has adopted formal rules or programs with respect to EMF or
EMF considerations in the siting of electric facilities. The CPUC has issued an
interim order requiring utilities to implement no-cost or low-cost mitigation
steps in the design of new facilities. It is uncertain whether the Company's
operations may be adversely affected in other ways as a result of EMF concerns.
Endangered Species. Protection of the habitat of endangered and threatened
species makes it difficult and more costly to perform some of the core
activities of the Company, including the siting, construction and operation of
new transmission and distribution facilities, as well as generating plants. In
addition, endangered species issues impact the relicensing of existing
hydroelectric generating projects, generally raising the price the Company must
pay to purchase wholesale power from hydroelectric facilities owned by others
and increasing the costs of operating the Company's own hydroelectric resources.
Environmental Cleanups. Under the Federal Comprehensive Environmental
Response, Compensation and Liability Act and similar state statutes, entities
that disposed of or arranged for the disposal of hazardous substances may be
liable for cleanup of the contaminated property. In addition, the current or
8
<PAGE>
former owners or operators of affected sites also may be liable. The Company has
been identified as a potentially responsible party in connection with a number
of cleanup sites because of current or past ownership or operation of the
property or because the Company sent hazardous waste or other hazardous
substances to the property in the past. The Company has completed several
cleanup actions and is actively participating in investigations and remedial
actions at other sites. The costs associated with those actions are not expected
to be material to the Company's consolidated financial results.
Water Quality. The Federal Clean Water Act and individual state clean water
regulations require a permit for the discharge of waste water, including storm
water runoff from the power plants and coal storage areas, into surface waters.
Also, permits may be required in some cases for discharges into ground waters.
The Company believes that it currently has all required permits and management
systems in place to assure compliance with permit requirements.
REGULATION
The Company is subject to the jurisdiction of public utility regulatory
authorities of each of the states in which it conducts retail electric
operations as to prices, services, accounting, issuance of securities and other
matters. Commissioners are appointed by the individual state's governor for
varying terms. In the states where the Company has operations, the Company
considers the overall quality of the regulatory commissions having jurisdiction
over the Company to be about average in their treatment of the rate applications
of utilities. The Company is a "licensee" and a "public utility" as those terms
are used in the Federal Power Act and is, therefore, subject to regulation by
the FERC as to accounting policies and practices, certain prices and other
matters. Most of the Company's hydroelectric plants are licensed as major
projects under the Federal Power Act and certain of these projects are licensed
under the Oregon Hydroelectric Act.
On December 6, 1998, the Company and ScottishPower agreed to combine the two
companies. Filings relating to the merger are pending with the FERC and state
regulators in Oregon, Utah, Wyoming, Idaho and Washington. In California, the
companies have filed for an exemption from approval requirements. The approval
of the merger is currently the highest regulatory priority for the Company. As a
result, the Company announced on January 6, 1999 that it does not plan to file
for general rate increases in the states it serves for at least the next six
months, pending approval of the proposed merger. The Company will, however,
continue to seek price changes that result from existing mechanisms such as
Alternate Forms of Regulation ("AFOR"), systems benefit charges or price
indices.
The Company is currently in the process of relicensing or preparing to
relicense 16 separate hydroelectric projects under the Federal Power Act. These
projects, some of which are grouped together under a single license, represent
approximately 1,000 MW, or about 93% of the Company's total hydroelectric
nameplate capacity and about 12% of its total generating capacity. In the new
licenses, the FERC is expected to impose conditions designed to address the
impact of the projects on fish and other environmental concerns. See
"Environmental Issues--Endangered Species." The Company is unable to predict the
impact of imposition of such conditions, but capital expenditures and operating
costs are expected to increase in future periods. In addition, the Company may
refuse to accept renewed licenses for certain projects if the terms of renewal
would make the projects uneconomical to operate, and the Company is considering
removal of certain project facilities as part of the licensing settlement
process.
During 1998, the Company filed new depreciation rates with the respective
regulatory commissions in the states of Oregon, Utah and Wyoming based upon a
depreciation study. The impact of the proposed changes in depreciation are
intended to be incorporated into the next general rate case in each state. The
study indicated annual depreciation expense would be increased by approximately
$77 million using the depreciation rates proposed in the study. The increase in
depreciation expense is primarily due to revisions of the estimated costs of
removal for steam production and distribution plant.
A summary of regulatory and legislative developments in the states where the
Company conducts its distribution and retail electric operations is set forth
below.
9
<PAGE>
Utah. During 1997, the Utah Public Service Commission ("UPSC") held
hearings on the method to be used in allocating common generation, transmission
and corporate related costs among the Company's jurisdictions. Under an order
issued in April 1998, differences in allocations associated with the merger of
Pacific Power & Light Company and Utah Power & Light Company were to be
eliminated over five years on a straight-line basis. The phase-out of the
differences was to be completed by January 1, 2001 and could have reduced Utah
customer prices by about $50 to $60 million annually once fully implemented. The
order was to be included in a general rate case, thereby combining it with all
other cost of service items in determining the ultimate impact on customer
prices.
In 1998, the UPSC commenced a general rate case to consider the impact of
the April 1998 allocation order, other cost of service issues and the
appropriateness of the Company's authorized rate of return on equity. On March
4, 1999, an order was issued by the UPSC in the general rate case. The order
requires the Company to reduce revenues in the state of Utah by $85 million, or
12%, annually. The UPSC also ordered that the allocation order be implemented
immediately and not phased-in as originally ordered. Additionally, the UPSC
ordered a refund to be issued through a credit on customer bills of $40 million.
The Company recorded a $38 million reduction in revenues in 1998 and will record
$2 million in 1999. The refund covers a period from March 14, 1997 to February
28, 1999. The beginning date is consistent with the timing of Utah legislation
imposing a moratorium on rate changes after the Utah Division of Public
Utilities and the Utah Committee of Consumer Services requested a general rate
case. The $85 million reduction will commence on March 1, 1999. The order also
reduced the Company's authorized rate of return on equity from 12.1% to 10.5%.
The Company has asked the UPSC to reconsider issues in the order involving
approximately $41 million of the $85 million rate decrease. Among these issues
is the method of implementing the April 1998 allocation order. The Company is
not seeking reconsideration of the reduction in its authorized return on equity
to 10.5% nor the changes in the way costs are allocated among the six states
served by the Company.
On March 4, 1997, the Utah legislature passed a bill creating a legislative
task force to study restructuring issues. The task force began studying the
issue in 1997. The 1998 Utah legislature passed a resolution stating that
electric industry restructuring is to the long-term benefit of the citizens of
Utah. The task force asked the UPSC to perform a series of studies on electric
industry restructuring and report back to the task force. On June 1, 1998 the
UPSC provided a report to the task force which recommended three stages of
implementation once the decision to restructure is made. The first stage would
identify definitions and classifications and services to be unbundled. The
second stage would be a formal determination of the cost of service for
unbundled services. The third stage would be to analyze market structure and
institute rules and guidelines to promote and sustain effective competition. The
Company expects discussion will continue concerning the future direction of the
electric industry and restructuring legislation in Utah. No restructuring
legislation is anticipated by the Company in the 1999 legislative session.
Oregon. The Oregon Public Utility Commission (the "OPUC") and the Company
have agreed to an AFOR for the Company's Oregon distribution business. The AFOR
allows for price increases based on changes in the producer price index less a
productivity adjustment in 1998, 1999 and 2000. The price increases have an
annual cap of 2% of distribution revenues in any one year and an overall cap of
5% over the three-year period. The annual revenue increase in 1999 is
approximately $6.2 million. The AFOR also includes incentives to invest in
renewable resources and penalties for failure to maintain the service quality
levels.
In March 1998, the OPUC approved the Company's proposal for a customer
choice pilot program. The program allowed approximately 30,000 residential and
small commercial customers to select from a portfolio of pricing options offered
by the Company. Approximately 6% of the eligible customers chose to participate
in the pilot, which will continue through June 1999. The pilot program also
included direct access competitive choice options for schools and large
industrial customers throughout the state. Due
10
<PAGE>
primarily to high electricity market prices, no customers have chosen another
supplier to date. Customers may choose to participate through September 1999.
The Company participated in a restructuring docket which was initiated by
Portland General Electric Company. In that proceeding, the Company joined with
other parties in a coalition (the Oregon Intervenor's Coalition, or OIC) to
propose a structure for customer choice, should customer choice be adopted in
Oregon. Under the OIC proposal, large electricity customers would be allowed
direct access while small electricity customers would initially be granted
customer choice.
Wyoming. During 1998, a Wyoming legislative committee held hearings on
electric industry restructuring issues. The committee heard public comment
representing a variety of interests, including investor-owned utilities,
electric cooperatives, organized labor, large electricity customers, small
electricity customers, municipalities, and the Wyoming Public Service
Commission. The Company does not anticipate that restructuring legislation will
be introduced in the 1999 Wyoming legislative session. The Company expects,
however, that discussion will continue concerning the future direction of the
electric industry and restructuring legislation in Wyoming.
Washington. The 1998 Washington legislature passed two bills calling for
studies relating to the electric industry. The first study examined costs,
rates, consumer protection and reliability issues. The second study investigated
methods for unbundling electric utility costs. Both reports were completed by
state agencies and were provided to the Washington legislature in December of
1998.
Idaho. During 1998, the Idaho Public Utility Commission ("IPUC") conducted
rate component unbundling cases for each of the three electric utilities
providing services in the state, including the Company. The scope of these
investigations was limited to the separation of the cost components of the
current bundled tariff rates that customers pay. Stranded costs and other
restructuring issues were not addressed in these proceedings. These cases were
concluded with no action taken by the IPUC. No restructuring legislation was
enacted in 1998 by the Idaho legislature. The Company expects, however, that
discussions will continue concerning the future direction of the electric
industry and restructuring legislation in Idaho.
California. In July 1998, the Company announced its intention to sell its
California service territory electric distribution assets. The Company currently
has approximately 41,400 customers in California. Discussions are ongoing with
potential purchasers. In December 1997, the CPUC issued an order with respect to
the Company's filing concerning transition to direct access requirements enacted
in that state. The order mandated a 10% rate reduction effective January 1,
1998, which resulted in a $3.5 million annual reduction in revenues. The Company
is considering filing a petition for modification of this order.
Montana. In November 1998, the sale of the Company's Montana electric
distribution facilities (with a small amount of transmission facilities) to
Flathead Electric Cooperative, Inc. was approved by the MPSC with a negotiated
net gain of $4 million to be allocated to the Company's Montana ratepayers. The
transaction did not include the sale of the Company's Montana generation
facilities or the majority of its transmission system in that state. Prior to
the sale, the Company served approximately 35,000 customers in Montana,
primarily in Flathead and Lincoln counties.
In addition, the Company is participating in a docket concerning the
transition plan the Company filed in compliance with direct access legislation
in Montana. The Company has asserted in that docket that it has significant
stranded costs relating to its Montana service territory. However, the Company
has stated its willingness to forego recovery of those stranded costs as a
result of the sale of the Montana service territory. Other parties in the
proceeding believe the Company has stranded benefits, rather than stranded
costs, and that those benefits should be returned to customers. The Company
believes that the concept of stranded benefits is not addressed by Montana
legislation and there is no obligation to return stranded benefits to customers
even if the MPSC finds that such benefits exist. The outcome of this proceeding
is uncertain.
11
<PAGE>
CONSTRUCTION PROGRAM
The following table shows actual construction costs for 1998 and the
Company's estimated construction costs for 1999 through 2001, including costs of
acquiring demand-side resources. The estimates of construction costs for 1999
through 2001 are subject to continuing review and appropriate revision by the
Company.
<TABLE>
<CAPTION>
ESTIMATED
ACTUAL -------------------------------
TYPE OF FACILITY 1998 1999 2000 2001
- -------------------------------------------------------------- ----------- --------- --------- ---------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
Distribution.................................................. $ 191 $ 168 $ 180 $ 180
Production.................................................... 138 120 87 113
Mining........................................................ 34 31 33 52
Transmission.................................................. 31 50 51 51
Other......................................................... 145 110 63 66
----- --------- --------- ---------
Total....................................................... $ 539 $ 479 $ 414 $ 462
----- --------- --------- ---------
----- --------- --------- ---------
</TABLE>
AUSTRALIAN ELECTRIC OPERATIONS
POWERCOR
GENERAL
Powercor, an indirect, wholly owned subsidiary of Holdings, is the largest
electricity distribution company ("Distribution Company") in Victoria,
Australia, based on sales volume, revenues, geographic scope and number of
customers. Powercor's principal business segments are its Distribution Business
and its Supply Business. The Distribution Business consists of the distribution
of electricity to approximately 560,000 customers within Powercor's distribution
area, covering from the western suburbs of Melbourne to central and western
Victoria. The Supply Business consists of the purchase of electricity from
generators and the sale of such electricity to customers in Powercor's
distribution service area and other parts of Victoria, New South Wales ("NSW")
and the Australian Capital Territory ("ACT"). Powercor's distribution service
area covers approximately 57,900 square miles (64% of the total area of
Victoria), has a population of approximately 1.5 million (32% of Victoria's
population) and accounts for 26% of Victoria's Gross State Product. In 1998,
Victoria accounted for approximately 25% of Australia's total population,
approximately 34% of Australia's manufacturing industry output and approximately
29% of Australia's Gross Domestic Product, although it represents only
approximately 3% of the total area of Australia.
DISTRIBUTION BUSINESS
Powercor's Distribution Business consists of the ownership, management and
operation of the electricity distribution and subtransmission network in its
distribution service area. The primary activity of the Distribution Business is
the receipt of electricity from Victoria's high voltage transmission system (the
"Grid") and the distribution of electricity to customers in Powercor's
distribution service area. Substantially all of the Distribution Business is a
regulated monopoly. Almost all customers within Powercor's distribution service
area are connected to its distribution network, whether electricity is supplied
by Powercor or another retail supplier. In 1998, the Distribution Business
generated all of Powercor's operating income.
The Distribution Business has grown in both its customer base and the volume
of electricity distributed, primarily reflecting economic growth in Victoria
generally and Powercor's distribution service
12
<PAGE>
area in particular. The following table sets forth the volumes of electricity
distributed by Powercor at the dates and for the periods presented. See
"Regulation--Distribution Pricing Regulation."
<TABLE>
<CAPTION>
ELECTRICITY DISTRIBUTED BY THE YEAR ENDED YEAR ENDED
DISTRIBUTION BUSINESS (KWH IN MILLIONS) DECEMBER 31, 1998 DECEMBER 31, 1997
- ------------------------------------------------------- ------------------- -------------------
<S> <C> <C>
Residential.......................................... 2,730 2,679
Commercial........................................... 1,634 1,550
Industrial........................................... 3,378 3,273
Other................................................ 545 536
----- -----
Total................................................ 8,287 8,038
----- -----
----- -----
</TABLE>
The Distribution Business of Powercor has not experienced significant
competition. Powercor believes that the economics underlying building and
maintaining a duplicate distribution network in its distribution service area
will restrict the introduction of another network. However, to the extent
customers establish or increase their own generation capacity, establish their
own private distribution networks, become directly connected to the Grid or
relocate operations outside Powercor's distribution service area, such customers
would not require the distribution services of Powercor except in certain cases
for standby connection services. As of December 31, 1998, Powercor had not lost
any distribution revenues to customers as a result of self-generation,
cogeneration or the establishment of private distribution networks. Although
Powercor believes that it has effective strategies in place to minimize this
type of load loss, there can be no assurance, particularly in view of its large
industrial customer base, that the Distribution Business will not experience
loss of revenues in the future as a result of such competition.
The major operating expenses of the Distribution Business are distribution
use-of-system costs, use-of-transmission-system fees and connection service
charges. The use-of-transmission-system fees and connection service charges,
regulated by the Tariff Order, are payable to the Victorian Power Exchange (the
"VPX"), a corporate body established under Victoria's Electricity Industry Act
1993 ("Electricity Act"), and the company that owns and maintains the Grid, GPU
Power Net Victoria ("GPU"), respectively, and constitute the VPX's and GPU's
costs associated with operation, maintenance and administration of the Grid. The
distribution use-of-system costs are Powercor's fundamental operating expenses
that result from operating and maintaining its distribution network. Unlike
use-of-transmission-system fees and connection service charges, Powercor has the
ability, and, given the current distribution price-cap regulatory structure, a
significant incentive, to control such distribution use-of-system costs through
a variety of cost reduction initiatives. However, there can be no assurance that
Powercor's cost efficiency initiatives will yield sufficient savings to increase
Powercor's margins from the Distribution Business to offset any network tariff
reductions that may result from the Office of Regulator General's (the "ORG")
review of distribution tariffs charged by Distribution Companies beginning in
2001, as described under "Regulation-- Distribution Pricing Regulation."
SUPPLY BUSINESS
The Supply Business conducts the commercial functions of purchasing,
marketing and selling of electricity and is responsible for the management of
the price, purchasing and volume risks associated with such functions and
end-use demand management. See "Regulation--Supply Pricing Regulation."
13
<PAGE>
The customer metered sites energy usage in millions of kWh and percentages
of Powercor's revenues from the Supply Business for franchise customers in
Powercor's distribution service area and for contestable customers are set forth
below:
<TABLE>
<CAPTION>
CUSTOMER SITES ENERGY USAGE REVENUES
-------------------- -------------------- -------------
1998 NO. % % %
- ----------------------------------------------- --------- --------- --- -------------
<S> <C> <C> <C> <C> <C>
Franchise Customers............................ 560,729 99.3 4,225 36 56
Contestable Customers.......................... 3,983 0.7 7,663 64 44
--------- --------- --------- --- ---
Total.......................................... 564,712 100.0 11,888 100 100
--------- --------- --------- --- ---
--------- --------- --------- --- ---
</TABLE>
<TABLE>
<CAPTION>
CUSTOMER SITES ENERGY USAGE REVENUES
-------------------- -------------------- -------------
1997 NO. % % %
- ----------------------------------------------- --------- --------- --- -------------
<S> <C> <C> <C> <C> <C>
Franchise Customers............................ 552,959 99.7 4,696 43 62
Contestable Customers.......................... 1,931 0.3 6,348 57 38
--------- --------- --------- --- ---
Total.......................................... 554,890 100.0 11,044 100 100
--------- --------- --------- --- ---
--------- --------- --------- --- ---
</TABLE>
The customer metered sites, energy usage in millions of kWh and percentages
of Powercor's revenues from the Supply Business for residential, commercial,
industrial and other customers for the years ended December 31, 1998 and 1997
are set forth below:
<TABLE>
<CAPTION>
CUSTOMER SITES(1) ENERGY USAGE REVENUES
-------------------- -------------------- -----------
NO. % % %
--------- --------- --------- -----------
<S> <C> <C> <C> <C> <C>
Residential Customers
December 31, 1998.......................... 467,505 82.8 2,725 22.9 34.7
December 31, 1997.......................... 459,780 82.8 2,683 24.3 35.0
Commercial Customers
December 31, 1998.......................... 50,768 9.0 3,952 33.2 33.1
December 31, 1997.......................... 49,821 9.0 3,082 27.9 30.4
Industrial Customers
December 31, 1998.......................... 10,400 1.8 4,689 39.4 26.1
December 31, 1997.......................... 9,440 1.7 4,755 43.1 28.1
Other Customers(2)
December 31, 1998.......................... 36,039 6.4 522 4.5 6.1
December 31, 1997.......................... 35,849 6.5 524 4.7 6.5
Total Customers
December 31, 1998.......................... 564,712 100.0 11,888 100.0 100.0
December 31, 1997.......................... 554,890 100.0 11,044 100.0 100.0
</TABLE>
- ------------------------
(1) Connections as of the date shown.
(2) Other customers include farm customers and public lighting and traction
customers.
The Supply Business revenue is derived from major industries such as
chemicals, petroleum, food and beverage, wholesale and retail, metal processing
and transport equipment. No single customer accounted for more than 3% of
Powercor's total revenues in 1998.
Powercor purchases all of its power for sale to franchise customers, other
than cogeneration output, through the competitive wholesale market for
electricity in Victoria (the "Pool"). As of December 13, 1998, the respective
state wholesale markets consolidated to a National Electricity Market ("NEM")
which is operated by the National Electricity Market Management Company
("NEMMCO"). There are two major components of the wholesale electricity market:
(i) the competitive energy market, centered
14
<PAGE>
primarily around the Pool, which establishes the spot price for the sale of
electricity by generators to suppliers and (ii) the contract trade, which
involves bilateral financial contracts between electricity buyers and sellers
outside the Pool that are used to hedge against Pool price volatility. The
principal function of the Pool is to allow market forces rather than monopolized
central planning to determine the amount, mix and cost characteristics of
generating plants and the level and shape of demand of suppliers.
Powercor is a party to a series of bilateral financial "vesting contracts"
that have been structured to hedge the price for Powercor's forecasted franchise
energy requirements through December 31, 2000. These vesting contracts take the
form of two-way and one-way contracts. Two-way vesting contracts are structured
such that generators and Distribution Companies, including Powercor, compensate
each other for the difference between the system marginal price, which is the
spot price payable to generators in the wholesale market via the Pool, and the
contract price up to a specified price cap. One-way vesting contracts provide
for amounts to be paid by generators to Distribution Companies for differences
when the system marginal price is above a specified price cap. As franchise
customers of the Supply Business become contestable, the notional amount of the
vesting contracts is reduced accordingly.
Powercor also has hedging contracts that relate to contestable customer
loads in order to manage electricity price risk. Historically, Powercor has
hedged each electricity sales contract with a back-to-back purchase contract.
Increasingly, however, as the contestable customer market grows and as an
Australian electricity futures market develops, Powercor is hedging its supply
obligations on a portfolio-wide basis. Powercor's policy is to hedge most of its
supply obligations and to monitor the financial risk exposure of its unhedged
positions.
REGULATION
The ORG. The Victorian government established the ORG pursuant to the
Office of the Regulator-General Act 1994 to regulate different Victorian
industries. In the context of regulating activities within the electricity
industry, the ORG has powers under the Electricity Act. The ORG's functions
pursuant to the Electricity Act include granting licenses to generate, transmit,
distribute or supply electricity, ensuring compliance with industry codes and
Pool rules, administering cross-ownership provisions and administering the
Victorian Electricity Supply Industry Tariff Order (the "Tariff Order").
Licenses. Unless covered by an exemption, the Electricity Act prohibits,
without a relevant license, the activities of generation of electricity for
supply or sale, transmission, distribution, supply or sale of electricity or
operation of a wholesale electricity market. Licenses are issued by the ORG
after the applicant has satisfied specific criteria and subject to the
satisfaction of ongoing conditions, such as continued compliance with industry
codes and Pool rules.
Powercor has an exclusive license to distribute electricity to certain
customers in its distribution service area in Victoria and nonexclusive licenses
to supply electricity to all customers in its distribution service area and
elsewhere in Victoria, NSW, ACT and Queensland. See "--Supply Pricing
Regulation." The Hazelwood Partnership has a license to generate and sell
electricity to the wholesale market in Victoria and NSW. See "Hazelwood" below.
The Tariff Order. Pursuant to the Electricity Act, the Tariff Order
regulates charges for connection to, and use of, the transmission system,
distribution use-of-system charges that can be levied by Distribution Companies
and tariffs for the sale of electricity to franchise customers until December
31, 2000. The ORG is charged with the regulatory oversight of the Tariff Order.
The Tariff Order is designed to provide a level of stability and continuity in
tariff regulation.
Distribution Pricing Regulation. Under distribution licenses granted by the
ORG, the Distribution Companies are able to levy the following charges, which
include their profit: (i) network tariffs, which include recovery of
distribution use-of-system costs, use-of-transmission-system fees and GPU
connection service charges, (ii) connection charges for connecting customers to
the network, taking into account that a
15
<PAGE>
portion of the costs of connection are recovered through network tariffs and
(iii) charges for other services, which are required to be fair and reasonable.
The level of distribution charges, as one element of the network tariffs, is
regulated under the Tariff Order through December 31, 2000 pursuant to an
incentive-based CPI-X formula, which attempts to ensure that the weighted
average of distribution charges for each year, within the respective
distribution categories, does not exceed the average of the previous year's base
prices for each distribution category weighted by the forecast quantity of
electricity to be delivered and adjusted for inflation using a consumer-price
index formula and for under and over-recovery in previous financial years.
Subsequent to the year 2000, existing network tariffs will be subject to
review by the ORG within the framework of, and the principles set forth in, the
Tariff Order. In particular, the Tariff Order provides that the ORG, in
connection with such review of network tariffs, can only reset the network
tariffs for a period of not less than five years, the ORG must utilize CPI-X
price capping and not rate of return regulation and the ORG must consider the
need to (i) provide each Distribution Company with incentives to operate
efficiently, (ii) ensure a fair sharing of benefits achieved through efficiency
between customers and Distribution Companies and (iii) ensure appropriate
incentives for capital expenditures and maintenance of the distribution
networks. The impact on Powercor, if any, of the post year 2000 ORG review on
customer prices is not clear at this time.
Supply Pricing Regulation. Under the retail portions of their licenses,
Distribution Companies are required, pursuant to the Tariff Order, to supply
electricity to franchise customers through December 2000, at prices no greater
than the prices specified in the applicable Maximum Uniform Tariff ("MUT") for
such customers. The prices specified in the MUTs are therefore fully regulated
and inclusive of all network and distribution related charges and energy costs.
Powercor's tariffs are adjusted annually by a percentage equal to the movement
in Consumer Price Index (All Groups) for Melbourne ("CPI") minus a fixed
percentage. Commencing both July 1, 1999 and 2000, the annual adjustments for
large and medium businesses will be the CPI and will be the CPI minus one for
medium and small businesses and residential and rural customers. The CPI for the
year ended December 31, 1998 was 1.2% and it was 0.2% for the year ended
December 31, 1997.
Prices charged to contestable customers are subject to competitive forces
and, therefore, are not directly regulated by the ORG, in contrast to prices
charged to franchise customers. Prices to contestable customers include
regulated network charges (transmission and distribution) and competitively
determined energy supply charges.
Customers in Victoria and NSW with annual consumption in excess of 160
megawatt hours ("MWh") per year are now contestable. Customers with usage of 160
MWh per year or less are not currently contestable but will incrementally become
contestable over the period ending December 31, 2000 in Victoria and over the
period ending June 30, 1999 in NSW.
Customers in Queensland with annual consumption of 4 million kWh per year
can now choose their electricity retailer and there are plans to introduce
contestability for customers with annual usage of 200 MWh per year on July 1,
1999 and for all remaining customers on July 1, 2001.
For a description of Powercor's properties, see "ITEM 2.
PROPERTIES--AUSTRALIA."
ENVIRONMENTAL ISSUES
The nature of Powercor's operations exposes it to risks of varying degrees
associated with bushfires and other environmental issues.
16
<PAGE>
Approximately 63% of Powercor's assets are located in fire prone zones.
Powercor and its predecessors have developed a comprehensive bushfire risk
management and mitigation system to reduce bushfire exposure. This system is
based on regular inspections of poles and conductors and the identification and
reporting of maintenance items existing on the network that may contribute to an
electrically initiated bushfire.
Powercor is subject to various Australian federal and Victorian state
environmental regulations, the most significant of which is the Victorian
Environment Protection Act of 1970 ("VEPA"). The VEPA regulates, in particular,
the discharge of waste into air, land and water, site contamination, the
emission of noise and the storage, recycling and disposal of solid and
industrial waste. The VEPA established the Environment Protection Authority
("Authority") and grants the Authority a wide range of powers to control and
prevent environmental pollution. These powers include issuing approvals for
construction of works that may cause noise or emissions to air, water or land,
waste discharge licenses and pollution abatement notices. Powercor believes it
is currently in material compliance with the provisions of the VEPA and no
licenses or work approvals from the Authority are currently required for
activities undertaken by Powercor.
HAZELWOOD
Hazelwood Pacific Pty Ltd ("Hazelwood Pacific"), an indirect, wholly owned
subsidiary of Holdings, holds a 19.9% interest in the Hazelwood Power
Partnership (the "Hazelwood Partnership"), which owns a 1,600 MW, brown
coal-fired thermal power station (the "Hazelwood Plant") and the adjacent brown
coal mine (the "Hazelwood Mine") in Victoria, Australia. The Hazelwood
Partnership is composed of Hazelwood Pacific, an affiliate of National Power
Corporation PLC ("National Power") (71.94%), and two companies associated with
the Commonwealth Bank group of Australia (8.16%). National Power oversees the
Hazelwood Plant operations and the Company oversees operations at the Hazelwood
Mine. In the fourth quarter of 1998, the Company began soliciting bids and is
committed to selling its equity interest in the Hazelwood Partnership and,
accordingly, the Company recorded a pretax loss of $28 million ($17 million
after-tax) to reduce its carrying value in the Hazelwood Power Station to its
estimated net realizable value less selling costs.
Through March 2000, Hazelwood Pacific estimates that its contribution to the
capital expenditure commitments of the Hazelwood Plant will be $4 million and $5
million for the years 1999 and 2000, respectively. The investment is accounted
for on an equity basis. For 1998 and 1997, equity losses from Hazelwood were
$5,483, and $2,919, respectively.
The Hazelwood Partnership sells its power through a statewide generation
pool and enters into bilateral financial contracts with Australian distribution
companies, such as Powercor. Prices vary with weather, economic growth and other
factors affecting the supply of and demand for power. Power prices tend to be
lowest during Australia's summer months (the fourth and first calendar
quarters), except during periods of unusually high temperatures.
For a description of Hazelwood properties, see ITEM 2.
PROPERTIES--AUSTRALIA.
ENVIRONMENTAL ISSUES
The operations of the Hazelwood Partnership are subject to environmental
regulation. The Hazelwood Partnership is required to obtain licenses from the
Authority in connection with certain of its operations, including operations
involving the emission or discharge of pollutants. These licenses are generally
issued to the Hazelwood Partnership in the ordinary course of business and are
terminable upon breach or violation.
The Hazelwood Plant is fired by brown coal and consequently emits more
greenhouse gas per unit of power produced than is emitted by power plants fired
by black coal or natural gas. The Australian
17
<PAGE>
government has participated in negotiations with governments of other countries
with respect to greenhouse gas emission levels. As a result of the December 1997
Kyoto Climate Change Conference, the Australian government committed to
limitations on greenhouse gas emissions. It is anticipated that the Australian
government will introduce some measures to control greenhouse gas emissions.
Such measures could increase capital expenditures at the Hazelwood Plant and
could have the effect of making brown coal fired generators less competitive.
OTHER OPERATIONS
PACIFICORP FINANCIAL SERVICES
PFS is a holding company principally engaged in holding investments in tax
advantaged and leveraged lease assets (primarily aircraft).
PFS made its last investment in aircraft or loans relating to aircraft in
1992. At December 31, 1998, approximately 90% of the aircraft in PFS's portfolio
investment were Stage III noise compliant. At December 31, 1998, PFS's aviation
finance portfolio had total leveraged lease and other financial assets of $348
million (30 aircraft), representing approximately 82% of PFS's consolidated
assets.
PFS has completed the construction of four plants in the Birmingham, Alabama
area which produce a synthetic coal fuel designed to qualify for tax credits
under Section 29 of the Internal Revenue Code. The technology utilized by the
plants is licensed from Covol Technologies, Inc. ("Covol"). PFS owns
approximately 8% of the outstanding shares of Covol common stock.
INTERNATIONAL OPERATIONS
Through its subsidiaries, Holdings has been engaged in the acquisition or
development of electrical power projects or systems internationally. The most
significant of these projects is a 33% interest in a 75 MW hydroelectric project
in the Philippines.
In October 1998, the Company decided to focus on its western United States
electric business and its electric distribution business in Australia and to
sell or shut down all international businesses and activities, subject to
achieving reasonable economic and other terms. The process of exiting the
international businesses is underway.
DISCONTINUED OPERATIONS
The Company's discontinued energy trading business includes the eastern
United States electricity trading operations of PPM and the natural gas
marketing and storage operations of TPC. PPM was a wholesale power trading
company focusing in the eastern United States. PPM's activities in the eastern
United States have been discontinued, and all forward energy trading has been
closed and is going through settlement. PPM continues to honor services under
long-term contracts to utilities in Minnesota and Oklahoma. Holdings entered
into a Stock Purchase Agreement with NI Energy Services, Inc., dated February 9,
1999, for the sale of the stock of TPC for approximately $132.5 million. In
addition, a working capital adjustment will be calculated and paid following
closing of the TPC transaction, which is anticipated during the first half of
1999.
EMPLOYEES
PacifiCorp and its subsidiaries had 9,120 employees on December 31, 1998. Of
these employees, 7,847 were employed by PacifiCorp and its mining affiliates,
1,117 were employed by Powercor and 156 were employed by PPM, TPC, PFS and other
subsidiaries.
Approximately 62% of the employees of PacifiCorp and its mining affiliates
are covered by union contracts, principally with the International Brotherhood
of Electrical Workers, the Utility Workers Union
18
<PAGE>
of America and the United Mine Workers of America. Due to changes in Australian
laws, information concerning union membership is no longer available to
employers.
In the Company's judgment, employee relations are satisfactory.
ITEM 2. PROPERTIES
UNITED STATES
The Company owns 52 hydroelectric generating plants and has an interest in
one additional plant, with an aggregate nameplate rating of 1,069 MW and plant
net capability of 1,126 MW. It also owns or has interests in 15 thermal-electric
generating plants with an aggregate nameplate rating of 7,573 MW and plant net
capability of 7,039 MW. The Company also owns one gas turbine generating plant
and has interests in one combined-cycle and one wind power generating plant with
an aggregate nameplate rating of 359 MW and plant net capability of 281 MW. The
following table summarizes the Company's existing generating facilities:
<TABLE>
<CAPTION>
NAMEPLATE PLANT NET
INSTALLATION RATING CAPABILITY
LOCATION ENERGY SOURCE DATES (MW) (MW)
----------------------- ----------------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
HYDROELECTRIC PLANTS
Swift........................ Cougar, Washington Lewis River 1958 240.0 263.0
Merwin....................... Ariel, Washington Lewis River 1931-1958 136.0 142.0
Yale......................... Amboy, Washington Lewis River 1953 134.0 134.0
Five North Umpqua Plants..... Toketee Falls, Oregon N. Umpqua River 1950-1956 133.5 138.0
John C. Boyle................ Keno, Oregon Klamath River 1958 80.0 90.0
Copco Nos. 1 and 2 Plants.... Hornbrook, California Klamath River 1918-1925 47.0 54.5
Clearwater Nos. 1 and 2 Toketee Falls, Oregon Clearwater River
Plants..................... 1953 41.0 41.0
Grace........................ Grace, Idaho Bear River 1914-1923 33.0 33.0
Prospect No. 2............... Prospect, Oregon Rogue River 1928 32.0 36.0
Cutler....................... Collinston, Utah Bear River 1927 30.0 29.1
Oneida....................... Preston, Idaho Bear River 1915-1920 30.0 28.0
Iron Gate.................... Hornbrook, California Klamath River 1962 18.0 20.0
Soda......................... Soda Springs, Idaho Bear River 1924 14.0 14.0
Fish Creek................... Toketee Falls, Oregon Fish Creek 1952 11.0 12.0
33 Minor Hydroelectric Plants Various Various 1896-1990 89.3* 90.9*
----------- -----------
Subtotal (53 Hydroelectric Plants) 1,068.8 1,125.5
----------- -----------
THERMAL ELECTRIC PLANTS
Jim Bridger.................. Rock Springs, Wyoming Coal-Fired 1974-1979 1,529.5* 1,406.7*
Huntington................... Huntington, Utah Coal-Fired 1974-1977 996.0 895.0
Dave Johnston................ Glenrock, Wyoming Coal-Fired 1959-1972 816.7 772.0
Naughton..................... Kemmerer, Wyoming Coal-Fired 1963-1971 707.2 700.0
Centralia.................... Centralia, Washington Coal-Fired 1972 693.5* 636.5*
Hunter 1 and 2............... Castle Dale, Utah Coal-Fired 1978-1980 703.5* 648.4*
Hunter 3..................... Castle Dale, Utah Coal-Fired 1983 495.6 460.0
Cholla Unit 4................ Joseph City, Arizona Coal-Fired 1981 414.0 380.0
Wyodak....................... Gillette, Wyoming Coal-Fired 1978 289.7* 268.0*
Gadsby....................... Salt Lake City, Utah Gas-Fired 1951-1955 251.6 235.0
Carbon....................... Castle Gate, Utah Coal-Fired 1954-1957 188.6 175.0
Craig 1 and 2................ Craig, Colorado Coal-Fired 1979-1980 172.1* 165.0*
Colstrip 3 and 4............. Colstrip, Montana Coal-Fired 1984-1986 155.6* 144.0*
Hayden 1 and 2............... Hayden, Colorado Coal-Fired 1965-1976 81.3* 78.0*
Blundell..................... Milford, Utah Geothermal 1984 26.1 23.0
James River.................. Camas, Washington Black Liquor 1996 52.2 52.0
----------- -----------
Subtotal (15 Thermal Electric Plants) 7,573.2 7,038.6
----------- -----------
OTHER PLANTS
Little Mountain.............. Ogden, Utah Gas Turbine 1971 16.0 14.0
Hermiston.................... Hermiston, Oregon Combined Cycle 1996 310.6* 234.0*
Foote Creek.................. Arlington, Wyoming Wind Turbines 1998 32.6 32.6*
----------- -----------
Subtotal (3 Other Plants) 359.2 280.6
----------- -----------
Total Hydro, Thermal and Other Generating Facilities (71) 9,001.2 8,444.7
----------- -----------
----------- -----------
</TABLE>
- ------------------------------
* Jointly owned plants; amount shown represents the Company's share only.
NOTE: Hydroelectric project locations are stated by locality and river
watershed.
19
<PAGE>
The Company's generating facilities are interconnected through its own
transmission lines or by contract through the lines of others. Substantially all
generating facilities and reservoirs located within the Pacific Northwest region
are managed on a coordinated basis to obtain maximum load carrying capability
and efficiency. Portions of the Company's transmission and distribution systems
are located, by franchise or permit, upon public lands, roads and streets and,
by easement or license, upon the lands of other third parties.
Substantially all of the Company's electric utility plants are subject to
the lien of the Company's Mortgage and Deed of Trust.
The following table describes the Company's recoverable coal reserves as of
December 31, 1998. All coal reserves are dedicated to nearby Company operated
generating plants. Recoverability by surface mining methods typically ranges
between 90% and 95%. Recoverability by underground mining techniques ranges from
50% to 70%. The Company considers that the respective coal reserves assigned to
the Centralia, Craig, Dave Johnston, Huntington, Hunter and Jim Bridger plants,
together with coal available under both long-term and short-term contracts with
external suppliers, will be sufficient to provide these plants with fuel that
meets the Clean Air Act standards effective in 1998, for their current
economically useful lives. The sulfur content of the coal reserves ranges from
0.43% to 0.84% and the British Thermal Units value per pound of the reserves
ranges from 7,600 to 11,400. Coal reserve estimates are subject to adjustment as
a result of the development of additional data, new mining technology and
changes in regulation and economic factors affecting the utilization of such
reserves.
<TABLE>
<CAPTION>
RECOVERABLE TONS
LOCATION PLANT SERVED (IN MILLIONS)
- ----------------------------------------------- -------------------------- -----------------
<S> <C> <C>
Centralia, Washington.......................... Centralia 41(1)
Craig, Colorado................................ Craig 51(2)
Glenrock, Wyoming.............................. Dave Johnston 3(1)(5)
Emery County, Utah............................. Huntington and Hunter 56(1)(3)
Rock Springs, Wyoming.......................... Jim Bridger 118(4)
</TABLE>
- ------------------------
(1) These coal reserves are mined by subsidiaries of the Company.
(2) These coal reserves are leased and mined by Trapper Mining, Inc., a
Delaware nonstock corporation operated on a cooperative basis, in which the
Company has an ownership interest of approximately 20%.
(3) These coal reserves are in underground mines.
(4) These coal reserves are leased and mined by Bridger Coal Company, a joint
venture between Pacific Minerals, Inc., a subsidiary of the Company, and a
subsidiary of Idaho Power Company. Pacific Minerals, Inc. has a two-thirds
interest in the joint venture.
(5) The Company expects to cease substantially all mining operations at this
location in 1999.
Most of the Company's coal reserves are held pursuant to leases from the
federal government through the Bureau of Land Management and from certain states
and private parties. The leases generally have multi-year terms that may be
renewed or extended and require payment of rentals and royalties. In addition,
federal and state regulations require that comprehensive environmental
protection and reclamation standards be met during the course of mining
operations and upon completion of mining activities. In 1998, the Company
expended $7 million of reclamation costs and accrued $5 million of estimated
final mining reclamation costs. Final mine reclamation funds have been
established with respect to certain of the Company's mining properties. At
December 31, 1998, the Company's pro rata portion of these reclamation funds
totaled $52 million and the Company had an accrued reclamation liability of $161
million at December 31, 1998.
20
<PAGE>
AUSTRALIA
Powercor's electrical distribution network, located in Victoria, Australia,
comprises: (i) 66 kilovolts ("kV") and 22 kV subtransmission lines and
underground subtransmission cables that transport wholesale energy from 11
terminal stations owned by GPU and controlled, under lease, by the VPX; (ii) 50
zone substations that transform electricity to lower voltages (22 kV and below)
and then distribute the energy through the distribution network; and (iii) 22
kV, 11 kV and 6.6 kV distribution lines, including distribution substations that
transform electricity to low voltages (415 volts and below) suitable for
connection to the majority of the customers. In addition, Powercor leases its
principal executive offices at 40 Market St, Melbourne in Victoria under a
four-year lease with an option to renew for another eight years.
The Hazelwood Plant has four stages, each with two 200 MW boiler and turbo
generator units, and was constructed progressively between November 1964 and
August 1971. The plant has eight units, seven of which were in service at
December 31, 1998. Unit 3 was out of service from September 26, 1998 through
January 5, 1999 to enable precipitator replacements. The Hazelwood Mine has
between 400 million and 450 million recoverable tons of brown coal, which is
expected to provide the Hazelwood Plant with sufficient quantities of coal for
the 40 years of anticipated plant operation.
ITEM 3. LEGAL PROCEEDINGS
The Company and its subsidiaries are parties to various legal claims,
actions and complaints, one of which is described below. Although it is
impossible to predict with certainty whether or not the Company and its
subsidiaries will ultimately be successful in its legal proceedings or, if not,
what the impact might be, management believes that disposition of these matters
will not have a material adverse effect on the Company's consolidated financial
results.
On October 9, 1996, the Sierra Club filed an action against the Company and
the other joint owners of Units 1 and 2 of the Craig Electric Generating Station
(the "Station") under the citizen's suit provisions of the Federal Clean Air Act
alleging, based upon reports from emissions monitors at the Station, that over
14,000 violations of state and federal opacity standards have occurred over a
five-year period at Units 1 and 2 of the Station. (SIERRA CLUB V. TRI-STATE
GENERATION AND TRANSMISSION ASSOCIATION, INC., PUBLIC SERVICE COMPANY OF
COLORADO, INC., SALT RIVER PROJECT AGRICULTURAL IMPROVEMENT AND POWER DISTRICT,
PACIFICORP AND PLATTE RIVER POWER AUTHORITY, Civil Action No. 96-B2368, US
District Court for the District of Colorado). The Company has a 19.28% interest
in Units 1 and 2 of the Station, which is operated by Tri-State Generation and
Transmission Association and located in Craig, Colorado.
The action seeks injunctive relief requiring the defendants to operate the
Station in compliance with applicable statutes and regulations, the imposition
of civil penalties, litigation costs, attorneys' fees and mitigation. The
Federal Clean Air Act provides for penalties of up to $27,500 per day for each
violation, but the level of penalties imposed in any particular instance is
discretionary. The complaint alleges that the Company and Public Service Company
of Colorado are responsible for the alleged violations beginning with the second
quarter of 1992, when they acquired their interests in the Station, and that the
other owners are responsible for the alleged violations during the entire
period. The complaint alleges that there were approximately 10,000 violations
since the second quarter of 1992. On March 18, 1999, the district court issued
its order regarding summary judgment motions filed by the parties. The court
ruled, among other things, that the emission monitors may be used by the
plaintiff to establish violations of opacity standards, but that the plant
owners are entitled to prove that the reported information is flawed.
A trial date has not yet been set. The Company is unable to predict the
level of penalties or other remedies that may be imposed upon the joint owners
of the Station or what portion of such liability may ultimately be borne by the
Company.
21
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No information is required to be reported pursuant to this item.
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
The following is a list of all executive officers of the Company. There are
no family relationships among the executive officers of the Company. Officers of
the Company are normally elected annually.
Keith R. McKennon, born December 25, 1933, Chairman, President and Chief
Executive Officer of the Company.
Mr. McKennon was elected Chairman of the Board in February 1994, Chief
Executive Officer on September 1, 1998 and President on November 18, 1998. He
has served as a Director of the Company since 1990.
Richard T. O'Brien, born March 20, 1954, Executive Vice President and Chief
Operating Officer of the Company and President and Chief Executive Officer of
Holdings.
Mr. O'Brien was elected Executive Vice President and Chief Operating Officer
of the Company in July 1998 and President and Chief Executive Officer of
Holdings in January 1998. He served as Senior Vice President and Chief Financial
Officer of the Company from August 1995 to July 1998 and Senior Vice President
of Holdings from February 1996 to January 1998. He served as Vice President of
the Company from August 1993 to August 1995.
John A. Bohling, born June 23, 1943, Senior Vice President of the Company.
Mr. Bohling was elected a Senior Vice President of the Company in February
1993.
William C. Brauer, born January 11, 1939, Senior Vice President of the
Company.
Mr. Brauer was elected a Senior Vice President of the Company in May 1996.
He served as a Vice President of the Company from 1992 to 1996.
Paul G. Lorenzini, born April 16, 1942, Senior Vice President of the
Company.
Mr. Lorenzini was elected a Senior Vice President of the Company in May
1994. He served as President of Pacific Power from January 1992 to May 1994.
Daniel L. Spalding, born December 23, 1953, Chairman and Chief Executive
Officer of Powercor and Senior Vice President of the Company.
Mr. Spalding was elected Chairman and Chief Executive Officer of Powercor in
December 1995 and was elected a Senior Vice President of the Company in February
1992.
Dennis P. Steinberg, born December 5, 1946, Senior Vice President of the
Company.
Mr. Steinberg was elected a Senior Vice President of the Company in August
1994. He served as a Vice President of the Company from February 1992 to August
1994.
Verl R. Topham, born August 25, 1934, Senior Vice President and General
Counsel of the Company and of Holdings.
Mr. Topham was elected Senior Vice President and General Counsel of Holdings
in January 1998, Senior Vice President and General Counsel and a director of the
Company in May 1994. He served as President of Utah Power from February 1990 to
May 1994. He has announced his retirement effective May 1, 1999.
Donald A. Bloodworth, born May 9, 1956, Vice President of the Company.
22
<PAGE>
Mr. Bloodworth was elected a Vice President of the Company in November 1997.
He was employed by AirTouch Communications from April 1997 to November 1997. He
served as Controller of the Company from August 1996 until April 1997. He served
as Vice President of Revenue Requirements and Controller for PTI from May 1993
until August 1996.
Thomas J. Imeson, born March 20, 1950, Vice President of the Company.
Mr. Imeson was elected a Vice President of the Company in February 1992.
Sally A. Nofziger, born July 5, 1936, Vice President and Corporate Secretary
of the Company, Secretary of Holdings and PFS.
Mrs. Nofziger was elected a Vice President of the Company in 1989 and has
been Corporate Secretary of the Company since 1983.
William E. Peressini, born May 23, 1956, Vice President and Treasurer of the
Company and Vice President, Finance of Holdings.
Mr. Peressini was elected Vice President and Treasurer of the Company in May
1996. He had served as Treasurer of the Company since January 1994. He has been
Treasurer of Holdings since February 1994. He served as Executive Vice President
of PFS from January 1992 to January 1994.
Michael J. Pittman, born March 25, 1953, Vice President of the Company.
Mr. Pittman was elected a Vice President of the Company in May 1993.
Robert R. Dalley, born April 11, 1954, Controller and Chief Accounting
Officer of the Company.
Mr. Dalley was elected Controller and Chief Accounting Officer of the
Company in August 1998. He served as Assistant Controller from March 1998 to
August 1998 and as an Assistant Vice President of the Company from July 1992 to
March 1998.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(a). The Company's common stock is traded on the New York Stock Exchange and
the Pacific Stock Exchange. Sales price information required by this item is
included under "Quarterly Financial Data" on page 95 of this Report.
(b). At March 1, 1999, there were approximately 105,100 holders of the
Company's common stock.
ITEM 6. SELECTED FINANCIAL DATA
The information required by this item is included under "Selected Financial
Information" on page 90 of this Report.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW OF 1998
During 1998, PacifiCorp and its subsidiaries (the "Company") took several
major steps to redefine its objectives, reduce costs and develop plans for the
future. In March, the Company abandoned its attempt to acquire The Energy Group
PLC ("TEG") after another United States utility made a higher offer for TEG and
the Company elected not to increase its offer. Subsequently, the Company
reviewed its strategy and decided to refocus on its electricity businesses in
the western United States and Australia and to exit its
23
<PAGE>
other domestic and international businesses. The businesses to be exited include
the eastern United States electricity trading business of PacifiCorp Power
Marketing, Inc. ("PPM"), the natural gas marketing and storage business of TPC
Corporation ("TPC") and most of the Company's energy development businesses.
On December 6, 1998, PacifiCorp signed an Agreement and Plan of Merger with
Scottish Power plc ("ScottishPower") and NA General Partnership. ScottishPower
subsequently announced its intention to establish a new holding company for the
ScottishPower group pursuant to a court approved reorganization in the U.K.
Accordingly, on February 23, 1999, the parties executed an amended and restated
merger agreement (the "Agreement") under which PacifiCorp will become an
indirect, wholly owned subsidiary of the new holding company, which will be
renamed Scottish Power plc ("New ScottishPower"), and ScottishPower will become
a sister company to PacifiCorp. The combined company will have seven million
customers and 23,500 employees worldwide and will be headquartered in Glasgow,
Scotland. PacifiCorp will continue to operate under its current name, and its
headquarters will remain in Portland, Oregon.
In the merger, each share of PacifiCorp's common stock will be converted
into the right to receive 0.58 New ScottishPower American Depositary Shares
("ADS") (each New ScottishPower ADS represents four ordinary shares), which will
be listed on the New York Stock Exchange, or, upon the proper election of the
holders of PacifiCorp's common stock, 2.32 ordinary shares of New ScottishPower,
which will be listed on the London Stock Exchange. Based on the issued and
outstanding shares of ScottishPower and PacifiCorp on February 1, 1999, the
holders of PacifiCorp's common stock will receive approximately 36% of the total
issued share capital of New ScottishPower upon consummation of the merger. Based
on the market prices of the ScottishPower ordinary shares and PacifiCorp's
common stock on February 26, 1999, holders of PacifiCorp's common stock would
receive a premium of approximately 17% over the closing sale price of
PacifiCorp's common stock of $18.00.
If the proposed reorganization is not completed, the parties will proceed
under the original agreement, and PacifiCorp will become an indirect, wholly
owned subsidiary of ScottishPower. The merger is not conditional on the
reorganization becoming effective nor is the reorganization conditional upon the
merger becoming effective.
Both companies' boards of directors have approved the Agreement. However,
before the transactions under the Agreement can be consummated, a number of
conditions must be satisfied, including obtaining approvals and consents from
shareholders of both companies, the United States FERC, the United States
Nuclear Regulatory Commission, the regulatory commissions in certain of the
states served by the Company and Australian regulatory authorities. Generally,
approval by the state regulatory commission is subject to a finding that the
transaction is in the public interest. The commissions may attach conditions to
their approval. Hearings on the merger have been scheduled for July and August
1999 by the Oregon, Utah, Wyoming and Idaho commissions. The parties have
received early termination of the waiting period under the provisions of the
Hart-Scott-Rodino Antitrust Improvement Act. Both companies expect to have
shareholder meetings in mid-1999 requesting shareholder approval of the merger.
In January 1998, the Company moved to reduce costs through an early
retirement offering that resulted in a net decrease of 759 employees. In
December 1998, the Company implemented a $30 million annual cost reduction
program focused on further work force and overhead expense reductions.
On March 4, 1999, the Utah Public Service Commission (the "UPSC") issued an
order in a general rate case. In the order, the Company was required to refund
$40 million through a credit on customer bills and to reduce annual revenues by
$85 million, or 12%, effective March 1, 1999.
24
<PAGE>
EARNINGS OVERVIEW OF THE COMPANY
<TABLE>
<CAPTION>
MILLIONS OF DOLLARS, EXCEPT PER SHARE INFORMATION 1998 1997 1996
- ------------------------------------------------------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
Earnings contribution (loss) on common stock
Domestic Electric Operations....................................................... $ 130.5 $ 165.5 $ 341.5
Australian Electric Operations..................................................... 13.0 54.2 31.9
Other Operations................................................................... (52.2) (9.6) 27.1
--------- --------- ---------
Continuing Operations.............................................................. 91.3 210.1 400.5
Discontinued Operations............................................................ (146.7) 446.8 74.6
Extraordinary item................................................................. -- (16.0) --
--------- --------- ---------
$ (55.4) $ 640.9 $ 475.1
--------- --------- ---------
--------- --------- ---------
Earnings (loss) per common share--basic and diluted
Continuing Operations.............................................................. $ 0.30 $ 0.71 $ 1.37
Discontinued Operations............................................................ (0.49) 1.50 0.25
Extraordinary item................................................................. -- (0.05) --
--------- --------- ---------
$ (0.19) $ 2.16 $ 1.62
--------- --------- ---------
--------- --------- ---------
</TABLE>
In 1998 and 1997, the Company incurred a series of special charges,
discontinued operations of certain businesses and incurred acquisition
transaction costs. The table below sets forth the effects of these adjustments
to assist the reader, but should not be construed to represent Generally
Accepted Accounting Principles. Other than ScottishPower merger costs, the items
summarized below are not expected to be recurring.
EFFECTS OF ADJUSTMENTS ON EARNINGS (LOSS) PER COMMON SHARE
<TABLE>
<CAPTION>
1998 1997
---------------------- ----------------------
MILLIONS OF DOLLARS, EXCEPT PER SHARE INFORMATION TOTAL PER SHARE TOTAL PER SHARE
- ---------------------------------------------------------------------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Earnings (loss) in total and per common share--as reported............ $ (55.4) $ (0.19) $ 640.9 $ 2.16
Remove Discontinued Operations
(Income) loss of discontinued operations............................ 41.7 0.14 (81.7) (0.27)
Provision for losses of discontinued operations..................... 105.0 0.35 -- --
Gain on sale of discontinued operations............................. -- -- (365.1) (1.23)
Remove extraordinary item............................................. -- -- 16.0 0.05
--------- ----------- --------- -----------
Earnings from Continuing Operations................................... 91.3 0.30 210.1 0.71
Adjustments--Domestic Electric Operations
Special charges..................................................... 76.5 0.26 105.7 0.36
Scottish Power merger costs......................................... 13.2 0.04 -- --
Utah rate refund.................................................... 23.4 0.08 -- --
Adjustments--Australian Electric Operations
Write down of Hazelwood............................................. 17.4 0.06 -- --
Adjustments--Other Operations
TEG costs and option losses......................................... 55.4 0.19 64.5 0.22
Gain on sale of TEG shares.......................................... (9.8) (0.03) -- --
Write down of other energy businesses............................... 32.4 0.11 -- --
Asset sale gains.................................................... -- -- (30.0) (0.10)
--------- ----------- --------- -----------
Total............................................................. $ 299.8 $ 1.01 $ 350.3 $ 1.19(a)
--------- ----------- --------- -----------
--------- ----------- --------- -----------
</TABLE>
- ------------------------
(a) In 1997, the Company reported adjusted earnings per share of $1.52.
Included in the calculation of $1.52 were earnings from discontinued
operations and adjustments similar to those recorded in 1998 operations.
25
<PAGE>
Earnings on common stock for the Company decreased $696 million, or $2.35
per share, compared to 1997. The Company's reported 1998 loss of $55 million, or
$0.19 per share, included special charges of $77 million, or $0.26 per share,
relating to the Company's early retirement program announced in January 1998 and
the additional early retirement offer announced in the fourth quarter of 1998,
$23 million, or $0.08 per share, relating to the Utah rate case, $13 million, or
$0.04 per share, for ScottishPower merger costs, $54 million, or $0.18 per
share, relating to the write off of costs associated with the TEG transaction,
$2 million, or $0.01 per share, relating to closing foreign currency options in
April 1998 associated with the termination bid for TEG and a $10 million, or
$0.03 per share, gain relating to the sale of the TEG shares. In addition, the
Company recorded charges in 1998 of $105 million, or $0.35 per share, relating
to the provision for losses on disposition of the energy trading segment, $17
million, or $0.06 per share, relating to the write down of the Company's
investment in Hazelwood, and $32 million, or $0.11 per share, relating to the
provision for losses on disposition of other energy development businesses.
The Company's 1997 earnings of $641 million included asset sale gains of
$395 million, or $1.33 per share, relating to sales of the Company's
telecommunications subsidiary and independent power business. Domestic Electric
Operations recorded $106 million, or $0.36 per share, of special charges
relating to an accrual for a coal mine closure, write off of deferred regulatory
pension assets and impairment of information technology systems. Additionally,
the Company recorded losses of $65 million, or $0.22 per share, relating to
foreign currency exchange contracts associated with the bid for TEG and a $16
million, or $0.05 per share, extraordinary charge for the write off of allocable
generation regulatory assets in California and Montana.
Excluding the asset sale gains, special charges and other adjustments, the
Company's 1998 earnings on common stock from continuing operations before
extraordinary item would have been $300 million, or $1.01 per share, compared to
$350 million, or $1.19 per share, in 1997, a decrease of $50 million, or $0.18
per share.
Domestic Electric Operations' contribution to earnings on common stock was
$131 million, or $0.44 per share, in 1998. After adjusting earnings by $113
million, or $0.38 per share, for special charges, the Utah rate refund and other
adjustments, the contribution was $244 million, or $0.82 per share. Domestic
Electric Operations' contribution to earnings on common stock in 1997 was $271
million, or $0.92 per share, after adjusting earnings by $106 million, or $0.36
per share, for special charges. This $27 million decrease from 1997 earnings was
the result of several factors, including lower wholesale margins in the western
United States, less favorable hydroelectric conditions, costs relating to Year
2000 issues and implementation of a new SAP software operating environment.
Australian Electric Operations' contribution to earnings on common stock was
$13 million, or $0.04 per share, in 1998. After adjusting earnings by $17
million, or $0.06 per share, for the write down of the Company's investment in
the Hazelwood Power Station and $7 million, or $0.02 per share, for currency
exchange rate fluctuations, the contribution was $37 million, or $0.12 per
share. The currency exchange rate for converting Australian dollars to United
States dollars averaged 0.63 in 1998 compared to 0.74 in 1997, a 15% decrease.
The effect of this change in exchange rates lowered United States dollar
revenues by $112 million and costs by $105 million in 1998. The 1998 earnings
were impacted by increased network fees due to the effects of contestability and
a product recall loss. In addition, 1997 results included earnings associated
with renegotiating certain Tariff H industrial customer contracts that added $10
million, or $0.03 per share.
Other Operations reported net losses of $52 million in 1998, or $0.17 per
share, as compared to a loss of $10 million, or $0.03 per share, in 1997. Losses
relating to the decision to exit the energy development businesses totaled $32
million, or $0.11 per share. The 1998 results also included $54 million, or
$0.18 per share, in costs associated with the Company's terminated bid for TEG,
$2 million, or $0.01 per share, relating to closing foreign currency options in
April 1998, and a gain of $10 million, or $0.03 per share, relating to the sale
of the TEG shares. The 1997 results included a loss of $65 million, or $0.22 per
share,
26
<PAGE>
associated with closing foreign currency options and initial option premium
costs relating to the Company's offer for TEG. Other Operations in 1997 also
included a $30 million, or $0.10 per share, gain on the sale of Pacific
Generation Company ("PGC").
Discontinued operations reported losses of $147 million, or $0.49 per share,
in 1998 compared to income in 1997 of $447 million, or $1.50 per share. The 1998
results included $105 million, or $0.35 per share, for the losses anticipated to
dispose of TPC and exit the eastern United States energy trading business and a
loss of $42 million, or $0.14 per share, relating to these operations prior to
discontinuance. The 1997 results included the gain on the sale of the Company's
telecommunications operations and the earnings from normal operations until
their sale in December 1997.
1997 ASSET SALE GAINS
<TABLE>
<CAPTION>
NET CASH PRETAX NET
MILLIONS OF DOLLARS FROM SALES(A) GAINS INCOME EPS
- ----------------------------------------------------------------------- ------------- --------- --------- ---------
<S> <C> <C> <C> <C>
PTI sale............................................................... $ 1,198 $ 671.0 $ 365.1 $ 1.23
PGC sale............................................................... 96 56.5 30.0 0.10
------ --------- --------- ---------
$ 1,294 $ 727.5 $ 395.1 $ 1.33
------ --------- --------- ---------
------ --------- --------- ---------
</TABLE>
- ------------------------
(a) Cash from asset sales is net of income taxes.
On December 1, 1997, the Company completed the sale of Pacific Telecom, Inc.
("PTI") for $1.5 billion in cash, plus the assumption of PTI's debt. The Company
realized an after-tax gain of $365 million, or $1.23 per share. For the eleven
months ended November 30, 1997, PTI reported net income of $89 million, or $0.30
per share, compared to $75 million, or $0.25 per share, for all of 1996.
In November 1997, the Company completed the sale of its independent power
subsidiary, PGC, for approximately $150 million in cash, which resulted in a
gain of $30 million, or $0.10 per share.
DOMESTIC ELECTRIC OPERATIONS
REVENUES
<TABLE>
<CAPTION>
REVENUES ENERGY SALES
MILLIONS OF DOLLARS 1998 1997 1996 MILLIONS OF KWH 1998 1997 1996
- --------------------------- --------- --------- --------- --------------------------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Wholesale sales and $ 2,583.6 $ 1,428.0 $ 738.8 Wholesale sales and 94,077 59,143 29,665
market trading........... market trading.............
Residential................ 806.6 814.0 801.4 Residential................ 12,969 12,902 12,819
Industrial................. 705.5 709.9 719.3 Industrial................. 20,966 20,674 20,332
Commercial................. 653.5 640.9 623.3 Commercial................. 12,299 11,868 11,497
Other...................... 95.9 114.1 109.0 Other...................... 651 705 640
--------- --------- --------- --------- --------- ---------
$ 4,845.1 $ 3,706.9 $ 2,991.8 140,962 105,292 74,953
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
</TABLE>
Domestic Electric Operations' revenues increased $1.14 billion, or 31%, from
1997 to $4.85 billion in 1998 primarily from an increase in wholesale revenues
of $1.16 billion, or 81%. Retail revenues were flat compared to 1997, remaining
at $2.20 billion. Although wholesale trading revenues have grown substantially
over the past few years, in 1998 the retail load represented 45% of total
Domestic Electric Operations' revenues.
The active wholesale market led to an increase in revenues of $1.16 billion,
or 81%, in 1998 to $2.58 billion. Energy volumes increased 59%, driven by a $917
million increase in short-term firm and spot market sales. Sales prices for
short-term firm and spot market sales averaged $26 per megawatt hour
27
<PAGE>
("MWh") in 1998, compared to $20 per MWh in 1997, resulting in $242 million in
additional revenues. Decreased long-term firm contract volumes lowered wholesale
revenues by $3 million in 1998. The Company expects a reduced level of revenues
in 1999 as a result of its decision to scale back short-term wholesale trading
activities.
Residential revenues were down $7 million, or 1%, to $807 million in 1998.
Growth in the average number of residential customers of 2% added $19 million to
revenues. The Utah rate order reduced revenues by $16 million. Declines in
customer usage, partially attributable to weather, reduced revenues by $13
million in 1998 compared to 1997.
Industrial revenues decreased $4 million, or 1%, to $706 million in 1998.
The Utah rate order reduced revenues by $8 million. Billing adjustments of $5
million for certain industrial customers reduced revenues in 1997.
Commercial revenues increased $13 million, or 2%, to $654 million in 1998.
Energy sales volumes increased 4% over the prior year. A 2% growth in the
average number of customers added $17 million to revenues, and increased
customer usage added $5 million to revenues. The Utah rate order reduced
revenues by $13 million.
Other revenues decreased by $18 million, or 16%, to $96 million in 1998. The
primary cause of this unfavorable variance was revenue adjustments relating to
changes in property tax legislation.
1997 COMPARED TO 1996--Revenues rose 24%, or $715 million, in 1997 primarily
due to a 99% increase in kilowatt hours ("kWh") sold in the wholesale market.
Residential revenues were up $13 million primarily due to a 3% growth in the
average number of customers and a price increase in Oregon effective July 1996.
Commercial revenues increased $18 million primarily due to customer growth of 2%
in Oregon and 5% in Utah.
In early 1997, the Utah Division of Public Utilities (the "UDPU") and the
Utah Committee of Consumer Services (the "UCCS") filed a joint petition with the
UPSC requesting the UPSC to commence proceedings to establish new rates for Utah
customers. The UDPU and the UCCS suggested changes to the method for allocating
costs among the six states with retail customers served by the Company, the
Company's authorized return on equity and certain other accounting adjustments.
Subsequently in March 1997, the Utah legislature passed a bill that created
a legislative task force to study electric restructuring and customer choice
issues in Utah. The bill precluded the UPSC from holding hearings on rate
changes and froze prices at January 31, 1997 levels until May 1998, but allowed
for retroactive price changes.
The Company agreed to an interim price decrease to Utah customers of $12.4
million annually beginning on April 15, 1997.
In November 1997, the legislative task force recommended that further study
was needed and that no legislation be proposed in the 1998 legislative session
for the deregulation of electric utilities.
During 1997, the UPSC held hearings on the method used in allocating common
(generation, transmission and corporate related) costs among the Company's
jurisdictions and issued an order in April 1998. Under the order, differences in
allocations associated with the 1989 merger of Pacific Power & Light Company and
Utah Power & Light Company were to be eliminated over five years on a
straight-line basis. The phase-out of the differences was to be completed by
January 1, 2001 and could have reduced Utah customer prices by about $50 to $60
million annually once fully implemented. The ratable impact of this order was to
be included in a general rate case thereby combining it with all other
cost-of-service items in determining the ultimate impact on customer prices.
In 1998, the UPSC commenced a general rate case to consider the impact of
the April 1998 allocation order, other cost-of-service issues and the
appropriateness of the Company's authorized rate of return on
28
<PAGE>
equity. On March 4, 1999, an order was issued by the UPSC in the general rate
case. The order requires the Company to reduce revenues in the state of Utah by
$85 million, or 12%, annually. The UPSC also ordered that the allocation order
be implemented immediately and not phased-in as originally ordered.
Additionally, the UPSC ordered a refund to be issued through a credit on
customer bills of $40 million. The Company recorded a $38 million reduction in
revenues in 1998 and will record $2 million in 1999. The refund covers a period
from March 14, 1997 to February 28, 1999. The beginning date is consistent with
the timing of Utah legislation imposing a moratorium on rate changes after the
UDPU and the UCCS requested a general rate case. The $85 million reduction will
commence on March 1, 1999. The order also reduced the Company's authorized rate
of return on equity from 12.1% to 10.5%.
The Company has asked the UPSC to reconsider issues in the order involving
approximately $41 million of the $85 million rate decrease. Among these issues
is the method of implementing the April 1998 allocation order. The Company is
not seeking reconsideration of the reduction in its authorized return on equity
to 10.5% nor the changes in the way costs are allocated among the six states
served by the Company.
OPERATING EXPENSES
<TABLE>
<CAPTION>
MILLIONS OF DOLLARS 1998 1997 1996
- ------------------------------------------------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
Purchased power................................................................ $ 2,497.0 $ 1,296.5 $ 618.7
Fuel........................................................................... 477.6 454.2 443.0
Other operations and maintenance............................................... 457.3 470.0 444.2
Depreciation and amortization.................................................. 386.6 389.1 343.4
Administrative, general and taxes-other........................................ 331.4 325.4 272.7
Special charges................................................................ 123.4 170.4 --
--------- --------- ---------
$ 4,273.3 $ 3,105.6 $ 2,122.0
--------- --------- ---------
--------- --------- ---------
Operating Expenses as a % of Revenue (excluding special charges)............... 86% 79% 71%
</TABLE>
Operating expenses increased $1.17 billion, or 38%, to $4.27 billion in
1998, as a result of a significant increase in purchased power costs.
In addition to base energy and capacity from its thermal and hydroelectric
resources, the Company utilizes a mix of long-term, short-term and nonfirm power
purchases to meet its own retail load commitments and to make wholesale power
sales to other utilities. Purchased power expense increased $1.20 billion, or
93%, to $2.50 billion in 1998. The higher expense was primarily due to a 33.9
million MWh increase in short-term firm and spot market energy purchases, a 74%
increase from 1997, which increased purchased power expense by $937 million.
Short-term firm and spot market purchase prices averaged $26 per MWh in 1998
versus $19 per MWh in 1997, a 36% increase. The increase in purchase prices
added $255 million to costs in 1998. Lower volumes offset by higher prices
relating to long-term firm purchased power contracts resulted in a $4 million
increase in purchased power costs in 1998. The Company expects a reduced level
of power purchases in 1999 as a result of its decision to scale back short-term
wholesale trading activities.
29
<PAGE>
SHORT-TERM FIRM AND SPOT MARKET SALES AND PURCHASES
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Total sales volume (thousands of MWh)............................................ 80,097 44,927 16,394
Average sales price ($/MWh)...................................................... $ 25.88 $ 20.35 $ 14.94
--------- --------- ---------
Revenues (millions)............................................................ $ 2,073 $ 914 $ 245
--------- --------- ---------
Total purchase volume (thousands of MWh)......................................... 79,693 45,772 16,930
Average purchase price ($/MWh)................................................... $ 25.88 $ 19.04 $ 13.31
--------- --------- ---------
Expenses (millions)............................................................ $ 2,062 $ 871 $ 225
--------- --------- ---------
Net (millions)............................................................... $ 11 $ 43 $ 20
--------- --------- ---------
--------- --------- ---------
</TABLE>
Fuel expense was up $23 million, or 5%, to $478 million in 1998. Thermal
generation increased 6% to 51.9 million MWh. The average cost per MWh increased
to $9.37 from $9.29 in the prior year due to increased generation at plants with
higher fuel costs. The shift in generation resulted from unscheduled plant
outages and higher market prices for energy. Hydroelectric generation decreased
6% compared to 1997 due to lower stream flows.
Other operations and maintenance expense decreased $13 million, or 3%, to
$457 million in 1998. Employee-related costs decreased $24 million primarily due
to the implementation of the early retirement plan initiated in the first
quarter of 1998. Partially offsetting this decrease were higher distribution
plant maintenance expenses of $6 million and higher customer service expenses of
$4 million.
Depreciation and amortization expense decreased $3 million, or 1%, to $387
million in 1998. Depreciation in 1997 included a $17 million increase reflecting
higher depreciation rates, and increased plant in service in 1998 added $9
million.
In July 1998, the Company withdrew its regulatory filings relating to a
depreciation study because regulatory approvals to increase depreciation rates
based on this study were unlikely. As a result of the decision to withdraw the
filings, the Company ceased recording the increased depreciation expense in the
third quarter. For the six months ended June 30, 1998, the Company recorded $6
million in additional depreciation as a result of the study.
In December 1998, the Company filed applications with the Oregon, Utah and
Wyoming regulatory commissions to increase depreciation annually by $77 million.
No amounts have been recorded as additional expense pending approval by these
commissions. The Company's intention is to seek revenue increases consistent
with the higher depreciation expense.
Administrative, general and taxes-other expenses increased $6 million, or
2%, to $331 million in 1998. This increase included $6 million of expenses
relating to Year 2000 issues, $5 million relating to the ongoing implementation
of the Company's new SAP software operating environment and $5 million of
employee related costs. Administrative and general expenses in 1997 included
process re-engineering costs of $10 million relating to the Company's new SAP
software operating environment.
30
<PAGE>
SPECIAL CHARGES
<TABLE>
<CAPTION>
NET
MILLIONS OF DOLLARS PRETAX INCOME EPS
- -------------------------------------------------------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
1998
Early retirement and cost reduction program........................................... $ 123.4 $ 76.5 $ 0.26
--------- --------- ---------
--------- --------- ---------
1997
Glenrock mine closure................................................................. $ 64.4 $ 39.9 $ 0.14
Deferred regulatory pension cost...................................................... 86.9 53.9 0.18
Impairment charges on IT systems...................................................... 19.1 11.9 0.04
--------- --------- ---------
$ 170.4 $ 105.7 $ 0.36
--------- --------- ---------
--------- --------- ---------
</TABLE>
In January 1998, the Company announced a plan to reduce its work force in
the United States. This reduction was accomplished through a combination of
voluntary early retirement and special severance. The plan anticipated a net
reduction of approximately 600 positions, or 7% of the Company's United States
work force, from across all areas of Domestic Electric Operations. The actual
net work force reduction from this program was 759 positions, with 981 employees
accepting the offer and 222 vacated positions being backfilled. The Company
recorded a $70 million after-tax charge in 1998 relating to the early retirement
program. The actual cost of the early retirement program was approximately equal
to the amount accrued. These reductions were expected to result in annual pretax
savings to the Company of approximately $50 million. The savings in 1998 totaled
approximately $18 million.
In the fourth quarter of 1998, the Company initiated a cost reduction
program that included involuntary employee severance and enhanced early
retirement for employees who met certain age and service criteria and were
displaced in conjunction with the cost reduction initiatives. Approximately 167
employees were displaced, with 35 of them eligible for the enhanced early
retirement, and the Company recorded a $6 million after-tax charge. It is
anticipated that these amounts will be fully paid out in early 1999.
In 1997, the Company recorded a series of special charges at Domestic
Electric Operations. The Company concluded that the Glenrock Mine was
uneconomical to continue to operate under current and expected market conditions
due to increased mining stripping ratios, reduced coal quality and related
operating costs. Therefore, a $64 million charge was recorded in 1997 to write
down asset values by $23 million in property, plant and equipment, $5 million in
other assets and to record a liability of $36 million in other deferred credits
for acceleration of reclamation cost accruals due to early closure of the mine.
The carrying amount of the net assets at December 31, 1998 is $9 million. The
reclamation costs were based on an external study and the write downs of
property, plant and equipment and other assets were based on weighing the
ongoing costs of operating the mine against purchasing coal from third party
resources. It is anticipated that reclamation of the mine site will commence in
1999 and is estimated to be completed in 2006.
The Company also determined that recovery of its regulatory assets
applicable to deferred pension costs included on the balance sheet in regulatory
assets, which related primarily to a deferred compensation plan and early
retirement incentive programs in 1987 and 1990, was not probable. As a result,
the Company recorded an $87 million charge in 1997 for these deferred regulatory
assets.
In addition, the Company recorded a $19 million charge in 1997 for the
impairment of certain information system assets ("IT systems") that were
included in its property, plant and equipment balances. These IT systems were
retired as a direct result of the Company's installation of SAP enterprise-wide
software.
1997 COMPARED TO 1996--Purchased power more than doubled in 1997 due to the
growth in the Company's wholesale trading market. Short-term firm and spot
market purchases were nearly three times
31
<PAGE>
the level of 1996 purchases, adding $570 million to purchased power expense.
Short-term firm and spot market purchase prices averaged $19 per MWh in 1997
compared to $13 per MWh in 1996, a 46% increase, adding $76 million to purchased
power expense. In addition, special charges increased $170 million due to the
Glenrock mine closure costs of $64 million, the write off of deferred regulatory
pension costs of $87 million, and impairment charges on IT systems of $19
million.
OTHER INCOME AND EXPENSE
Other expenses increased $20 million in 1998, which included $13 million of
ScottishPower merger costs and $6 million of higher minority interest expense
relating to the issuance of quarterly income preferred securities in August
1997. Income tax expense decreased $9 million, to $103 million, due to the
decline in pretax income. See Note 14 of Notes to Consolidated Financial
Statements.
1997 COMPARED TO 1996--Interest expense increased $27 million, or 9%, to
$319 million in 1997. This increase was attributable to higher average debt
balances as a result of the Hermiston Plant acquisition in July 1996 and capital
contributions to Holdings relating to the acquisition of TPC in April 1997.
Other income increased $7 million in 1997 primarily as a result of increased
sales of emission allowances.
INDUSTRY CHANGE, COMPETITION AND DEREGULATION
Industry Change--The electric power industry continues to experience change.
The key driver for this change is public, regulatory and governmental support
for replacing the traditional cost-of-service regulatory framework with an open
market competitive framework where the customers have a choice of energy
supplier. The pace at which this change will occur has slowed as regulators and
legislators struggle with conversion and implementation issues. However, federal
laws and regulations have been amended to provide for open access to
transmission systems, and various states have adopted or are considering new
regulations to allow open access for all energy suppliers.
Competition--The Company faces competition from many areas, including other
suppliers of electricity and alternative energy sources. In many cases,
customers have the option to switch energy sources for heating and air
conditioning. In addition, certain of the Company's industrial customers are
seeking choice of suppliers, options to build their own generation or
cogeneration, or the use of alternative energy sources such as natural gas. When
a competitive marketplace exists, customers will make their energy purchasing
decision based upon many factors, including price, service and system
reliability.
To meet these competitive challenges, Domestic Electric Operations is
participating in restructuring processes that will determine the shape of future
markets and is pursuing strategies that capitalize on its competitive position,
including the development and delivery of innovative products and services. In
addition, the Company continues to negotiate long-term and short-term contracts
with its existing large volume industrial customers. Although these new
agreements have generally resulted in reduced margins, the Company has been
successful in retaining many of these customers and in extending contract lives.
Deregulation--Domestic Electric Operations continues to develop its
competitive strategy as legislation, regulation and market opportunities evolve.
The Company supports increased customer choice if the transition to competitive
markets takes place under terms and conditions that are equitable to all
involved. The Company will support direct access and other restructuring
initiatives only when their terms are fair to all customers, the Company and its
shareholders.
The move toward an open or competitive marketplace for electric power may
result in "stranded costs" relating to certain current investments, deferred
costs and contractual commitments incurred under regulation that may not be
recoverable in a competitive market. The calculation of stranded costs requires
certain complex and interrelated assumptions to be made, the most critical of
which is the expected market price of electricity. The Company and many industry
analysts believe that market forces will continue to drive retail energy prices
down as excess capacity of existing generation resources persists. This
projected trend in price decreases is consistent with other commodities and
services that have gone through
32
<PAGE>
deregulation. Contrary to historical price trends, certain other parties believe
prices will increase in the future resulting in a stranded benefit to the
Company. The key attributes that affect market price include excess generation
capacity, the marginal cost of the high-cost provider that is required to meet
market demand, the cost of adding new capacity and the price of natural gas.
Based upon a 1997 study, the Company estimated its total stranded costs to
range from $1.4 billion to $2.8 billion. This estimate represents the net
present value of the difference between the revenues expected under competition
and the embedded cost of generating the electricity and providing the service
and does not necessarily measure any write off or impairment that would be
required.
Regulated utilities have historically applied the accounting provisions of
Statement of Financial Accounting Standards ("SFAS") 71 which is based on the
premise that regulators will set rates that allow for the recovery of a
utility's costs, including cost of capital. Accounting under SFAS 71 is
appropriate as long as: rates are established by or subject to approval by
independent, third-party regulators; rates are designed to recover the specific
enterprise's cost-of-service; and in view of demand for service, it is
reasonable to assume that rates are set at levels that will recover costs and
can be collected from customers. In applying SFAS 71, the Company must give
consideration to changes in the level of demand or competition during the cost
recovery period. In accordance with SFAS 71, Domestic Electric Operations
capitalizes certain costs, called regulatory assets, in accordance with
regulatory authority whereby those costs will be expensed and recovered in
future periods.
The Emerging Issues Task Force of the Financial Accounting Standards Board
(the "EITF") concluded in 1997 that SFAS 71 should be discontinued when detailed
legislation or a regulatory order regarding competition is issued. Additionally,
the EITF concluded that regulatory assets and liabilities applicable to
businesses being deregulated should be written off unless their recovery is
provided for through future regulated cash flows.
Legislative actions in California and Montana during 1996 and 1997 mandated
customer choice of electricity supplier, moving away from cost-based regulation
to competitive market rates for the generation portion of the electric business.
As a result of these legislative actions, the Company evaluated its generation
regulatory assets and liabilities in California and Montana based upon future
regulated cash flows and ceased the application of SFAS 71 to its generation
business allocable to California and Montana. Domestic Electric Operations
recorded an extraordinary loss of $16 million, or $0.05 per share, in 1997 for
the write off of regulatory assets in these states. The regulatory assets
written off resulted primarily from deferred taxes allocated to California and
Montana. The allocation among states was based on plant balances.
In 1998, the Company announced its intent to seek buyers for its California
and Montana electric distribution assets. This action was in response to the
continued decline in earnings on the assets and the changes in the legislative
and regulatory environments in these states. The Company issued requests for
proposals to interested parties on July 20, 1998. On November 5, 1998, the
Company sold its Montana electric distribution assets to Flathead Electric
Cooperative, Inc. and received proceeds of $89 million, net of taxes and
customer refunds. The Company returned $4 million of the $8 million gain on the
sale to Montana customers as negotiated with the Montana Public Service
Commission (the "MPSC") and the Montana Consumer Counsel. The Company has
received bids for its California electric distribution assets. These bids remain
open and the Company is holding discussions with the bidders.
In addition, the Company is participating in a docket concerning the
transition plan the Company filed in compliance with direct access legislation
in Montana. The Company has asserted in that docket that it has significant
stranded costs relating to its Montana service territory. However, the Company
has stated its willingness to forego recovery of those stranded costs as a
result of the sale of the Montana service territory. Other parties in the
proceeding believe the Company has stranded benefits, rather than stranded
costs, and that those benefits should be returned to customers. The Company
believes that the concept of stranded benefits is not addressed by Montana
legislation and there is no obligation to return
33
<PAGE>
stranded benefits to customers even if the MPSC finds that such benefits exist.
The outcome of this proceeding is uncertain.
In December 1997, the California Public Utilities Commission issued an order
with respect to the Company's filing concerning transition to direct access
requirements enacted in that state. The order mandated a 10% rate reduction
effective January 1, 1998, which resulted in a $3.5 million annual reduction in
revenues. The Company is considering filing a petition for modification of this
order.
The Oregon Public Utility Commission and the Company have agreed to an
Alternate Form of Regulation ("AFOR") for the Company's Oregon distribution
business. The AFOR allows for index-related price increases in 1998, 1999 and
2000, with an annual cap of 2% of distribution revenues in any one year and an
overall cap of 5% over the three-year period. The annual revenue increase in
1999 is approximately $6.2 million. The AFOR also includes incentives to invest
in renewable resources and penalties for failure to maintain the service quality
levels.
As part of the Company's strategy in refocusing its efforts on its core
business, the Company intends to seek recovery of all of its prudent costs,
including stranded costs in the event of deregulation. However, due to the
current lack of definitive legislation, the Company cannot predict whether it
will be successful. At December 31, 1998, the Company's remaining regulatory
assets for all states totaled $796 million, of which approximately $350 million
is applicable to generation. Because of the potential regulatory and/or
legislative actions in Utah, Oregon, Wyoming, Idaho and Washington, the Company
may have additional regulatory asset write offs and charges for impairment of
long-lived assets in future periods relating to the generation portion of its
business. Impairment would be measured in accordance with SFAS 121, which
requires the recognition of impairment on long-lived assets when book values
exceed expected future cash flows. Integral parts of future cash flow estimates
include estimated future prices to be received, the expected future cash cost of
operations, sales and load growth forecasts and the nature of any legislative or
regulatory cost recovery mechanisms.
The Company believes that the regulatory initiatives that are underway in
each of the states may eventually bring competition for the electricity
generation services. This change in the regulatory structure may significantly
affect the Company's future financial position, results of operations and cash
flows. The Company intends to seek regular price increases to the extent it
underearns its allowed rate of return. This intention, consistent with the
strategic direction implemented in 1998, provides a continued foundation for use
of SFAS 71 in its financial statements. However, the Company announced on
January 6, 1999 that it does not plan to file for general rate increases in the
states it serves for at least the next six months, pending approval of its
proposed merger with ScottishPower.
ENVIRONMENTAL ISSUES
All of the Company's coal burning plants burn low-sulfur coal. Major
construction expenditures have already been made at many of these plants to
reduce sulfur dioxide ("SO(2)") emissions, but additional expenditures are
expected to be required at the Centralia Plant in Washington in which the
Company has a 47.5% ownership interest. In late 1997, the Southwest Washington
Pollution Control Authority ("SWAPCA") ordered the Centralia Plant to meet new
SO(2), nitrogen oxides ("NO(x)"), carbon monoxide and particulate matter
emission limits. The new emission limits will require the plant to install two
scrubbers and low NO(x) burners at a projected cost of $240 million.
In addition, the Company and the other joint owners of the Craig Generating
Station (the "Station") in Colorado are parties to a lawsuit brought by the
Sierra Club alleging violations of the Federal Clean Air Act at the Station,
which is operated by the Tri-State Generation and Transmission Association. The
Company has a 19.3% interest in Units 1 and 2 of the Station.
34
<PAGE>
Actions under the Endangered Species Act with respect to certain salmon and
other endangered or threatened species could result in restrictions on the
federal hydropower system and affect regional power supplies and costs. These
actions could also result in further restrictions on timber harvesting and
adversely affect electricity sales to Domestic Electric Operations' customers in
the wood products industry.
The Company is currently in the process of relicensing 16 separate
hydroelectric projects under the Federal Power Act. These projects, some of
which are grouped together under a single license, represent approximately 1,000
MW, or 93%, of the Company's total hydroelectric nameplate capacity. In the new
licenses, the FERC is expected to impose conditions designed to address the
impact of the projects on fish and other environmental concerns. The Company is
unable to predict the impact of imposition of such conditions, but capital
expenditures and operating costs are expected to increase in future periods and
certain projects may not be economical to operate.
Several federal and state environmental cleanup Superfund sites have been
identified where the Company has been, or may be, designated as a potentially
responsible party. In such cases, the Company reviews the circumstances and,
where possible, negotiates with other potentially responsible parties to provide
funds for clean-up and, if necessary, monitoring activities.
All of the Company's mining operations are subject to reclamation and
closure requirements. The Company monitors these requirements and annually
revises its cost estimates to meet existing legal and regulatory requirements of
the various jurisdictions in which it operates. Compliance with these
requirements could result in higher expenditures for both capital improvements
and operating costs.
Future costs associated with the resolution of these matters are not
expected to be material to the Company's consolidated financial statements.
AUSTRALIAN ELECTRIC OPERATIONS
REVENUES
<TABLE>
<CAPTION>
CHANGE
REVENUES DUE TO OPERATING
MILLIONS OF DOLLARS 1998 1997 CURRENCY VARIANCE
- ------------------------------------------------------------------------- --------- --------- ----------- -----------
<S> <C> <C> <C> <C>
Powercor area............................................................ $ 437.8 $ 538.6 $ (80.0) $ (20.8)
--------- --------- ----------- -----------
Outside Powercor area
Victoria............................................................... 79.1 98.7 (14.5) (5.1)
New South Wales........................................................ 71.6 46.0 (13.1) 38.7
Australian Capital Territory........................................... 0.6 -- -- 0.6
Queensland............................................................. 0.3 -- -- 0.3
--------- --------- ----------- -----------
Total Outside Powercor area............................................ 151.6 144.7 (27.6) 34.5
Other revenue............................................................ 25.1 32.9 (4.6) (3.2)
--------- --------- ----------- -----------
$ 614.5 $ 716.2 $ (112.2) $ 10.5
--------- --------- ----------- -----------
--------- --------- ----------- -----------
</TABLE>
<TABLE>
<CAPTION>
ENERGY SALES
MILLIONS OF KWH 1998 1997 1996
- --------------------------------------------------------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
Powercor area.......................................................................... 7,233 7,410 7,519
Outside Powercor area
Victoria............................................................................. 2,396 2,262 791
New South Wales...................................................................... 2,241 1,372 --
Australian Capital Territory......................................................... 12 -- --
Queensland........................................................................... 6 -- --
--------- --------- ---------
11,888 11,044 8,310
--------- --------- ---------
--------- --------- ---------
</TABLE>
35
<PAGE>
In 1998, Australian Electric Operations contributed earnings of $13 million,
or $0.04 per share, compared to $54 million, or $0.18 per share, in 1997.
Powercor's expansion of market share in New South Wales ("NSW") drove the growth
in energy sales and revenues. However, lower market prices as a result of an
increasing level of deregulation, partially offset by lower purchased power
expense, caused margins on energy sold to decline. In addition, Australian
Electric Operations recorded a $17 million, or $0.06 per share, loss on the
write down of its investment in Hazelwood to estimated net realizable value less
selling costs. The Company anticipates completing this sale by the end of 1999.
Currency Risks Australian Electric Operations' results of operations and
financial position are translated from Australian dollars into United States
dollars for consolidation into the Company's financial statements. Changes in
the prevailing exchange rate may have a material effect on the Company's
consolidated financial statements. The average currency exchange rate for
converting Australian dollars to United States dollars was 0.63 in 1998 compared
to 0.74 in 1997, a 15% decrease for the year. The effect of the exchange rate
fluctuation lowered reported revenues by $112 million and expenses by $105
million in 1998. The currency exchange rate at February 26, 1999 was 0.62. The
following discussion excludes the effects of the lower currency exchange rate in
1998.
Australia reported 1998 revenues of $615 million, an $11 million, or 1%,
increase over the prior year. The increase was attributable to growth in energy
sales volumes of 844 million kWh, or 8%.
Energy volumes sold to contestable customers outside Powercor's franchise
area were up 1,021 million kWh in 1998 and added $39 million to revenues due to
customer gains in NSW, $7 million due to customer gains in Victoria and $1
million due to gains in Queensland and the Australian Capital Territory. Lower
prices for contestable sales reduced revenues by $12 million in 1998. Inside
Powercor's franchise area, revenues declined $13 million primarily due to price
decreases for contestable customers and $8 million due to a 177 million kWh
decrease in volumes.
Other revenues decreased $3 million in 1998, principally because 1997
revenues included $15 million of income associated with renegotiating certain
Tariff H industrial customer contracts. This decrease was partially offset by an
increase in revenue from construction projects for other distribution businesses
in Australia of $6 million and a reduction in energy contract losses of $7
million.
1997 COMPARED TO 1996
<TABLE>
<CAPTION>
CHANGE
DUE TO OPERATING
MILLIONS OF DOLLARS 1997 1996 CURRENCY VARIANCE
- ------------------------------------------------------------------------ --------- --------- ----------- -----------
<S> <C> <C> <C> <C>
Powercor area........................................................... $ 538.6 $ 583.6 $ (28.6) $ (16.4)
Outside Powercor area
Victoria.............................................................. 98.7 45.0 (5.2) 58.9
New South Wales....................................................... 46.0 -- -- 46.0
--------- --------- ----------- -----------
Total Outside Powercor area........................................... 144.7 45.0 (5.2) 104.9
Other revenue........................................................... 32.9 30.2 (1.7) 4.4
--------- --------- ----------- -----------
$ 716.2 $ 658.8 $ (35.5) $ 92.9
--------- --------- ----------- -----------
--------- --------- ----------- -----------
</TABLE>
36
<PAGE>
Revenues increased $93 million, or 14%, in 1997 primarily due to a 33%
increase in energy sales volumes. Increased market share in the contestable
market in Victoria added $59 million in revenues and sales in the newly
contestable market in NSW added $46 million in revenues. Revenues within
Powercor's Victorian franchise area decreased $16 million due to lower average
realized prices and decreased sales volumes.
OPERATING EXPENSES
<TABLE>
<CAPTION>
CHANGE
DUE TO OPERATING
MILLIONS OF DOLLARS 1998 1997 CURRENCY VARIANCE
- ------------------------------------------------------------------------ --------- --------- ----------- -----------
<S> <C> <C> <C> <C>
Purchased power......................................................... $ 255.0 $ 308.5 $ (46.6) $ (6.9)
Other operations and maintenance........................................ 140.1 134.0 (25.6) 31.7
Depreciation and amortization........................................... 58.2 67.1 (10.6) 1.7
Administrative and general.............................................. 46.7 56.1 (8.6) (0.8)
--------- --------- ----------- -----
$ 500.0 $ 565.7 $ (91.4) $ 25.7
--------- --------- ----------- -----
--------- --------- ----------- -----
</TABLE>
Purchased power expense decreased $7 million, or 2%, in 1998. Lower average
prices reduced power costs by $35 million. Prices for purchased power averaged
$23 per MWh in 1998 compared to $26 per MWh in 1997. The reduction resulted from
competition. The decrease was offset in part by a 9% increase in purchased power
volumes that added $28 million to costs in 1998.
Other operations and maintenance expenses increased $32 million, or 24%, in
1998. Increased sales to contestable customers outside the Powercor service area
resulted in higher network fees of $40 million. This increase was offset in part
by higher network revenues of $12 million from customers inside Powercor's
franchise area serviced by other energy suppliers. Maintenance increased $4
million primarily due to $6 million in costs transferred to administrative and
general expenses upon conversion to SAP in November 1997.
Administrative and general expenses decreased $1 million in 1998 primarily
due to an $11 million reduction in professional fees and $6 million transferred
from maintenance upon conversion to SAP in 1997. These decreases were offset by
a $15 million adjustment in 1997 to capitalize new customer connection costs.
Interest expense increased $5 million in 1998 to $58 million as a result of
higher debt balances, partially offset by declining interest rates. In the
fourth quarter of 1998, the Company began soliciting bids and intends to sell
its equity interest in the Hazelwood Power Station in connection with its
refocus on its electricity business. Other expense increased $33 million
primarily due to a pretax loss of $28 million to reduce the carrying value of
the Company's investment in the Hazelwood Power Station to its estimated net
realizable value less selling costs and $5 million in costs for removal of
certain energy efficiency devices in connection with a product recall. Powercor
is in the process of seeking recovery from the manufacturer of these devices.
Equity losses in Hazelwood were $6 million, an increase of $4 million over 1997
primarily due to increased maintenance costs. Income tax expense decreased $23
million due to a reduction in taxable income.
37
<PAGE>
1997 COMPARED TO 1996
<TABLE>
<CAPTION>
CHANGE
DUE TO OPERATING
MILLIONS OF DOLLARS 1997 1996 CURRENCY VARIANCE
- ------------------------------------------------------------------------ --------- --------- ----------- -----------
<S> <C> <C> <C> <C>
Purchased power......................................................... $ 308.5 $ 305.1 $ (16.4) $ 19.8
Other operations and maintenance........................................ 134.0 112.3 (7.1) 28.8
Depreciation and amortization........................................... 67.1 71.6 (3.6) (0.9)
Administrative and general.............................................. 56.1 42.4 (3.0) 16.7
--------- --------- ----------- -----
$ 565.7 $ 531.4 $ (30.1) $ 64.4
--------- --------- ----------- -----
--------- --------- ----------- -----
</TABLE>
Operating expenses increased $64 million, or 12%, in 1997. Increased sales
to contestable customers outside Powercor's franchise area resulted in increased
purchased power expense of $20 million and higher network and grid fees of $58
million, which was partially offset by higher network revenues of $16 million
from customers inside Powercor's franchise area that were serviced by other
energy suppliers.
CUSTOMERS AND COMPETITION
Powercor's principal businesses are to sell electricity to franchise and
contestable customers inside and outside its franchise area and to provide
electricity distribution services to customers within its regulated network
distribution service area. Franchise customers are those customers that cannot
yet choose an electricity supplier, while contestable customers have the
opportunity to choose suppliers. Powercor purchases all of its electricity
supply from a state generation pool.
Victoria and NSW are currently divided between franchise and contestable
customers. Customers in both states with annual consumption of more than 160 MWh
are now contestable and the remaining customers will become contestable over the
next few years depending on their energy demand load, with substantially all
residential customers remaining franchise customers until 2001. If a Powercor
customer chooses a different retailer, Powercor will continue to receive network
distribution revenues associated with that customer. Powercor was granted
licenses to sell electricity to customers in the States of Queensland and
Australian Capital Territory in early 1998.
REGULATION
Powercor is the largest of the five distribution businesses ("DBs") formed
when the Victorian State Government decided to privatize, and eventually
deregulate, its electricity industry. As the Victorian market becomes more open
to competition and additional customers can choose their energy supplier,
Powercor and the other DBs will continue to maintain a monopoly on their
individual network areas. These businesses derive much of their revenue from the
network fee that is paid for the use of the distribution system.
Powercor has an exclusive license to sell electricity to customers in its
distribution service area in Victoria with a demand of 160 MWh per year or less.
Powercor has nonexclusive licenses to sell electricity to customers with usage
in excess of 160 MWh per year in its distribution service area and elsewhere in
Victoria and NSW, and to customers in Queensland with annual usage exceeding
four million kWh. Customers with usage of 160 MWh per year or less will
incrementally become contestable over the period ending December 31, 2000 in
Victoria and Queensland and over the period ending June 30, 1999 in NSW
depending on their energy usage.
Hazelwood operates in an area where several large, coal-fired generating
facilities are located. It will continue to compete against these plants, as
well as others outside the geographic area.
Regulation of the Victorian electricity industry is the responsibility of
the Office of the Regulator General (the "ORG"), an independent regulatory body.
The structure of prices within the Victorian
38
<PAGE>
electricity industry reflects the establishment of maximum uniform tariffs that
apply to noncontestable customers and some contestable customers. Under
applicable regulations, Powercor is required to supply electricity to
noncontestable customers at prices that are no greater than the prices specified
under the applicable tariffs. The prices specified in the tariffs are all
inclusive, including grid charges and energy costs. In general, annual movements
in the tariffs for noncontestable customers are based on the Consumer Price
Index, a measure of price inflation.
Network tariffs include recovery of distribution use-of-system costs,
use-of-transmission-system fees and connection charges. Network tariffs are
intended to cover the cost of providing, operating and maintaining the
distribution network, except to the extent relevant costs are recoverable
through connection charges or other excluded services, and the charges levied
for connection to and use of the transmission systems.
The first major review of the regulatory arrangements and respective
transmission and distribution network charges will be carried out by the ORG,
with any changes to apply from January 1, 2001. Any subsequent price control
arrangements are required to be in effect for not less than five years. The
outcome of the year 2000 regulatory review is uncertain at this time.
OTHER OPERATIONS
<TABLE>
<CAPTION>
EARNINGS CONTRIBUTION
MILLIONS OF DOLLARS 1998 1997 1996
- --------------------------------------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
PFS.................................................................. $ 8.1 $ 30.2 $ 34.1
PGC.................................................................. -- 10.4 7.8
Holdings and other:
Write down of other energy businesses.............................. (32.4) -- --
TEG costs and option losses........................................ (45.6) (64.5) --
Gain on sale of PGC................................................ -- 30.0 --
Other.............................................................. 17.7 (15.7) (14.8)
--------- --------- ---------
$ (52.2) $ (9.6) $ 27.1
--------- --------- ---------
--------- --------- ---------
</TABLE>
During 1998, Other Operations included the activities of Holdings,
PacifiCorp Financial Services, Inc. ("PFS"), and energy development businesses.
Losses relating to the decision to shut down or sell its other energy
development businesses totaled $32 million, or $0.11 per share in 1998. The 1998
results also included $54 million, or $0.18 per share, in costs associated with
the Company's terminated bid for TEG, $2 million, or $0.01 per share, relating
to closing foreign currency options in April 1998 associated with the terminated
bid for TEG, and a gain of $10 million, or $0.03 per share, relating to the sale
of the TEG shares. The 1997 results included a loss of $65 million, or $0.22 per
share, associated with closing foreign currency options and initial option
premium costs relating to the Company's initial offer for TEG, that subsequently
terminated when it was referred to the Monopolies and Mergers Commission (the
"MMC") in the United Kingdom.
Results from Other Operations in 1998 benefited from a $40 million after-tax
increase in interest income and reduced interest expense as the result of cash
received from 1997 asset sales.
PFS has tax-advantaged investments in leasing operations that consist
principally of aircraft leases. For 1998, PFS reported net income of $8 million,
a $22 million decrease from 1997. This decrease was primarily attributable to
the sale of its affordable housing properties. In May 1998, PFS sold a majority
of its investments in affordable housing for $80 million, which approximated
book value.
39
<PAGE>
The energy development businesses that the Company decided to exit in 1998
are generally wholly owned subsidiaries of the Company or subsidiaries in which
the Company has a majority ownership. These businesses are consolidated in the
Company's financial statements and are included in Other Operations. The pretax
loss associated with exiting the energy development businesses was $52 million
in 1998 and was included in "Write down of investments in energy development
businesses" on the income statement. This loss consisted of reductions in net
intercompany receivables. The remaining values for these businesses were arrived
at using cash flow projections and estimated market value for fixed assets. Some
of these businesses have been exited through the discontinuance of their
operations while others are for sale. The Company believes that the businesses
currently for sale can be exited by the end of 1999. Costs relating to exiting
these businesses will be expensed as incurred.
In addition, the other energy development businesses incurred $19 million of
after-tax losses, or $0.06 per share, in 1998 compared to a loss of $16 million,
or $0.05 per share, in 1997.
On November 5, 1997, the Company completed the sale of its independent power
subsidiary, PGC, to NRG Energy, Inc. for approximately $150 million in cash,
resulting in a gain of $30 million, or $0.10 per share. PGC contributed income
of $10 million in 1997 prior to completing the sale.
1997 COMPARED TO 1996--The $37 million decrease in earnings contribution of
Other Operations in 1997 was primarily attributable to an after-tax loss of $65
million, or $0.22 per share, associated with closing foreign exchange positions
relating to the Company's terminated bid for TEG. This loss was partially offset
by an after-tax gain of $30 million, or $0.10 per share, relating to the sale of
PGC in November 1997.
DISCONTINUED OPERATIONS
Discontinued operations reported losses in 1998 of $147 million, or $0.49
per share, compared to income of $447 million, or $1.50 per share, in 1997. The
1998 results included $105 million, or $0.35 per share, for the loss anticipated
to exit the energy trading business and a loss of $42 million, or $0.14 per
share, relating to operating losses prior to the decision to exit.
The pretax loss associated with exiting the energy trading business was $155
million. This loss consisted of write downs of intangible assets of $83 million
and the costs to exit a portion of the business and sell another portion of the
business of $72 million. The exiting costs include anticipated severance
payments and operating costs to the selling date and selling expenses. The
remaining values for these businesses that are on the books of the Company
represent the estimated market value of the fixed assets of the companies and
the remaining working capital at the expected sale date. Activities in the
eastern United States have been discontinued and all forward electricity trading
has been closed and is going through settlement. Contracts to manage the power
supply of two municipalities will continue, the longest of such contracts will
expire in late 1999. Holdings entered into an agreement, dated February 9, 1999,
to sell TPC for approximately $133 million. In addition, a working capital
adjustment will be calculated and paid following closing of the transaction,
which is expected during the first half of 1999.
The 1997 results included the gain on the sale of the Company's
telecommunications operations and the earnings from normal operations until the
sale in December 1997. On December 1, 1997, the Company completed the sale of
PTI for $1.5 billion in cash, plus the assumption of PTI's debt. The Company
realized an after-tax gain of $365 million, or $1.23 per share. For the eleven
months ended November 30, 1997, PTI reported net income of $89 million, or $0.30
per share, compared to $75 million, or $0.25 per share, for all of 1996.
40
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOW SUMMARY
<TABLE>
<CAPTION>
FORECASTED ACTUAL
------------------------------- -------------------------------
FOR THE YEAR/MILLIONS OF DOLLARS 2001 2000 1999 1998 1996 1997
- ------------------------------------------------ --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net Cash Flow from Continuing Operations
Domestic Electric Operations.................. $ 692 $ 727 $ 718
Australian Electric Operations................ 114 101 95
Other Operations.............................. (121) 8 75
--------- --------- ---------
Total......................................... 685 836 888
Cash Dividends Paid........................... 337 341 346
--------- --------- ---------
Net............................................. $ 475-525 $ 475-525 $ 425-475 $ 348 $ 495 $ 542
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
Construction
Domestic Electric Operations.................. $ 462 $ 414 $ 479 $ 539 $ 490 $ 442
Australian Electric Operations................ 60 65 60 70 79 80
Other Operations.............................. -- -- -- 1 9 7
--------- --------- --------- --------- --------- ---------
Total......................................... 522 479 539 610 578 529
Acquisitions and Investments
Domestic Electric Operations.................. -- -- -- -- -- 154
Australian Electric Operations................ -- -- -- 5 5 145
Other Operations.............................. -- -- -- 52 131 49
--------- --------- --------- --------- --------- ---------
Total......................................... -- -- -- 57 136 348
--------- --------- --------- --------- --------- ---------
Total Capital Spending........................ $ 522 $ 479 $ 539 $ 667 $ 714 $ 877
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
Maturities of Long-Term Debt
Domestic Electric Operations.................. $ 138 $ 170 $ 300 $ 196 $ 208 $ 182
Australian Electric Operations................ -- -- -- 1,339 3 42
Other Operations.............................. -- -- -- 169 10 19
--------- --------- --------- --------- --------- ---------
Total......................................... $ 138 $ 170 $ 300 $ 1,704 $ 221 $ 243
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
Other Refinancings............................ $ 28 $ 558 $ 42
--------- --------- ---------
--------- --------- ---------
</TABLE>
OPERATING ACTIVITIES
Cash flows from continuing operations decreased $151 million from 1997 to
1998. This decrease was due to cash expenditures in 1998 relating to taxes on
1998 and 1997 asset sales and cash funding of other energy development
businesses.
INVESTING ACTIVITIES
While investing activities in 1997 were dominated by asset sales of $1.8
billion and the acquisition of TPC, investing in 1998 focused on continued
capital spending to improve and expand existing operations and disposing of
non-strategic assets such as the Montana electric distribution assets and the
majority of the tax-advantaged investments in affordable housing owned by PFS.
On October 23, 1998, the Company announced its intent to exit its energy
trading business in the eastern United States and its other energy development
businesses. As a result, the Company recorded an after-tax loss of $137 million
for these businesses. In addition, the Company recorded an after-tax loss of
41
<PAGE>
$17 million to reduce the Company's carrying value in the Hazelwood Power
Station to its net realizable value less selling costs.
The utility partners who own the 1,340 MW coal-fired Centralia Power Plant
in Washington have hired an investment advisor to pursue the possible sale of
the plant and the adjacent Centralia coal mine. The sale of the plant and
adjacent mine is being considered by the owners, in part, because of emerging
deregulation, competition in the electricity industry and the need for
environmental compliance expenditures at the plant. The Company operates the
plant and owns a 47.5% share. In addition, the Company owns and operates the
adjacent Centralia coal mine. The Company is investigating the effect of a
potential sale on the reclamation costs for the Centralia coal mine. Preliminary
studies indicate that reclamation costs for the Centralia coal mine could be
significantly higher than previous estimates, assuming the mine is closed, with
the Company's portion being 47.5% of the final total amount. At December 31,
1998, the Company had approximately $24 million accrued for its share of the
Centralia mine reclamation costs. The final amount and timing of any charge for
additional reclamation at the mine are dependent upon a number of factors,
including the results of the sale process, completion of the preliminary
reclamation studies at the mine and the reclamation procedure used. The Company
will seek to recover through rates any increase in the reclamation costs for the
mine.
On July 9, 1998, the Company announced its intent to sell its California and
Montana electric distribution assets. This action was in response to the
continued decline in earnings on the assets and changes in the legislative and
regulatory environments in these states. The Company issued requests for
proposals to interested parties on July 20, 1998. The Company has received bids
for the California assets. These bids remain open and the Company has taken no
action related to the bids.
On November 5, 1998, the Company sold its Montana distribution assets to
Flathead Electric Cooperative, Inc. and received proceeds of $89 million, net of
taxes and customer refunds. The Company returned $4 million of the $8 million
gain to Montana customers as negotiated with the MPSC and the Montana Consumer
Counsel.
In May 1998, PFS sold a majority of its investments in affordable housing
for $80 million, which approximated book value.
During 1997, the Company generated $1.8 billion of cash from the sale of PTI
and PGC. A portion of the proceeds from the sale was used to repay short-term
debt of Holdings. The remaining proceeds were invested in short-term money
market instruments and Holdings temporarily advanced excess funds to PacifiCorp
for retirement of short-term debt.
In October 1998 Holdings paid a dividend of $500 million to PacifiCorp.
PacifiCorp used the proceeds to pay down intercompany debt owed to Holdings. In
January 1999, Holdings paid a dividend of $660 million to PacifiCorp. PacifiCorp
used the proceeds to pay down short-term debt and intercompany debt and invested
the remainder in money market funds.
The Company believes that its existing and available capital resources are
sufficient to meet working capital, dividend and construction needs in 1999.
BID FOR THE ENERGY GROUP
During 1997 and 1998, the Company sought to acquire TEG, a diversified
international energy group with operations in the United Kingdom, the United
States and Australia. The Company made three tender offers for TEG, with the
last offer valued at $11.1 billion, including the assumption of $4.1 billion of
TEG's debt. In March 1998, another United States utility made a tender offer at
a price higher than the
42
<PAGE>
Company's offer and, on April 30, 1998, the Company announced that it would not
increase its revised offer for TEG.
The Company recorded an $86 million pretax charge to first quarter 1998
earnings, included in "TEG costs and option losses," for bank commitment and
facility fees, legal expenses and other related costs incurred since the
Company's original bid for TEG in June 1997. These costs had been deferred
pending the outcome of the transaction.
Upon initiation of the original tender offer in June 1997, the Company also
entered into foreign currency exchange contracts. The financing facilities
associated with the June 1997 offer for TEG terminated upon referral of the
transaction to the MMC, and the Company initiated steps to unwind its foreign
currency exchange positions consistent with its policies on derivatives. As a
result of the termination of these positions and initial option costs, the
Company realized an after-tax loss of approximately $65 million, or $0.22 per
share, in the third quarter of 1997.
Additionally, in connection with the attempt to acquire TEG, a subsidiary of
the Company purchased approximately 46 million shares of TEG stock at a price of
820 pence per share, or $625 million. The Company recorded a $10 million gain on
the sale of the TEG shares in June 1998. In addition, the Company incurred a
pretax expense of $3 million in April 1998 in connection with closing its
foreign currency option contract associated with the bid for TEG.
CAPITALIZATION
<TABLE>
<CAPTION>
MILLIONS OF DOLLARS, EXCEPT PERCENTAGES 1998 1997
- ---------------------------------------------------------------- -------------------- --------------------
<S> <C> <C> <C> <C>
Long-term debt.................................................. $ 4,383 45% $ 4,237 43%
Common equity................................................... 3,957 41 4,321 44
Short-term debt................................................. 560 6 555 5
Preferred stock................................................. 241 2 241 2
Preferred securities of Trusts.................................. 341 4 340 4
Quarterly income debt securities................................ 176 2 176 2
--------- --- --------- ---
Total Capitalization.......................................... $ 9,658 100% $ 9,870 100%
--------- --- --------- ---
--------- --- --------- ---
</TABLE>
The Company manages its capitalization and liquidity position in a
consolidated manner through policies established by senior management and
approved by the Finance Committee of the Board of Directors. These policies have
resulted from a review of historical and projected practices for businesses and
industries that have financial and operating characteristics similar to the
Company and its principal business operations.
The Company's policies attempt to balance the interests of its shareholders,
ratepayers and creditors. In addition, given the changes that are occurring
within the industry and market segments in which the Company operates, these
policies are intended to remain sufficiently flexible to allow the Company to
respond to these developments.
On a consolidated basis, the Company attempts to maintain total debt at 48%
to 54% of capitalization. The debt to capitalization ratio was 51% at December
31, 1998. The Company also attempts to maintain a preferred stock ratio,
including subordinated debt, at 8% to 12% of capitalization. The preferred stock
ratio was 8% at December 31, 1998.
The Company's announced plan to repurchase up to $750 million in common
shares has been postponed pending the outcome of the proposed ScottishPower
merger.
43
<PAGE>
EQUITY AND DEBT TRANSACTIONS
In January 1998, PacifiCorp Australia LLC ("PALLC") issued $400 million of
6.15% Notes due 2008. At the same time, in order to mitigate foreign currency
exchange risk, PALLC entered into a series of currency exchange agreements in
the same amount and for the same duration as the underlying United States
denominated notes. The proceeds of the Notes were used to repay Australian bank
bill borrowings.
On May 12, 1998, the Company issued $200 million of 6.375% secured
medium-term notes due May 15, 2008 in the form of First Mortgage Bonds. Proceeds
were used to repay short-term debt.
On November 6, 1998, the Company issued $200 million of its 5.65% Series of
First Mortgage Bonds due November 1, 2006. Proceeds were used to repay
short-term debt.
VARIABLE RATE LIABILITIES
<TABLE>
<CAPTION>
MILLIONS OF DOLLARS 1998 1997
- ----------------------------------------------------------------------------------------------- --------- ---------
<S> <C> <C>
Domestic Electric Operations................................................................... $ 830 $ 760
Australian Electric Operations................................................................. 278 269
Holdings and other............................................................................. 12 26
--------- ---------
$ 1,120 $ 1,055
--------- ---------
--------- ---------
Percentage of Total Capitalization............................................................. 12% 11%
</TABLE>
The Company's capitalization policy targets consolidated variable rate
liabilities at between 10% and 25% of total capitalization.
AVAILABLE CREDIT FACILITIES
At December 31, 1998, PacifiCorp had $700 million of committed bank
revolving credit agreements. Regulatory authorities limited PacifiCorp to $1
billion of short-term debt, of which $370 million was outstanding at December
31, 1998. At December 31, 1998, subsidiaries of PacifiCorp had $826 million of
committed bank revolving credit agreements. The Company had $532 million of
short-term debt classified as long-term debt at December 31, 1998, as it had the
intent and ability to support such short-term borrowings through the various
revolving credit facilities on a long-term basis. See Notes 7 and 8 of Notes to
Consolidated Financial Statements for additional information.
LIMITATIONS
In addition to the Company's capital structure policies, its debt capacity
is also governed by its credit agreements. PacifiCorp's principal debt
limitation is a 60% debt to capitalization test contained in its principal
credit agreements. Based on the Company's most restrictive credit agreements,
management believes PacifiCorp and its subsidiaries could have borrowed an
additional $2.5 billion of debt at December 31, 1998.
Under PacifiCorp's principal credit agreement, it is an event of default if
any person or group acquires 35% or more of PacifiCorp's common shares or if,
during any period of 14 consecutive months, individuals who were directors of
PacifiCorp on the first day of such period (and any new directors whose election
or nomination was approved by such individuals and directors) cease to
constitute a majority of the Board of Directors. PacifiCorp has obtained a
waiver of this provision in $200 million of its credit facilities and expects to
contact the remaining parties of the principal credit facilities requesting a
waiver of this provision in anticipation of the ScottishPower merger.
44
<PAGE>
RISK MANAGEMENT
Risk is an inherent part of the Company's business and activities. The risk
management process established by the Company is designed to identify, assess,
monitor and manage each of the various types of risk involved in its business
and activities. Central to its risk management process, the Company has
established a senior risk management committee with overall responsibility for
establishing and reviewing the Company's policies and procedures for controlling
and managing its risks. The senior risk management committee relies on the
Company's treasury department and its operating units to carry out its risk
management directives and execute various hedging and energy trading strategies.
The policies and procedures that guide the Company's risk management activities
are contained in the Company's derivative policy.
The risk management process established by the Company is designed to
measure quantitative market risk exposure and identify qualitative market risk
exposure in its businesses. To assist in managing the volatility relating to
these exposures, the Company enters into various derivative transactions
consistent with the Company's derivative policy. That policy, which was
originally established in 1994, governs the Company's use of derivative
instruments and its energy trading practices and contains the Company's credit
policy and management information systems required to effectively monitor such
derivative use. The Company's derivative policy provides for the use of only
those instruments that have a close correlation with its portfolio of assets,
liabilities or anticipated transactions. The derivative policy includes as its
objective that interest rates and foreign exchange derivative instruments will
be used for hedging and not for speculation. The derivative policy also governs
the energy trading activities and is generally designed for hedging the
Company's existing energy exposures but does provide for limited speculation
activities within defined risk limits.
RISK MEASUREMENT
VALUE AT RISK ANALYSIS
The tests discussed below for exposure to interest rate and currency
exchange rate fluctuations are based on a Value at Risk ("VAR") approach using a
one-year horizon and a 95% confidence level and assuming a one-day holding
period in normal market conditions. With the Company's energy trading
activities, a 99.9% confidence level is used. The higher confidence level
results from a more active management of the risk. The VAR model is a risk
analysis tool that attempts to measure the potential losses in fair value,
earnings or cash flow from changes in market conditions and does not purport to
represent actual losses in fair value that may be incurred by the Company. The
VAR model also calculates the potential gain in fair market value or improvement
in earnings and cash flow associated with favorable market price movements.
SENSITIVITY ANALYSIS
The Company measures its market risk related to its commodities price
exposure positions by utilizing a sensitivity analysis. This sensitivity
analysis measures the potential loss or gain in fair value, earnings or cash
flow based on a hypothetical immediate 10% change (increase or decrease) in
prices for its commodity derivatives. The fair value of such positions are a
summation of the fair values calculated for each commodity derivative by valuing
each position at quoted futures prices or assumed forward prices.
EXPOSURE ANALYSIS
INTEREST RATE EXPOSURE
The Company's market risk to interest rate changes is primarily related to
long-term debt with fixed interest rates. The Company uses interest rate swaps,
forwards, futures and collars to adjust the characteristics of its liability
portfolio. This strategy is consistent with the Company's capital structure
policy which
45
<PAGE>
provides guidance on overall debt to equity and variable rate debt as a percent
of capitalization levels for both the consolidated organization and its
principal subsidiaries.
The table below shows the potential loss in fair market value of the
Company's interest rate sensitive positions as of December 31, 1997 and December
31, 1998, as well as the Company's quarterly high and low potential losses.
<TABLE>
<CAPTION>
1998 1998
CONFIDENCE TIME QUARTERLY QUARTERLY
MILLIONS OF DOLLARS INTERVAL HORIZON 12/31/97 HIGH LOW 12/31/98
- -------------------------------------------- ---------- ------- -------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Interest Rate Sensitive Portfolio--FMV...... 95% 1 day $(21.1) $(22.4) $(18.4) $(18.4)
</TABLE>
Because of the size of the Company's fixed rate portfolio and lower levels
of short-term debt as a result of asset sales, the significant majority of this
average daily exposure is a noncash fair market value exposure and generally not
a cash or current interest expense exposure.
CURRENCY RATE EXPOSURE
The Company's market risk to currency rate changes is primarily related to
its investment in the Australian Electric Operations. The Company uses currency
swaps, currency forwards and futures to hedge its foreign activities and, where
use is governed by the derivative policy, the Company utilizes Australian dollar
denominated borrowings to hedge the majority of the foreign exchange risks
associated with Australian Electric Operations. Results of hedging activities
relating to foreign net asset exposure are reflected in the accumulated other
comprehensive income section of shareholders' equity, offsetting a portion of
the translation of the net assets of Australian Electric Operations.
Gains and losses relating to qualifying hedges of foreign currency firm
commitments (or anticipated transactions) are deferred on the balance sheet and
are included in the basis of the underlying transactions. To the extent that a
qualifying hedge is terminated or ceases to be effective as a hedge, any
deferred gains and losses up to that point continue to be deferred and are
included in the basis of the underlying transaction. To the extent that
anticipated transactions are no longer likely to occur, the related hedges are
closed with gains or losses charged to earnings on a current basis.
In addition to the foreign currency exposure related to its investment in
Australian Electric Operations, the Company also includes in the currency rate
exposure VAR analysis the mark-to-market risk associated with its energy supply
related contracts for differences supporting its commitment to the customers of
Australian Electric Operations.
The table below shows the potential loss in pre-tax cash flow of the
Company's currency rate sensitive positions as of December 31, 1997 and December
31, 1998, as well as the Company's quarterly high and low potential losses.
<TABLE>
<CAPTION>
1998 1998
CONFIDENCE TIME QUARTERLY QUARTERLY
MILLIONS OF DOLLARS INTERVAL HORIZON 12/31/97 HIGH LOW 12/31/98
- ---------------------------------------- ---------- ------- -------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Currency Rate Exposure--Cash Flow....... 95% 1 day $(2.3) $(2.1) $(0.9) $(0.9)
</TABLE>
The December 1997 amounts have been restated to include Australian Electric
Operations contracts for differences.
COMMODITY PRICE EXPOSURE
The Company's market risk to commodity price change is primarily related to
its electricity and natural gas commodities which are subject to fluctuations
due to unpredictable factors, such as weather, which impacts supply and demand.
The Company's energy trading activities are governed by the derivative policy
and the risk levels established as part of that policy.
46
<PAGE>
The Company's energy commodity price exposure arises principally from its
electric supply obligation in the United States and Australia. In the United
States, the Company manages this risk principally through the operation of its
8,445 MW generation and transmission system in the western Unites States and
through its wholesale energy trading activities. Derivative instruments are not
significantly utilized in the management of the Unites States electricity
position. In Australia, the Victorian government currently limits the amount of
generation that can be owned by an electric supply company and, as a result, the
risk associated with Australian Electric Operations energy supply obligations is
managed through the use of electricity forward contracts (referred to as
"contracts for differences") with Victorian generators. Under these forward
contracts, the Company receives or makes payment based on a differential between
a contracted price and the actual spot market of electricity. Additionally,
electricity futures contracts are utilized to hedge Domestic Electric
Operations' excess or shortage of net electricity for future months. The changes
in market value of such contracts have had a high correlation to the price
changes of the hedged commodity. Derivative instruments, other than contracts
for differences, are not significantly utilized in Australian Electric
Operations' risk management process.
Gains and losses relating to qualifying hedges of firm commitments or
anticipated inventory transactions are deferred on the balance sheet and
included in the basis of the underlying transactions.
A sensitivity analysis has been prepared to estimate the Company's exposure
to market risk related to commodity price exposure of its derivative positions
for both natural gas and electricity. Based on the Company's derivative price
exposure at December 31, 1998 and 1997, a near-term adverse change in commodity
prices of 10% would negatively impact pre-tax earnings by $16 million and $12
million, respectively.
INFLATION
Due to the capital-intensive nature of the Company's core businesses,
inflation may have a significant impact on replacement of property, acquisition
and development activities and final mine reclamation costs. To date, management
does not believe that inflation has had a significant impact on any of the
Company's other businesses.
YEAR 2000
The Company's Year 2000 project has been underway since mid-1996. A standard
methodology of inventory, assessment, remediation and testing of hardware,
software and equipment has been implemented. The main areas of risk are in:
power supply (generating plant and system controls); information technology
(computer software and hardware); business disruption; and supply chain
disruption. The first two areas of risk are within the Company's own business
operations. The others are areas of risk the Company might face from interaction
with other companies, such as critical suppliers and customers. The Company's
plan is to have successfully identified, corrected and tested its existing
critical systems by July 1, 1999. The Company requires that all new hardware or
software be vendor certified Year 2000 ready before it is installed.
A summary of the Company's progress to date in areas affected by Year 2000
issues is set forth in the following table:
<TABLE>
<CAPTION>
ASSESSMENT REMEDIATION
INVENTORY (% COMPLETED) AND TESTING
------------- ----------------- ---------------
<S> <C> <C> <C>
Electric Systems......................................................... 100 89 49
Computer Systems
Central Applications To Correct........................................ 100 100 100
Central Applications To Replace........................................ 100 100 75
Desktop................................................................ 100 100 30
</TABLE>
47
<PAGE>
The Company's ability to maintain normal operations into the year 2000 will
also be affected by Year 2000 readiness of third parties from whom the Company
purchases products and services or with whom the Company exchanges information.
As of January 25, 1999, the Company believes it had identified 100% of its
critical third-party supplier relationships and requested that these parties
report their Year 2000 readiness. At March 10, 1999, the critical third parties
reported they would be Year 2000 ready on or before the dates in the table
below:
<TABLE>
<CAPTION>
PERCENT OF ALL CRITICAL THIRD
READINESS TARGET DATES (ON OR BEFORE) PARTIES READY
- --------------------------------------------------------------------------------------- -------------------------------
<S> <C>
12/31/1998............................................................................. 22%
03/31/1999............................................................................. 33
06/30/1999............................................................................. 77
09/30/1999............................................................................. 91
12/31/1999............................................................................. 97
(no Readiness Target Date reported).................................................... 3
</TABLE>
The Company is in contact with these third parties and their Year 2000
readiness information is updated as required.
The Company is also in the process of identifying third parties that are
"super critical." An elevated Year 2000 readiness assessment, which includes a
site visit, will be performed for each of them. To date, one super critical
vendor has been identified. That vendor supplies chemical reagents used in air
emission control equipment at some generating plants. One week's supply can be
maintained. The plants would be able to generate power, but after a week may not
be able to meet air quality regulations. That vendor has advised the Company
that it will be Year 2000 ready by September 30, 1999. An on-site assessment has
been scheduled. The Company plans to identify all remaining "super critical"
third parties by mid-April 1999.
The Company has no single retail customer that accounts for more than 1.7%
of its retail utility revenues and the 20 largest retail customers account for
13.9% of total retail electric revenues. The Company has not performed a formal
assessment of its customers' Year 2000 readiness.
The Company's mining operations contingency plan calls for increased
stockpiles of fuel to be available to supply the generating plants.
The Company, the North American Electric Reliability Council ("NERC") and
the Western Systems Coordinating Council ("WSCC") are working closely together
to ensure the integrity of the interconnected electrical distribution and
transmission system in the Company's service area and the western United States.
NERC coordinates the efforts of the ten regional electric reliability councils
throughout the United States while WSCC is focused on reliable electric service
in the western United States. These agencies require Year 2000 readiness for all
interconnected electric utilities by July 1, 1999. The Company has submitted its
draft contingency plans to the WSCC as required by NERC. The Company will
participate in the NERC sponsored industry preparedness drill on April 9,1999.
The Company's worst case planning scenario assumes the following:
1. The public telecommunication system is not available or not functioning
reliably for up to a week.
2. At midnight on December 31, 1999, there is a near simultaneous loss of
multiple generating units resulting in transmission system instability
and regional black outs. Restoration of service will start immediately,
but some areas may not be fully restored and stable for twenty-four
hours.
3. Temporary loss of automated transmission system monitoring and control
systems. These functions must be performed manually during restoration.
48
<PAGE>
4. Temporary loss of customer billing system. Customers on billing cycles
in the early part of the month may receive an estimated billing that will
be adjusted the following month.
5. Temporary loss of receivables processing system.
6. Temporary loss of automated payroll system. Employees will be paid, but
some automated functions must be performed manually.
7. Temporary loss of automated shareholder services systems. Information
must be available to be accessed manually while automated systems are
being restored.
To address this potential scenario and in cooperation with efforts by NERC
and WSCC, the Company plans to establish a precautionary posture for its system
leading into December 31, 1999. This is similar to the posture taken when severe
winter weather is anticipated in areas of its service territory. Regional
connections would be deliberately disconnected only during, or immediately
following, a system disturbance in order to prevent further cascading outages
and to facilitate restoration. Additional personnel will be on hand at control
centers. Facilities such as power plants and key major substations will also
have additional personnel standing by. Backup systems will be serviced and
tested, as appropriate, prior to the transition period. Additional generation
will be brought on line for the transition period as needed.
The Company is continuing to expand its extensive microwave network in 1999.
Because this system is self-controlled and has been undergoing extensive
analysis for Year 2000 readiness, the Company considers this a reliable
alternative to the public telephone network if needed. Emergency power systems
will be tested and made ready. In addition to the microwave system, the Company
has an extensive radio network. Through integration of the Company's radio and
microwave, Company personnel can effectively "dial-up" telephones throughout the
Company's area. Radio units will be deployed at key locations during the
transition period. The Company is also planning to station satellite telephones
at system dispatching facilities and key power plants.
The Company's payment processing system has been certified by the vendor as
Year 2000 compliant. An emergency backup plan is being developed for deployment
by the third quarter of 1999 to enable third party off-site processing of
payments. Check issuance has been outsourced to a vendor who has represented
that it will be Year 2000 ready by the end of March 1999. To the extent
possible, accounts payable checks and wire transfers will be processed early in
December. Arrangements are expected to be made with the Company's banks to cover
critical payment obligations for up to seventy-two hours should wire transfers
be disrupted. The Company uses two systems to maintain shareholder records,
transfer stock, issue 1099 dividend statements and process dividend payments.
One system is certified compliant now, and the other is expected to be Year 2000
ready by June 30, 1999.
The Company has incurred $12.7 million in costs relating to the Year 2000
project through December 31, 1998. The majority of these costs have been
incurred to repair software problems. Estimates of the total cost of the Year
2000 project are approximately $30 million, which will be principally funded
from operating cash flows. This estimate does not include the cost of system
replacements that will be Year 2000 compliant, but are not being installed
primarily to resolve Year 2000 problems. Year 2000 information technology ("IT")
remediation costs amount to approximately 5% of IT's budget. The Company has not
delayed any IT projects that are critical to its operations as a result of Year
2000 remediation work. No independent verification of risk and cost estimates
has been undertaken to date.
The dates on which the Company believes the Year 2000 project will be
completed and the expected costs and other impacts of the Year 2000 issues are
based on management's best estimates, which were derived utilizing numerous
assumptions concerning future events, including the availability of certain
resources, the completion of third-party modification plans and other factors.
There can be no assurance that these estimates will be achieved, or that there
will not be a delay in, or increased costs associated with, the Company's
implementation of its Year 2000 project.
49
<PAGE>
NEW ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued SFAS 133,
"Accounting for Derivative Instruments and Hedging Activities." This statement,
which is effective for fiscal years beginning after June 15, 1999, requires an
entity to recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value.
Adoption of this standard will have an effect on the Company's financial
position and results of operations; however, the magnitude of the effect will be
determined by the hedges and derivatives that the Company has in place at the
date of adoption of the standard. The effects in future periods will be
dependent upon the derivatives and hedges in place at the end of each period.
In December 1998, the EITF reached a consensus on Issue No. 98-10.
"Accounting for Contracts Involved in Energy Trading and Risk Management
Activities," ("EITF 98-10"). EITF 98-10, which is effective for fiscal years
beginning after December 15, 1998, requires energy trading contracts to be
recorded at fair market value on the balance sheet, with the change in fair
market value included in earnings for the period of the change. The Company
anticipates that the cumulative effect of the adoption of EITF 98-10 at January
1, 1999 will be immaterial on the Company's financial position, results of
operations and cash flows. Restatement of prior period financial statements for
the adoption of EITF 98-10 is not permitted.
FORWARD-LOOKING STATEMENTS
The information in the tables and text in this document includes certain
forward-looking statements that involve a number of risks and uncertainties that
may influence the financial performance and earnings of the Company. When used
in this "Management's Discussion and Analysis of Financial Condition and Results
of Operations," the words "estimates," "expects," "anticipates," "forecasts,"
"plans," "intends" and variations of such words and similar expressions are
intended to identify forward-looking statements that involve risks and
uncertainties. There can be no assurance the results predicted will be realized.
Actual results will vary from those represented by the forecasts, and those
variations may be material.
The following factors are among the factors that could cause actual results
to differ materially from the forward-looking statements: utility commission
practices; regional and international economic conditions; weather variations
affecting customer usage; competition in bulk power and natural gas markets and
hydroelectric and natural gas production; energy trading activities;
environmental, regulatory and tax legislation, including industry restructure
and deregulation initiatives; technological developments in the electricity
industry; foreign exchange rates; the pending ScottishPower merger; proposed
asset dispositions; and the cost of debt and equity capital. Any forward-looking
statements issued by the Company should be considered in light of these factors.
50
<PAGE>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information required by this item is included under "Risk Management,"
"Value at Risk Analysis," "Sensitivity Analysis," "Interest Rate Exposure,"
"Currency Rate Exposure" and "Commodity Price Exposure" on pages 45 through 47
of this Report under ITEM 7.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Index To Consolidated Financial Statements:
Report of Management..................................................................................... 52
Independent Auditors' Report............................................................................. 53
Statements Of Consolidated Income For Each
Of The Three Years Ended December 31, 1998............................................................. 54
Statements Of Consolidated Cash Flows For Each
Of The Three Years Ended December 31, 1998............................................................. 55
Consolidated Balance Sheets At December 31, 1998 And 1997................................................ 56
Statements Of Consolidated Changes In Common Shareholders' Equity For Each Of The Three Years Ended
December 31, 1998...................................................................................... 58
Notes To Consolidated Financial Statements............................................................... 59
</TABLE>
51
<PAGE>
REPORT OF MANAGEMENT
The management of PacifiCorp and its subsidiaries (the "Company") is
responsible for preparing the accompanying consolidated financial statements and
for their integrity and objectivity. The statements were prepared in accordance
with generally accepted accounting principles. The financial statements include
amounts that are based on management's best estimates and judgments. Management
also prepared the other information in the annual report and is responsible for
its accuracy and consistency with the financial statements.
The Company's financial statements were audited by Deloitte & Touche LLP
("Deloitte & Touche"), independent public accountants. Management made available
to Deloitte & Touche all the Company's financial records and related data, as
well as the minutes of shareholders' and directors' meetings.
Management of the Company established and maintains an internal control
structure that provides reasonable assurance as to the integrity and reliability
of the financial statements, the protection of assets from unauthorized use or
disposition and the prevention and detection of materially fraudulent financial
reporting. The Company maintains an internal auditing program that independently
assesses the effectiveness of the internal control structure and recommends
possible improvements. Deloitte & Touche considered that internal control
structure in connection with their audit. Management reviews significant
recommendations by the internal auditors and Deloitte & Touche concerning the
Company's internal control structure and ensures appropriate cost-effective
actions are taken.
The Company's "Guide to Business Conduct" is distributed to employees
throughout the Company to provide a basis for ethical standards and conduct. The
guide addresses, among other things, potential conflicts of interests and
compliance with laws, including those relating to financial disclosure and the
confidentiality of proprietary information. In early 1998, the Company formed a
Business Conduct Group in order to dedicate more resources to business conduct
issues, and to provide more consistent and thorough communications and training
in legal compliance and ethical conduct.
The Audit Committee of the Board of Directors is comprised solely of outside
directors. It meets at least quarterly with management, Deloitte & Touche,
internal auditors and counsel to review the work of each and ensure the
Committee's responsibilities are being properly discharged. Deloitte & Touche
and internal auditors have free access to the Committee, without management
present, to discuss, among other things, their audit work and their evaluations
of the adequacy of the internal control structure and the quality of financial
reporting.
Keith R. McKennon
Chairman, President and Chief Executive Officer
Robert R. Dalley
Controller and Chief Accounting Officer
52
<PAGE>
INDEPENDENT AUDITORS' REPORT
TO THE SHAREHOLDERS AND BOARD OF DIRECTORS OF PACIFICORP:
We have audited the accompanying consolidated balance sheets of PacifiCorp
and subsidiaries as of December 31, 1998 and 1997, and the related statements of
consolidated income, consolidated changes in common shareholders' equity and
consolidated cash flows for each of the three years in the period ended December
31, 1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the consolidated financial position of PacifiCorp and subsidiaries at
December 31, 1998 and 1997, and the results of their operations and their cash
flows for each of three years in the period ended December 31, 1998, in
conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Portland, Oregon
March 5, 1999
53
<PAGE>
STATEMENTS OF CONSOLIDATED INCOME
<TABLE>
<CAPTION>
FOR THE YEAR/MILLIONS OF DOLLARS, EXCEPT PER SHARE AMOUNTS 1998 1997 1996
- ------------------------------------------------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
REVENUES....................................................................... $ 5,580.4 $ 4,548.9 $ 3,792.0
--------- --------- ---------
EXPENSES
Purchased power.............................................................. 2,821.5 1,605.0 923.9
Other operations and maintenance............................................. 1,081.9 1,078.8 1,017.4
Administrative and general................................................... 322.9 319.0 241.3
Depreciation and amortization................................................ 451.2 466.1 423.8
Taxes, other than income taxes............................................... 98.7 98.9 99.3
Special charges.............................................................. 123.4 170.4 --
--------- --------- ---------
Total........................................................................ 4,899.6 3,738.2 2,705.7
--------- --------- ---------
INCOME FROM OPERATIONS......................................................... 680.8 810.7 1,086.3
--------- --------- ---------
INTEREST EXPENSE AND OTHER
Interest expense............................................................. 371.6 437.8 415.0
Interest capitalized......................................................... (14.5) (12.2) (11.4)
Losses from equity investments............................................... 13.9 12.8 4.1
TEG costs and option losses.................................................. 73.0 105.6 --
Write down of investments in energy development companies.................... 79.5 -- --
Gain on sale of PGC.......................................................... -- (56.5) --
Minority interest and other.................................................. (12.4) (21.5) 11.8
--------- --------- ---------
Total........................................................................ 511.1 466.0 419.5
--------- --------- ---------
Income from continuing operations before income taxes.......................... 169.7 344.7 666.8
Income tax expense............................................................. 59.1 111.8 236.5
--------- --------- ---------
INCOME FROM CONTINUING OPERATIONS BEFORE EXTRAORDINARY ITEM.................... 110.6 232.9 430.3
Discontinued operations (less applicable income tax expense/(benefit):
1998/$(74.3), 1997/$361.1 and 1996/$47.4).................................... (146.7) 446.8 74.6
Extraordinary loss from regulatory asset impairment (less applicable income tax
benefit of $9.6)............................................................. -- (16.0) --
--------- --------- ---------
NET INCOME (LOSS).............................................................. $ (36.1) $ 663.7 $ 504.9
--------- --------- ---------
--------- --------- ---------
EARNINGS (LOSS) ON COMMON STOCK................................................ $ (55.4) $ 640.9 $ 475.1
--------- --------- ---------
--------- --------- ---------
AVERAGE NUMBER OF COMMON SHARES OUTSTANDING--BASIC AND DILUTED (THOUSANDS)..... 297,229 296,094 292,424
EARNINGS (LOSS) PER COMMON SHARE--BASIC AND DILUTED
Continuing operations........................................................ $ 0.30 $ 0.71 $ 1.37
Discontinued operation....................................................... (0.49) 1.50 0.25
Extraordinary item........................................................... -- (0.05) --
--------- --------- ---------
Total........................................................................ $ (0.19) $ 2.16 $ 1.62
--------- --------- ---------
--------- --------- ---------
</TABLE>
(See accompanying Notes to Consolidated Financial Statements)
54
<PAGE>
STATEMENTS OF CONSOLIDATED CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEAR/MILLIONS OF DOLLARS 1998 1997 1996
- ----------------------------------------------------------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (Loss)...................................................................... $ (36.1) $ 663.7 $ 504.9
Adjustments to reconcile net income (loss) to net cash provided by continuing
operations
Losses (income) from discontinued operations......................................... 146.7 (81.7) (74.6)
Gain on disposal of discontinued operations.......................................... -- (365.1) --
Extraordinary loss from regulatory asset impairment.................................. -- 16.0 --
Write down of investments in energy development companies............................ 79.5 -- --
Depreciation and amortization........................................................ 460.1 481.5 440.5
Deferred income taxes and investment tax credits--net................................ (47.9) (55.5) 26.1
Special charges...................................................................... 123.4 170.4 --
Gain on sale of subsidiary and assets................................................ (11.0) (56.5) --
Other................................................................................ 23.0 46.0 (25.6)
Accounts receivable and prepayments.................................................. (34.2) (135.5) (154.1)
Materials, supplies, fuel stock and inventory........................................ 6.2 (6.5) 26.8
Accounts payable and accrued liabilities............................................. (24.8) 159.1 144.4
--------- --------- ---------
Net cash provided by continuing operations............................................. 684.9 835.9 888.4
Net cash provided by (used in) discontinued operations................................. (433.7) (217.3) 37.0
--------- --------- ---------
Net Cash Provided by Operating Activities................................................ 251.2 618.6 925.4
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Construction........................................................................... (609.9) (577.7) (528.1)
Operating companies and assets acquired................................................ (44.8) (65.6) (199.4)
Investments in and advances to affiliated companies--net............................... (11.9) (70.9) (148.4)
Proceeds from sales of assets.......................................................... 111.0 1,666.3 49.3
Proceeds from sales of finance assets and principal payments........................... 311.7 103.2 55.8
Other.................................................................................. (31.8) (58.5) (10.5)
--------- --------- ---------
Net Cash Provided by (Used in) Investing Activities...................................... (275.7) 996.8 (781.3)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Changes in short-term debt............................................................. 71.5 (494.4) (247.6)
Proceeds from long-term debt........................................................... 1,829.0 726.4 567.6
Proceeds from issuance of common stock................................................. 10.8 37.4 223.9
Proceeds from issuance of preferred securities of Trust holding solely PacifiCorp
debentures........................................................................... -- 130.6 209.6
Dividends paid......................................................................... (337.3) (341.2) (346.4)
Repayments of long-term debt........................................................... (1,731.6) (779.6) (284.5)
Redemptions of capital stock........................................................... -- (72.2) (221.6)
Other.................................................................................. 24.4 (90.0) (52.5)
--------- --------- ---------
Net Cash Used in Financing Activities.................................................... (133.2) (883.0) (151.5)
--------- --------- ---------
Increase/(Decrease) in Cash and Cash Equivalents......................................... (157.7) 732.4 (7.4)
Cash and Cash Equivalents at Beginning of Year........................................... 740.8 8.4 15.8
--------- --------- ---------
Cash and Cash Equivalents at End of Year................................................. $ 583.1 $ 740.8 $ 8.4
--------- --------- ---------
--------- --------- ---------
</TABLE>
(See accompanying Notes to Consolidated Financial Statements)
55
<PAGE>
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31/MILLIONS OF DOLLARS 1998 1997
- ---------------------------------------------------------------------------------------- ---------- ----------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents............................................................. $ 583.1 $ 740.8
Accounts receivable less allowance for doubtful accounts: 1998/$18.0 and 1997/$17.7... 703.2 723.9
Materials, supplies and fuel stock at average cost.................................... 175.8 181.9
Net assets of discontinued operations and assets held for sale........................ 192.4 223.4
Real estate investments held for sale................................................. -- 272.2
Other................................................................................. 87.9 55.1
---------- ----------
Total Current Assets.................................................................. 1,742.4 2,197.3
PROPERTY, PLANT AND EQUIPMENT
Domestic Electric Operations
Production.......................................................................... 4,844.2 4,720.6
Transmission........................................................................ 2,102.3 2,087.8
Distribution........................................................................ 3,319.7 3,244.0
Other............................................................................... 1,947.0 1,784.8
Construction work in progress....................................................... 246.8 257.4
---------- ----------
Total Domestic Electric Operations.................................................. 12,460.0 12,094.6
Australian Electric Operations........................................................ 1,140.4 1,161.2
Other Operations...................................................................... 22.2 31.0
Accumulated depreciation and amortization............................................. (4,553.2) (4,240.0)
---------- ----------
Total Property, Plant and Equipment--net.............................................. 9,069.4 9,046.8
OTHER ASSETS
Investments in and advances to affiliated companies................................... 114.9 166.1
Intangible assets--net................................................................ 369.4 399.0
Regulatory assets--net................................................................ 795.5 871.1
Finance note receivable............................................................... 204.9 211.2
Finance assets--net................................................................... 313.7 349.8
Deferred charges and other............................................................ 378.3 385.7
---------- ----------
Total Other Assets.................................................................... 2,176.7 2,382.9
---------- ----------
TOTAL ASSETS............................................................................ $ 12,988.5 $ 13,627.0
---------- ----------
---------- ----------
</TABLE>
(See accompanying Notes to Consolidated Financial Statements)
56
<PAGE>
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31/MILLIONS OF DOLLARS 1998 1997
- ---------------------------------------------------------------------------------------- ---------- ----------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Long-term debt currently maturing..................................................... $ 299.5 $ 365.4
Notes payable and commercial paper.................................................... 260.6 189.2
Accounts payable...................................................................... 566.2 546.7
Taxes, interest and dividends payable................................................. 282.7 677.4
Customer deposits and other........................................................... 168.0 84.9
---------- ----------
Total Current Liabilities............................................................. 1,577.0 1,863.6
DEFERRED CREDITS
Income taxes.......................................................................... 1,542.6 1,666.2
Investment tax credits................................................................ 125.3 135.2
Other................................................................................. 646.1 646.3
---------- ----------
Total Deferred Credits................................................................ 2,314.0 2,447.7
LONG-TERM DEBT.......................................................................... 4,559.3 4,413.0
COMMITMENTS AND CONTINGENCIES (See Note 13)............................................. -- --
GUARANTEED PREFERRED BENEFICIAL INTERESTS IN COMPANY'S JUNIOR SUBORDINATED DEBENTURES... 340.5 340.4
PREFERRED STOCK SUBJECT TO MANDATORY REDEMPTION......................................... 175.0 175.0
PREFERRED STOCK......................................................................... 66.4 66.4
COMMON EQUITY
Common shareholders' capital shares authorized 750,000,000; shares outstanding:
1998/297,343,422 and 1997/296,908,110............................................... 3,285.0 3,274.2
Retained earnings..................................................................... 732.0 1,106.3
Accumulated other comprehensive income................................................ (60.7) (59.6)
---------- ----------
Total Common Equity................................................................... 3,956.3 4,320.9
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.............................................. $ 12,988.5 $ 13,627.0
---------- ----------
---------- ----------
</TABLE>
(See accompanying Notes to Consolidated Financial Statements)
57
<PAGE>
STATEMENTS OF CONSOLIDATED CHANGES IN COMMON SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON SHAREHOLDERS'
ACCUMULATED
CAPITAL OTHER TOTAL
-------------------- RETAINED COMPREHENSIVE COMPREHENSIVE
MILLIONS OF DOLLARS/THOUSANDS OF SHARES SHARES AMOUNT EARNINGS INCOME INCOME (LOSS)
- ----------------------------------------------------- --------- --------- ----------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1996............................. 284,277 $ 3,012.9 $ 632.4 $ -- $ --
Comprehensive income
Net income......................................... -- -- 504.9 -- 504.9
Other comprehensive income
Foreign currency translation adjustment, net of
tax of $8.0.................................... -- -- -- 12.7 12.7
Cash dividends declared
Preferred stock.................................... -- -- (29.1) -- --
Common stock....................................... -- -- (317.9) -- --
Preferred stock retired.............................. -- -- (7.5) -- --
Sales to public...................................... 8,790 177.8 -- -- --
Sales through Dividend Reinvestment and Stock
Purchase Plan...................................... 2,073 43.2 -- -- --
Redemptions and repurchases.......................... -- 2.9 -- -- --
--------- --------- ----------- ------ ------
BALANCE, DECEMBER 31, 1996........................... 295,140 3,236.8 782.8 12.7 $ 517.6
------
------
Comprehensive income
Net income......................................... -- -- 663.7 -- $ 663.7
Other comprehensive income
Foreign currency translation adjustment, net of
tax of $46.9................................... -- -- -- (72.3) (72.3)
Cash dividends declared
Preferred stock.................................... -- -- (20.0) -- --
Common stock....................................... -- -- (320.0) -- --
Preferred stock retired.............................. -- -- (0.2) -- --
Sales through Dividend Reinvestment and Stock
Purchase Plan...................................... 1,768 37.4 -- -- --
--------- --------- ----------- ------ ------
BALANCE, DECEMBER 31, 1997........................... 296,908 3,274.2 1,106.3 (59.6) $ 591.4
------
------
Comprehensive income (loss)
Net loss........................................... -- -- (36.1) -- $ (36.1)
Other comprehensive income (loss)
Unrealized gain on available-for-sale securities,
net of tax of $3.8............................. -- -- -- 6.2 6.2
Foreign currency translation adjustment, net of
tax of $4.0.................................... -- -- -- (7.3) (7.3)
Cash dividends declared
Preferred stock.................................... -- -- (17.2) -- --
Common stock....................................... -- -- (321.0) -- --
Sales through Dividend Reinvestment and Stock
Purchase Plan...................................... 346 9.1 -- -- --
Stock options exercised.............................. 89 1.7 -- -- --
--------- --------- ----------- ------ ------
BALANCE, DECEMBER 31, 1998........................... 297,343 $ 3,285.0 $ 732.0 $ (60.7) $ (37.2)
--------- --------- ----------- ------ ------
--------- --------- ----------- ------ ------
</TABLE>
(See accompanying Notes to Consolidated Financial Statements)
58
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The consolidated financial statements of PacifiCorp include its integrated
domestic electric utility operating divisions of Pacific Power and Utah Power
and its wholly owned and majority owned subsidiaries (the "Company" or
"Companies"). Major subsidiaries, all of which are wholly owned, are: PacifiCorp
Group Holdings Company ("Holdings"), which holds directly or through its wholly
owned subsidiary, PacifiCorp International Group Holdings Company, all of the
Company's nonintegrated electric utility investments, including Powercor
Australia Limited ("Powercor"), an Australian electricity distributor, and
PacifiCorp Financial Services, Inc. ("PFS"), a financial services business.
Significant intercompany transactions and balances have been eliminated.
Investments in and advances to affiliated companies represent investments in
unconsolidated affiliated companies carried on the equity basis, which
approximate the Company's equity in their underlying net book value.
During October 1998, the Company decided to exit its energy trading
business, which consists of TPC Corporation ("TPC") and PacifiCorp Power
Marketing ("PPM"). See Note 4.
The Company sold its wholly owned telecommunications subsidiary, Pacific
Telecom, Inc. ("PTI"), on December 1, 1997. See Note 4. The Company sold Pacific
Generation Company ("PGC") on November 5, 1997, and the natural gas gathering
and processing assets of TPC on December 1, 1997. During May 1998, the Company
sold a majority of the real estate assets held by PFS. See Note 16.
The Company has also decided to exit the majority of its other energy
development businesses and has recorded them at estimated net realizable value
less selling costs. See Note 16.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements. Actual results could differ from those estimates.
REGULATION
Accounting for the majority of the domestic electric utility business
conforms with generally accepted accounting principles as applied to regulated
public utilities and as prescribed by agencies and the commissions of the
various locations in which the domestic electric utility business operates. The
Company prepares its financial statements as they relate to Domestic Electric
Operations in accordance with Statement of Financial Accounting Standards
("SFAS") 71, "Accounting for the Effects of Certain Types of Regulation." See
Note 5.
ASSET IMPAIRMENTS
Long-lived assets and certain identifiable intangibles to be held and used
by the Company are reviewed for impairment when events or circumstances indicate
costs may not be recoverable. Such reviews are done in accordance with SFAS No.
121. The impacts of regulation on cash flows are considered when determining
impairment. Impairment losses on long-lived assets are recognized when book
values exceed expected undiscounted future cash flows. If impairment exists, the
asset's book value will be written down to its fair value.
59
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CASH AND CASH EQUIVALENTS
For the purposes of these financial statements, the Company considers all
liquid investments with maturities of three months or less at the time of
acquisition to be cash equivalents.
FOREIGN CURRENCY
Financial statements for foreign subsidiaries are translated into United
States dollars at end of period exchange rates as to assets and liabilities and
weighted average exchange rates as to revenues and expenses. The resulting
translation gains or losses are accumulated in the "accumulated other
comprehensive income" account, a component of common equity and comprehensive
income. All gains and losses resulting from foreign currency transactions are
included in the determination of net income.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at original cost of contracted
services, direct labor and materials, interest capitalized during construction
and indirect charges for engineering, supervision and similar overhead items.
The cost of depreciable domestic electric utility properties retired, including
the cost of removal, less salvage, is charged to accumulated depreciation.
DEPRECIATION AND AMORTIZATION
At December 31, 1998, the average depreciable lives of property, plant and
equipment by category were: Domestic Electric Operations--Production, 37 years;
Transmission, 42 years; Distribution, 30 years; Other, 16 years; and Australian
Electric Operations, 23 years.
Depreciation and amortization is generally computed by the straight-line
method in the following manner: As prescribed by the Company's various
regulatory jurisdictions for Domestic Electric Operations' regulated assets; and
over the estimated useful lives of the related assets for Domestic Electric
Operations' nonregulated generation resource assets and for other nonregulated
assets. Provisions for depreciation (excluding amortization of capital leases)
in the domestic electric and Australian electric businesses were 3.3%, 3.4% and
3.2% of average depreciable assets in 1998, 1997 and 1996, respectively.
MINE RECLAMATION AND CLOSURE COSTS
The Company expenses current mine reclamation costs and accrues for
estimated final mine reclamation and closure costs using the units-of-production
method.
INVENTORY VALUATION
Inventories are generally valued at the lower of average cost or market.
INTANGIBLE ASSETS
Intangible assets consist of license and other intangible costs relating to
Australian Electric Operations ($375 million and $24 million, respectively, in
1998 and $393 million and $26 million, respectively, in 1997). These costs are
offset by accumulated amortization ($30 million in 1998 and $20 million in
1997). Licenses and other intangible costs are generally being amortized over 40
years. Intangible assets decreased $18 million in 1998 due to lower foreign
currency exchange rates.
60
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FINANCE ASSETS
Finance assets consist of finance receivables, leveraged leases and
operating leases and are not significant to the Company in terms of revenue, net
income or assets. The Company's leasing operations consist principally of
leveraged aircraft leases. Investments in finance assets are net of allowances
for credit losses and accumulated impairment charges of $27 million and $47
million at December 31, 1998 and 1997, respectively.
DERIVATIVES
Gains and losses on hedges of existing assets and liabilities are included
in the carrying amounts of those assets or liabilities and are recognized in
income as part of the carrying amounts. Gains and losses related to hedges of
anticipated transactions and firm commitments are deferred on the balance sheet
and recognized in income when the transaction occurs. Nonhedged derivative
instruments are marked-to-market with gains or losses recognized in the
determination of net income.
INTEREST CAPITALIZED
Costs of debt applicable to domestic electric utility properties are
capitalized during construction. The composite capitalization rates were 5.7%
for 1998 and 1997 and 5.6% for 1996.
INCOME TAXES
The Company uses the liability method of accounting for deferred income
taxes. Deferred tax liabilities and assets reflect the expected future tax
consequences, based on enacted tax law, of temporary differences between the tax
bases of assets and liabilities and their financial reporting amounts.
Prior to 1980, Domestic Electric Operations did not provide deferred taxes
on many of the timing differences between book and tax depreciation. In prior
years, these benefits were flowed through to the utility customer as prescribed
by the Company's various regulatory jurisdictions. Deferred income tax
liabilities and regulatory assets have been established for those flow through
tax benefits. See Note 14.
Investment tax credits for regulated Domestic Electric Operations are
deferred and amortized to income over periods prescribed by the Company's
various regulatory jurisdictions.
Provisions for United States income taxes are made on the undistributed
earnings of the Company's international businesses.
REVENUE RECOGNITION
The Company accrues estimated unbilled revenues for electric services
provided after cycle billing to month-end.
COMPREHENSIVE INCOME
Effective January 1, 1998, the Company adopted SFAS 130, "Reporting
Comprehensive Income." This statement requires items reported as a component of
common equity be more prominently reported in a separate financial statement as
a component of comprehensive income. As permitted by SFAS 130, the Company has
not included a statement of comprehensive income. Instead the Company included
the amounts on the Statement of Consolidated Changes in Common Shareholders'
Equity.
61
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ENERGY TRADING
Revenues and purchased energy expense for the Company's energy trading and
marketing activities are recorded upon delivery of electricity. Beginning
January 1, 1999, the Company will apply marked-to-market accounting for all
energy trading activities and present the net margin.
PREFERRED STOCK RETIRED
Amounts paid in excess of the net carrying value of preferred stock retired
are amortized over five years in accordance with regulatory orders.
STOCK BASED COMPENSATION
As permitted by SFAS 123, "Accounting for Stock Based Compensation," the
Company has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25") and related
interpretations in accounting for its employee stock options. Under APB 25,
because the exercise price of employee stock options equals the market price of
the underlying stock on the date of grant, no compensation expense is recorded.
EARNINGS PER COMMON SHARE
The Company computes Earnings per Common Share ("EPS") based on SFAS 128,
"Earnings per Share." Basic EPS is computed by dividing earnings on common stock
by the weighted average number of common shares outstanding. Diluted EPS for the
Company is computed by dividing earnings on common stock by the weighted average
number of common shares outstanding, including shares that would be outstanding
assuming the exercise of granted stock options. The Company's basic and diluted
EPS are the same for all periods presented herein.
NEW ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS
133, "Accounting for Derivative Instruments and Hedging Activities." This
statement, which is effective for fiscal years beginning after June 15, 1999,
requires an entity to recognize all derivatives as either assets or liabilities
in the statement of financial position and to measure those instruments at fair
value. Adoption of this standard will have an effect on the Company's financial
position and results of operations. The magnitude of the effect will be
determined by the hedges and derivatives that the Company has in place at the
adoption of the standard. The effects in future periods will be dependent upon
the derivatives and hedges in place at the end of each period.
In December 1998, the Emerging Issues Task Force (the "EITF") reached a
consensus on Issue No. 98-10. "Accounting for Contracts Involved in Energy
Trading and Risk Management Activities," ("EITF 98-10"). EITF 98-10, which is
effective for fiscal years beginning after December 15, 1998, requires energy
trading contracts to be recorded at fair market value on the balance sheet, with
the change in fair market value included in earnings for the period of the
change. The Company anticipates that the cumulative effect of the adoption of
EITF 98-10 at January 1, 1999 will be immaterial on the Company's financial
position, results of operation and cash flows. Restatement of prior period
financial statements for the adoption of EITF 98-10 is not permitted.
62
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RECLASSIFICATION
Certain amounts from prior years have been reclassified to conform with the
1998 method of presentation. These reclassifications had no effect on previously
reported consolidated net income.
NOTE 2 PROPOSED SCOTTISHPOWER MERGER
On December 6, 1998, PacifiCorp signed an Agreement and Plan of Merger with
Scottish Power plc ("ScottishPower") and NA General Partnership. ScottishPower
subsequently announced its intention to establish a new holding company for the
ScottishPower group pursuant to a court approved reorganization in the U.K.
Accordingly, on February 23, 1999, the parties executed an amended and restated
merger agreement (the "Agreement") under which PacifiCorp will become an
indirect, wholly owned subsidiary of the new holding company, which will be
renamed Scottish Power plc ("New ScottishPower"), and ScottishPower will become
a sister company to PacifiCorp. PacifiCorp will continue to operate under its
current name, and its headquarters will remain in Portland, Oregon.
In the merger, each share of PacifiCorp's common stock will be converted
into the right to receive 0.58 New ScottishPower American Depositary Shares
("ADS") (each New ScottishPower ADS represents four ordinary shares), which will
be listed on the New York Stock Exchange, or, upon the proper election of the
holders of PacifiCorp's common stock, 2.32 ordinary shares of New ScottishPower,
which will be listed on the London Stock Exchange.
If the proposed reorganization is not completed, the parties will proceed
under the original agreement, and PacifiCorp will become an indirect, wholly
owned subsidiary of ScottishPower. The merger is not conditional on the
reorganization becoming effective nor is the reorganization conditional upon the
merger becoming effective.
Both companies' boards of directors have approved the Agreement. However,
before the transactions under the Agreement can be consummated, a number of
conditions must be satisfied, including obtaining approvals and consents from
shareholders of both companies, the Federal Energy Regulatory Commission
("FERC"), the Nuclear Regulatory Commission, the regulatory commissions in
certain of the states served by the Company and Australian regulatory
authorities. The parties have received early termination of the waiting period
under the provisions of the Hart-Scott-Rodino Antitrust Improvement Act.
Hearings on the merger have been scheduled for July and August 1999 by the
Oregon, Utah, Wyoming and Idaho commissions. Both companies expect to have
shareholder meetings in mid-1999 requesting shareholder approval of the merger.
The Agreement requires that the Company pay a $250 million termination fee
to New ScottishPower under certain circumstances following a bona fide proposal
by a third party to acquire the Company. The Agreement requires New
ScottishPower to pay a $250 million termination fee to the Company if the
Company terminates the Agreement upon a change in control of New ScottishPower.
In addition, the Agreement requires each party to pay a $10 million termination
fee if, under certain circumstances, its shareholder approval is not obtained
and the other party's shareholder approval is obtained.
During 1998, the Company incurred $13 million in costs associated with the
proposed ScottishPower merger.
63
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
NOTE 3 BID FOR THE ENERGY GROUP
During 1997 and 1998, the Company sought to acquire The Energy Group PLC
("TEG"), a diversified international energy group with operations in the United
Kingdom, the United States and Australia. The Company made three tender offers
for TEG. The last offer was valued at $11.1 billion, including the assumption of
$4.1 billion of TEG's debt. In March 1998, another United States utility made a
tender offer at a price higher than the Company's offer and on April 30, 1998,
the Company announced that it would not increase its revised offer for TEG.
The Company recorded an $86 million pretax charge ($54 million after-tax, or
$0.18 per share) to first quarter 1998 earnings, included in "TEG costs and
option losses," for bank commitment and facility fees, legal expenses and other
related costs incurred since the Company's original bid for TEG in June of 1997.
These costs had been deferred pending the outcome of the transaction. The
Company incurred a pretax expense of $3 million ($2 million after-tax, or $0.01
per share) in April 1998 in connection with closing its foreign currency option
contract associated with the bid for TEG.
Additionally, in connection with the attempt to acquire TEG, a subsidiary of
the Company purchased approximately 46 million shares of TEG at a price of 820
pence per share, or $625 million. The Company recorded a pretax gain on the TEG
shares of $16 million ($10 million after-tax, or $0.03 per share) when they were
sold on June 2, 1998.
Upon initiation of the original tender offer in June 1997, the Company also
entered into foreign currency exchange contracts. The financing facilities
associated with the June 1997 offer for TEG terminated upon referral to the
Monopolies and Mergers Commission and the Company initiated steps to unwind its
foreign currency exchange positions consistent with its policies on derivatives.
As a result of the termination of these positions and initial option costs, the
Company realized a pretax loss of approximately $106 million ($65 million
after-tax, or $0.22 per share) in the third quarter of 1997.
NOTE 4 DISCONTINUED OPERATIONS
In October 1998, the Company decided to exit its energy trading business by
offering for sale TPC, and ceasing the operations of PPM, which conducted
electricity trading in the eastern United States. PPM's activities in the
eastern United States have been discontinued and all forward electricity trading
has been closed and is going through settlement. PPM will continue to honor
contracts to manage the power supply of two municipalities, the longest of such
contracts will expire in late 1999. Holdings entered into an agreement, dated
February 9, 1999, to sell TPC for approximately $133 million. In addition, a
working capital adjustment will be calculated and paid following closing of the
TPC transaction, which is expected during the first half of 1999.
As a result of the pending sale agreement for TPC and the results of
discontinued operations from September 30 to December 31, the Company adjusted
its losses from discontinued operations as of the end
64
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
NOTE 4 DISCONTINUED OPERATIONS (CONTINUED)
of 1998. The following table sets forth the changes in the write down of the
energy trading segment value and the anticipated losses to the sale or exit of
those operations.
<TABLE>
<CAPTION>
AT SEPTEMBER 30 AT DECEMBER 31
MILLIONS OF DOLLARS 1998 1998
- -------------------------------------------------------------------------------- --------------- ---------------
<S> <C> <C>
Write down of segment net assets................................................ $ 138.5 $ 83.5
Estimated operating losses to disposal date..................................... 20.0 52.3
Estimated employee related costs................................................ 14.0 9.0
Estimated facilities related costs.............................................. 2.2 3.4
Estimated selling and other costs............................................... 3.5 6.8
------ ------
Total........................................................................... $ 178.2 $ 155.0
------ ------
------ ------
</TABLE>
Operating losses from September 30 through December 31, 1998 amounted to
$37.9 million and represented cash contributions to the energy trading segment.
A majority of the remaining anticipated losses of this segment are expected to
be incurred in the first half of 1999.
On December 1, 1997, Holdings completed the sale of PTI to Century Telephone
Enterprises, Inc. ("Century"). Pursuant to a stock purchase agreement dated June
11, 1997, Century acquired all the stock of PTI for $1.5 billion in cash plus
the assumption of PTI's debt of $713 million. The sale resulted in a gain of
$365 million net of income taxes of $306 million, or $1.23 per share. A portion
of the proceeds from the sale of PTI were used to repay short-term debt of
Holdings. The remaining proceeds were invested in short-term money market
instruments and Holdings temporarily advanced excess funds to Domestic Electric
Operations for retirement of short-term debt.
The net assets, operating results and cash flows of the energy trading
segment and PTI have been classified as discontinued operations for all periods
presented in the consolidated financial statements and notes.
65
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
NOTE 4 DISCONTINUED OPERATIONS (CONTINUED)
Summarized operating results for unregulated energy trading were as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31/MILLIONS OF DOLLARS 1998 1997 1996
- ----------------------------------------------------------------------- ------------ ------------- -------------
<S> <C> <C> <C>
Revenues............................................................... $ 2,961.4 $ 1,729.0 $ 11.7
------------ ------------- ------
Loss from discontinued operations (less applicable income tax benefit:
1998/$24.3, 1997/$2.3, 1996/$--)..................................... $ (41.7) $ (7.5) $ (0.1)
Loss on disposal, including provision of $52.3 for operating losses
during phase-out period (less applicable income tax benefit $50.0)... (105.0) -- --
------------ ------------- ------
Net loss............................................................... $ (146.7) $ (7.5) $ (0.1)
------------ ------------- ------
</TABLE>
Summarized operating results for PTI were as follows:
<TABLE>
<CAPTION>
FOR THE ELEVEN FOR THE
YEAR ENDED MONTHS ENDED YEAR ENDED
DECEMBER 31 NOVEMBER 30 DECEMBER 31
MILLIONS OF DOLLARS 1998 1997 1996
- ----------------------------------------------------------------------- ------------ ------------- -------------
<S> <C> <C> <C>
Revenues............................................................... $ -- $ 522.4 $ 521.1
------------ ------------- ------
Income from discontinued operations (less applicable income tax
expense: 1997/$57.6 and 1996/$47.4).................................. $ -- $ 89.2 $ 74.7
Gain on disposal (less applicable income tax expense of $305.8)........ -- 365.1 --
------------ ------------- ------
Net income............................................................. $ -- $ 454.3 $ 74.7
------------ ------------- ------
Total income (loss) from discontinued operations....................... $ (146.7) $ 446.8 $ 74.6
------------ ------------- ------
------------ ------------- ------
</TABLE>
Net assets of the discontinued operations of the energy trading segment and
assets held for sale consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31/MILLIONS OF DOLLARS 1998 1997
- ----------------------------------------------------------------------------------------------- --------- ---------
<S> <C> <C>
Current assets................................................................................. $ 148.5 $ 208.5
Noncurrent assets.............................................................................. 152.7 269.5
Current liabilities............................................................................ (96.0) (241.9)
Long-term debt................................................................................. (1.3) (1.5)
Noncurrent liabilities......................................................................... (28.9) (11.2)
Assets held for sale........................................................................... 17.4 --
--------- ---------
Net Assets of Discontinued Operations and Assets Held for Sale................................. $ 192.4 $ 223.4
--------- ---------
--------- ---------
</TABLE>
In 1998, Holdings recorded $34 million of additional liabilities in
"Customer deposits and other" relating to the sale of the discontinued
operations.
NOTE 5 ACCOUNTING FOR THE EFFECTS OF REGULATION
Regulated utilities have historically applied the provisions of SFAS 71
which is based on the premise that regulators will set rates that allow for the
recovery of a utility's costs, including cost of capital.
66
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
NOTE 5 ACCOUNTING FOR THE EFFECTS OF REGULATION (CONTINUED)
Accounting under SFAS 71 is appropriate as long as: rates are established by or
subject to approval by independent, third-party regulators; rates are designed
to recover the specific enterprise's cost-of-service; and in view of demand for
service, it is reasonable to assume that rates are set at levels that will
recover costs and can be collected from customers. In applying SFAS 71, the
Company must give consideration to changes in the level of demand or competition
during the cost recovery period. In accordance with SFAS 71, Domestic Electric
Operations capitalizes certain costs as regulatory assets in accordance with
regulatory authority whereby those costs will be expensed and recovered in
future periods.
The EITF of the FASB concluded in 1997 that SFAS 71 should be discontinued
when detailed legislation or regulatory order regarding competition is issued.
Additionally, the EITF concluded that regulatory assets and liabilities
applicable to businesses being deregulated should be written off unless their
recovery is provided for through future regulated cash flows.
Legislative actions in California and Montana during 1996 and 1997 mandated
customer choice of electricity supplier, moving away from cost-based regulation
to competitive market rates for the generation portion of the electric business.
As a result of these legislative actions, the Company evaluated its generation
regulatory assets and liabilities in California and Montana based upon future
regulated cash flows and ceased the application of SFAS 71 to its generation
business allocable to California and Montana. Domestic Electric Operations
recorded an extraordinary loss of $16 million, or $0.05 per share, in 1997 for
the write off of regulatory assets in these states. The regulatory assets
written off resulted primarily from deferred taxes allocated to California and
Montana. The allocation among the states was based on plant balances.
In 1998, the Company announced its intent to sell its California and Montana
electric distribution assets. This action was in response to the continued
decline in earnings on the assets and the changes in the legislative and
regulatory environments in these states. The Company issued requests for
proposals to interested parties on July 20, 1998. On November 5, 1998, the
Company sold its Montana electric distribution assets to Flathead Electric
Cooperative, Inc. and received proceeds of $89 million, net of taxes and
customer refunds. The Company returned $4 million of the $8 million gain on the
sale to Montana customers as negotiated with the Montana Public Service
Commission and the Montana Consumer Counsel. The Company has received bids for
its California electric distribution assets. These bids remain open and the
Company is holding discussions with the bidders.
Regulatory assets-net included the following:
<TABLE>
<CAPTION>
DECEMBER 31/MILLIONS OF DOLLARS 1998 1997
- ----------------------------------------------------------------------------------------------- --------- ---------
<S> <C> <C>
Deferred taxes--net(a)......................................................................... $ 602.9 $ 650.1
Demand-side resource costs..................................................................... 96.9 108.3
Unamortized net loss on reacquired debt........................................................ 53.4 60.6
Unrecovered Trojan Plant and regulatory study costs............................................ 22.2 23.0
Various other costs............................................................................ 20.1 29.1
--------- ---------
Total.......................................................................................... $ 795.5 $ 871.1
--------- ---------
--------- ---------
</TABLE>
- ------------------------
(a) Excludes $125 million in 1998 and $135 million in 1997 of investment tax
credit regulatory liabilities.
67
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
NOTE 5 ACCOUNTING FOR THE EFFECTS OF REGULATION (CONTINUED)
The Company operates in five other states (Oregon, Utah, Wyoming, Washington
and Idaho) that are in various stages of addressing deregulation of the
electricity industry. At December 31, 1998, approximately $350 million of the
$796 million total regulatory assets--net was applicable to generation.
Potential regulatory or legislative actions in the states may result in
additional write offs and charges.
The Company evaluates the recovery of all their regulatory assets annually.
The evaluation includes the probability of recovery as well as changes in the
regulatory environment. The regulatory assets associated with pensions are
substantially comprised of prior work force reductions and a deferred
compensation plan whose preexisting liabilities were transferred to the
Company's pension plan. In late 1997, because of the legislative actions taken
by California and Montana relating to the process of deregulation coupled with
the Company's belief that other regulatory bodies would proceed with
deregulation, the Company evaluated its regulatory assets for potential
impairment. This evaluation revealed that the deferred regulatory pension asset
was the least likely of the regulatory assets to be recovered and the Company at
that time decided not to seek recovery of this regulatory asset. As a result of
the evaluation and decision, the Company recorded an $87 million write off of
its deferred regulatory pension asset in 1997. During 1998, evolution toward
deregulation continued, albeit at a slower pace. Accordingly, the Company is
evaluating its position with respect to seeking recovery of these costs through
rates. The probability of such recovery cannot presently be determined.
During 1997, the Utah Public Service Commission (the "UPSC") held hearings
on the method used in allocating common (generation, transmission and corporate
related) costs among the Company's jurisdictions and issued an order in April
1998. Under the order, differences in allocations associated with the 1989
merger of Pacific Power & Light Company and Utah Power & Light Company were to
be eliminated over five years on a straight-line basis. The phase-out of the
differences was to be completed by January 1, 2001 and could have reduced Utah
customer prices by about $50 to $60 million annually once fully implemented. The
ratable impact of this order was to be included in a general rate case thereby
combining it with all other cost-of-service items in determining the ultimate
impact on customer prices.
In 1998, the UPSC commenced a general rate case to consider the impact of
the April 1998 allocation order, other cost-of-service issues and the
appropriateness of the Company's authorized rate of return on equity. On March
4, 1999, an order was issued by the UPSC in the general rate case. The order
requires the Company to reduce revenues in the state of Utah by $85 million, or
12%, annually. The UPSC also ordered that the allocation order be implemented
immediately and not phased-in as originally ordered. Additionally, the UPSC
ordered a refund to be issued through a credit on customer bills of $40 million.
The Company recorded a $38 million reduction in revenues in 1998 and will record
$2 million in 1999. The refund covers a period from March 14, 1997 to February
28, 1999. The beginning date is consistent with the timing of Utah legislation
imposing a moratorium on rate changes after the Utah Division of Public
Utilities and the Utah Committee of Consumer Services requested a general rate
case. The $85 million reduction will commence on March 1, 1999. The order also
reduced the Company's authorized rate of return on equity from 12.1% to 10.5%.
The Company has asked the UPSC to reconsider issues in the order involving
approximately $41 million of the $85 million rate decrease. Among these issues
is the method of implementing the April 1998 allocation order. The Company is
not seeking reconsideration of the reduction in its authorized return on equity
to 10.5% nor the changes in the way costs are allocated among the six states
served by the Company.
68
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
NOTE 6 SPECIAL CHARGES
In January 1998, the Company announced a plan to reduce its work force in
the United States by approximately 600 positions, or 7% of the work force in the
United States. The Company offered enhanced early retirement to approximately
1,200 employees. The actual net work force reduction from this program was 759
positions, with 981 employees accepting the offer and 222 vacated positions
backfilled. The pretax cost of $113 million ($70 million after-tax, or $0.24 per
share) was recorded in the first quarter of 1998.
In the fourth quarter of 1998, the Company initiated a cost reduction
program that included involuntary employee severance and enhanced early
retirement for employees who met certain age and service criteria and were
displaced in conjunction with the cost reduction initiatives. Approximately 167
employees were displaced, with 35 of them eligible for the enhanced early
retirement, and the Company recorded a $10 million ($6 million after-tax, or
$0.02 per share) expense in special charges. It is anticipated that these
amounts will be paid out in early 1999.
Below is a summary of the accrual recorded and payments made related to the
work force reduction initiatives described above.
<TABLE>
<CAPTION>
RETIREMENT SEVERANCE
MILLIONS OF DOLLARS TOTAL BENEFITS AND OTHER
- ------------------------------------------------------------------------------- --------- ----------- -----------
<S> <C> <C> <C>
Accruals recorded.............................................................. $ 123.4 $ 108.7 $ 14.7
Payments....................................................................... (9.8) -- (9.8)
Additions to accrued pension costs:
Termination benefits......................................................... (110.9) (110.9) --
Net recognized gain.......................................................... 22.3 22.3 --
Additions to postretirement benefit costs:
Termination benefits......................................................... (11.0) (11.0) --
Net recognized loss.......................................................... (3.6) (3.6) --
Adjustments.................................................................... 0.5 (1.4) 1.9
--------- ----------- -----
Ending accrual................................................................. $ 10.9 $ 4.1 $ 6.8
--------- ----------- -----
--------- ----------- -----
</TABLE>
In December 1997, Domestic Electric Operations recorded in operating income
special charges of $170 million ($106 million after-tax, or $0.36 per share).
The pretax special charges included the write off of $87 million of deferred
regulatory pension assets (see Note 5), a $19 million write off of certain
information system assets associated with the Company's decision to proceed with
an installation of SAP enterprise-wide software and $64 million of costs
associated with the write down of assets and acceleration of reclamation costs
due to the early closure of the Glenrock coal mine. The inability of the mine to
remain competitive caused it to be uneconomical to continue to operate under
current and expected market conditions due to increased mining stripping ratios,
reduced coal quality and related costs. As of December 31, 1998, no cash had
been paid out for reclamation. Reclamation is anticipated to begin in 1999.
69
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
NOTE 7 SHORT-TERM DEBT AND BORROWING ARRANGEMENTS
The Companies' short-term debt and borrowing arrangements were as follows:
<TABLE>
<CAPTION>
AVERAGE
INTEREST
DECEMBER 31/MILLIONS OF DOLLARS BALANCE RATE(A)
- ----------------------------------------------------------------------------------------------- --------- -----------
<S> <C> <C>
1998
PacifiCorp..................................................................................... $ 253.0 5.2%
Subsidiaries................................................................................... 7.6 5.4
1997
PacifiCorp..................................................................................... $ 182.2 6.5%
Subsidiaries................................................................................... 7.0 5.4
</TABLE>
- ------------------------
(a) Computed by dividing the total interest on principal amounts outstanding at
the end of the period by the weighted daily principal amounts outstanding.
At December 31, 1998, PacifiCorp's commercial paper and bank line borrowings
were supported by revolving credit agreements totaling $700 million. At December
31, 1998, subsidiaries had committed bank revolving credit agreements totaling
$826 million.
The Companies have the intent and ability to support short-term borrowings
on a long-term basis through various revolving credit agreements, the earliest
of which expires in 2002. At December 31, 1998, PacifiCorp had $117 million and
subsidiaries had $414 million of short-term debt classified as long-term. See
Note 8.
70
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
NOTE 8 LONG-TERM DEBT
The Company's long-term debt was as follows:
<TABLE>
<CAPTION>
DECEMBER 31/MILLIONS OF DOLLARS 1998 1997
- ------------------------------------------------------------------------------------------- --------- ---------
<S> <C> <C>
PACIFICORP
First mortgage and collateral trust bonds
Maturing 1999 through 2003/5.9%-9.5%................................................... $ 816.4 $ 1,005.6
Maturing 2004 through 2008/5.7%-7.9%................................................... 1,032.7 632.7
Maturing 2009 through 2013/7%-9.2%..................................................... 328.6 331.6
Maturing 2014 through 2018/8.3%-8.7%................................................... 98.4 100.9
Maturing 2019 through 2023/6.5%-8.5%................................................... 341.5 341.5
Maturing 2024 through 2026/6.7%-8.6%................................................... 120.0 120.0
Guaranty of pollution control revenue bonds
5.6%-5.7% due 2021 through 2023(a)..................................................... 71.2 71.2
Variable rate due 2009 through 2013(a)(b).............................................. 40.7 40.7
Variable rate due 2014 through 2024(a)(b).............................................. 175.8 175.8
Variable rate due 2005 through 2030(b)................................................. 450.7 450.7
Funds held by trustees................................................................. (7.4) (9.1)
8.4%-8.6% Junior subordinated debentures
due 2025 through 2035.................................................................. 175.8 175.8
Commercial paper(b)(d)................................................................... 116.8 120.6
Other.................................................................................... 21.9 25.1
--------- ---------
Total.................................................................................... 3,783.1 3,583.1
Less current maturities.................................................................. 297.6 194.9
--------- ---------
Total.................................................................................... 3,485.5 3,388.2
--------- ---------
SUBSIDIARIES
6.1%-12.0% Notes due through 2020........................................................ 649.8 264.5
Australian bank bill borrowings and commercial paper(c)(d)............................... 414.3 756.6
Variable rate notes due through 2000(b).................................................. 11.6 12.1
4.5%-11% Nonrecourse debt................................................................ -- 160.7
Other.................................................................................... -- 1.4
--------- ---------
Total.................................................................................... 1,075.7 1,195.3
Less current maturities.................................................................. 1.9 170.5
--------- ---------
Total.................................................................................... 1,073.8 1,024.8
--------- ---------
Total...................................................................................... $ 4,559.3 $ 4,413.0
--------- ---------
--------- ---------
</TABLE>
- ------------------------
(a) Secured by pledged first mortgage and collateral trust bonds generally at
the same interest rates, maturity dates and redemption provisions as the
pollution control revenue bonds.
(b) Interest rates fluctuate based on various rates, primarily on certificate
of deposit rates, interbank borrowing rates, prime rates or other short-term
market rates.
(c) Interest rates fluctuate based on Australian Bank Bill Acceptance Rates. A
revolving loan agreement requires that at least 50% of the borrowings must
be hedged against variations in interest rates.
71
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
NOTE 8 LONG-TERM DEBT (CONTINUED)
Approximately $414 million was hedged at December 31, 1998 at an average
rate of 7.2% and for an average life of 5.3 years.
(d) The Companies have the ability to support short-term borrowings and current
debt being refinanced on a long-term basis through revolving lines of credit
and, therefore, based upon management's intent, have classified $531 million
of short-term debt as long-term debt.
First mortgage and collateral trust bonds of the Company may be issued in
amounts limited by Domestic Electric Operations' property, earnings and other
provisions of the mortgage indenture. Approximately $7 billion of the assets of
the Companies secure long-term debt.
The junior subordinated debentures are unsecured obligations of the Company
and are subordinated to the Company's first mortgage and collateral trust bonds,
pollution control revenue bonds, commercial paper, bank debt and any future
senior indebtedness.
The annual maturities of long-term debt and redeemable preferred stock
outstanding are $300 million, $181 million, $387 million, $449 million and $122
million in 1999 through 2003, respectively.
The Company made interest payments, net of capitalized interest, of $444
million, $414 million and $456 million in 1998, 1997 and 1996, respectively.
NOTE 9 GUARANTEED PREFERRED BENEFICIAL INTERESTS IN COMPANY'S JUNIOR
SUBORDINATED DEBENTURES
Wholly owned subsidiary trusts of the Company (the "Trusts") have issued, in
public offerings, redeemable preferred securities ("Preferred Securities")
representing preferred undivided beneficial interests in the assets of the
Trusts, with liquidation amounts of $25 per Preferred Security. The sole assets
of the Trusts are Junior Subordinated Deferrable Interest Debentures of the
Company that bear interest at the same rates as the Preferred Securities to
which they relate, and certain rights under related guarantees by the Company.
Preferred Securities outstanding at December 31 were as follows:
<TABLE>
<CAPTION>
THOUSANDS OF PREFERRED SECURITIES/MILLIONS OF DOLLARS 1998 1997
- ------------------------------------------------------------------------------------------------- --------- ---------
<C> <S> <C> <C>
8,680 8.25% Cumulative Quarterly Income Preferred Securities, Series A, with Trust assets of
$224 million.......................................................................... $ 209.9 $ 209.7
5,400 7.70% Trust Preferred Securities, Series B, with Trust assets of $139 million......... 130.6 130.7
--------- ---------
Total............................................................................................ $ 340.5 $ 340.4
--------- ---------
--------- ---------
</TABLE>
72
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
NOTE 10 COMMON AND PREFERRED STOCK
Common Stock--At December 31, 1998, there were 26,773,426 authorized but
unissued shares of common stock reserved for issuance under the Dividend
Reinvestment and Stock Purchase Plan and the Employee Savings and Stock
Ownership Plans and for sales to the public. Eligible employees under the
employee plans may direct their pretax elective contributions into the purchase
of the Company's common stock. The Company makes matching contributions, equal
to a percentage of employee contributions, which are invested in the Company's
common stock. Employee contributions eligible for matching contributions are
limited to 6% of compensation.
Stock Option Incentive Plan--During 1997, the Company adopted a Stock Option
Incentive Plan (the "Plan"). Under the terms of the Plan, the exercise price of
any option may not be less that 100% of the fair market value of the common
stock on the date of the grant. Stock options generally become exercisable in
two or three equal installments on each of the first through third anniversaries
of the grant date. The maximum exercise period under the Plan is ten years. In
early 1998, the Company registered 11,500,000 shares of its common stock with
the Securities and Exchange Commission for issuance under the PacifiCorp Stock
Incentive Plan. At December 31, 1998, there were 11,410,839 authorized but
unissued shares available.
The table below summarizes the stock option activity under the Plan.
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE NUMBER OF
PRICE SHARES
----------- ----------
<S> <C> <C>
OUTSTANDING OPTIONS DECEMBER 31, 1996...................................................... -- --
Granted................................................................................ $ 19.94 1,516,000
Forfeited.............................................................................. 19.75 (19,000)
----------
OUTSTANDING OPTIONS DECEMBER 31, 1997...................................................... 19.94 1,497,000
Granted................................................................................ 23.79 3,469,961
Exercised.............................................................................. 19.75 (89,161)
Forfeited.............................................................................. 23.03 (807,628)
----------
OUTSTANDING OPTIONS DECEMBER 31, 1998...................................................... 4,070,172
----------
----------
</TABLE>
At December 31, 1998, 591,201 shares were exercisable with a weighted
average exercise price of $20.18 per share. No options were exercisable as of
December 31, 1997. The weighted average life of the options outstanding at
December 31, 1998 was nine years.
As permitted by SFAS 123, the Company has elected to account for these
options under APB 25. Accordingly, no compensation expense has been recognized
for these options. Had the Company determined compensation cost based on the
fair value at the grant date for its stock options under SFAS 123,
73
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
NOTE 10 COMMON AND PREFERRED STOCK (CONTINUED)
the Company's net income and earnings per share would have been reduced to the
pro forma amounts below:
<TABLE>
<CAPTION>
FOR THE YEAR/MILLIONS OF DOLLARS 1998 1997
- ----------------------------------------------------------------------------------------------- --------- ---------
<S> <C> <C>
Net income (loss) as reported.................................................................. $ (36.1) $ 663.7
Pro forma.................................................................................... (39.6) 663.2
Earnings (loss) per common share as reported................................................... (0.19) 2.16
Pro forma.................................................................................... (0.20) 2.16
</TABLE>
The weighted average fair value of options granted during the year was $3.94
and $2.78 in 1998 and 1997, respectively. The fair value of each option grant
was estimated on the date of grant using the Black-Scholes option-pricing model
with the following assumptions used:
<TABLE>
<CAPTION>
FOR THE YEAR 1998 1997
- ---------------------------------------------------------------------------------------------------- ----- -----
<S> <C> <C>
Dividend yield...................................................................................... 5.0% 5.5%
Risk-free interest rate............................................................................. 5.6% 6.8%
Volatility.......................................................................................... 20% 15%
Expected life of the options (years)................................................................ 10 10
</TABLE>
Preferred Stock
<TABLE>
<CAPTION>
THOUSANDS OF SHARES
- -------------------------------------------------------------------------------------------------------
<S> <C>
At January 1, 1996..................................................................................... 8,299
Redemptions and repurchases............................................................................ (2,342)
-----------
At December 31, 1996................................................................................... 5,957
Redemptions and repurchases............................................................................ (2,797)
-----------
At December 31, 1997................................................................................... 3,160
Redemptions and repurchases............................................................................ --
-----------
At December 31, 1998................................................................................... 3,160
-----------
-----------
</TABLE>
Generally, preferred stock is redeemable at stipulated prices plus accrued
dividends, subject to certain restrictions. Upon involuntary liquidation, all
preferred stock is entitled to stated value or a specified
74
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
NOTE 10 COMMON AND PREFERRED STOCK (CONTINUED)
preference amount per share plus accrued dividends. Any premium paid on
redemptions of preferred stock is capitalized, and recovery is sought through
future rates.
<TABLE>
<CAPTION>
PREFERRED STOCK OUTSTANDING
THOUSANDS OF SHARES/MILLIONS OF DOLLARS 1998 AND 1997
DECEMBER 31 --------------------
SERIES SHARES AMOUNT
- -------------------------------------------------------------------------------------------- --------- ---------
<S> <C> <C>
SUBJECT TO MANDATORY REDEMPTION
No Par Serial Preferred, $100 stated value, 16,000 Shares authorized
$7.70................................................................................... 1,000 $ 100.0
7.48................................................................................... 750 75.0
--------- ---------
Total....................................................................................... 1,750 $ 175.0
--------- ---------
NOT SUBJECT TO MANDATORY REDEMPTION
No Par Serial Preferred,
$25 stated value
$1.16................................................................................... 193 $ 4.8
1.18................................................................................... 420 10.5
1.28................................................................................... 381 9.5
Serial Preferred, $100 stated value, 3,500 Shares authorized
4.52%................................................................................... 2 0.2
4.56.................................................................................... 85 8.5
4.72.................................................................................... 70 7.0
5.00.................................................................................... 42 4.2
5.40.................................................................................... 66 6.6
6.00.................................................................................... 6 0.6
7.00.................................................................................... 18 1.8
5% Preferred, $100 stated value, 127 Shares authorized and outstanding.................... 127 12.7
--------- ---------
1,410 $ 66.4
--------- ---------
Total....................................................................................... 3,160 $ 241.4
--------- ---------
--------- ---------
</TABLE>
Mandatory redemption requirements at stated value plus accrued dividends on
No Par Serial Preferred Stock are as follows: the $7.70 series is redeemable in
its entirety on August 15, 2001; and 37,500 shares of the $7.48 series are
redeemable on each June 15 from 2002 through 2006, with all shares outstanding
on June 15, 2007 redeemable on that date. If the Company is in default in its
obligation to make any future redemptions on the $7.48 series, it may not pay
cash dividends on common stock.
NOTE 11 FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
Through the application of its capital structure policies that governs the
use of equity and debt, including duration, maturity and repricing intervals,
the Company seeks to reduce its net income and cash flow exposure to changing
interest and other commodity price risks. The Company utilizes derivative
instruments to modify or eliminate its exposure from adverse movements in
interest and foreign currency rates. The use of these derivative instruments is
governed by the Company's derivative policy and includes as its objective that
interest rates and foreign exchange derivative instruments will be used for
hedging and not for speculation. As such, only those instruments that have a
high correlation with the Company's
75
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
NOTE 11 FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (CONTINUED)
underlying commodity exposure can be utilized. The derivative policy also
governs energy trading activities and is generally designed for hedging the
Company's existing energy exposures but does provide for limited speculative
activities within defined risk limits.
Notional Amounts and Credit Exposure of Derivatives--The notional amounts of
derivatives summarized below do not represent amounts exchanged and, therefore,
are not a measure of the exposure of the Company through its use of derivatives.
The amounts exchanged are calculated on the basis of the notional amounts and
other terms of the derivatives, which relate to interest rates, exchange rates
or other indexes.
The Company is exposed to credit-related losses in the event of
nonperformance by counterparties to financial instruments, but it does not
expect any counterparties to fail to meet their obligations given their high
credit rating requirements. The Company's derivative policy provides that
counterparties must satisfy established credit ratings and currently a majority
of the Company's counterparties are rated "A" or better. The credit exposure of
interest rate, foreign exchange and forward contracts is represented by the fair
value of contracts with a positive fair value at the reporting date.
Interest Rate Risk Management--The Company enters into various types of
interest rate contracts to assist in managing its interest rate risk, as
indicated in the following table:
<TABLE>
<CAPTION>
NOTIONAL AMOUNT
--------------------
DECEMBER 31/MILLIONS OF DOLLARS 1998 1997
- -------------------------------------------------------------------------------------------- --------- ---------
<S> <C> <C>
Interest rate swaps......................................................................... $ 759.4 $ 707.5
Interest rate collars purchased............................................................. 39.7 42.3
Interest rate futures and forwards.......................................................... 351.4 --
</TABLE>
The Company uses interest rate swaps, collars, futures and forwards to
adjust the characteristics of its liability portfolio, allowing the Company to
establish a mix of fixed or variable interest rates on its outstanding debt
within the Company's overall capital structure guidelines for leverage and
variable interest rate risk.
The use of interest rate collars, futures and forwards has been limited to
use in the Australian Electric Operations. The futures and forwards, when used,
are accounted for as hedges of the Australian bank bill borrowings. Interest
rate collar agreements entitle Australian Electric Operations to receive from
the counterparties the amounts, if any, by which the Australian bank bill
borrowings interest payments exceed 8.75% and Australian Electric Operations
would pay the counterparties if interest payments fall below 6.5%-6.8%.
Under the various interest rate swap agreements, the Company agrees with
other parties to exchange, at specified intervals, the difference between
fixed-rate and variable-rate interest amounts calculated by reference to an
agreed notional principal amount. The following table indicates the
weighted-average interest rates of the swaps. Average variable rates are based
on rates implied in the yield curve at
76
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
NOTE 11 FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (CONTINUED)
December 31; these may change significantly, affecting future cash flows. Swap
contracts are principally between one and fifteen years in duration.
<TABLE>
<CAPTION>
DECEMBER 31 1998 1997
- ------------------------------------------------------------------------------------------------- ----- -----
<S> <C> <C>
PAY-FIXED SWAPS
Average pay rate............................................................................... 7.3% 7.7%
Average receive rate........................................................................... 4.9 6.5
</TABLE>
Foreign Exchange Risk Management--The Company's principal foreign exchange
exposure relates to its investment in its Australian Electric Operations. The
Company has hedged its exposure through both Australian-dollar denominated bank
borrowings, which hedge approximately 55% to 60% of its total exposure, and
through a series of amortizing currency swaps, which hedge approximately half of
the remaining exposure. In January 1998, Australian Electric Operations issued
$400 million of 6.15% Notes due 2008. At the same time, in order to mitigate
foreign currency exchange risk and consistent with the directives in the
Company's derivative policy, Australian Electric Operations entered into a
series of cross currency swaps in the same amount and for the same duration as
the underlying United States denominated notes.
At December 31, 1998, Holdings held three combined interest rate and
currency swaps that terminate in 2002, with an aggregate notional amount of $240
million to hedge a portion of its net investment in Powercor to fluctuations in
the Australian dollar. The interest rate portions of these three swaps were
effectively offset in 1997 by the purchase of an overlay swap transaction with
approximately the same terms. The net amounts of these swaps have not had a
significant impact on net income.
At December 31, 1997, Hazelwood Australia, Inc. ("HAI"), an indirect
subsidiary of Holdings, held a foreign currency forward with a notional amount
of $146 million to hedge a portion of its exposure to fluctuations in the
Australian dollar relating to its investment in the Hazelwood power station and
adjacent coal mine. This hedge was closed in January 1998 and HAI received $24
million in cash, as a result of the favorable market rate at the termination
date.
Commodity Risk Management--The Company has utilized electricity forward
contracts (referred to as "contracts for differences") to hedge exposure to
electricity price risk on anticipated transactions or firm commitments in its
Australian Electric Operations. Under these forward contracts, the Company
receives or makes payment based on a differential between a contracted price and
the actual spot market of electricity. Additionally, electricity futures
contracts are utilized to hedge Domestic Electric Operations' excess or shortage
of net electricity for future months.
At December 31, 1998, Australian Electric Operations had 290 forward
contracts with electricity generation companies on notional quantities amounting
to approximately 34.4 million megawatt hours ("MWh") through the year 2007. The
average fixed price to be paid by Australian Electric Operations was $17.99 per
MWh compared to the average price of similar contracts at December 31, 1998 of
$22.20. At December 31, 1997, Australian Electric Operations had 211 forward
contracts with electricity generation companies on notional quantities amounting
to approximately 35.6 million MWh. The average fixed price to be paid by
Australian Electric Operations was $19.07 per MWh compared to the average price
of similar contracts at December 31, 1997 of $18.66. It is not practicable to
determine the fair value of the forward contracts held by Australian Electric
Operations because of the limited number of transactions and the inactive
trading in the electricity spot market.
77
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
NOTE 11 FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (CONTINUED)
The Company had open NYMEX futures contracts as follows:
<TABLE>
<CAPTION>
DECEMBER 31 1998 1997
- ----------------------------------------------------------------------------------------- --------- ----------
<S> <C> <C>
OPEN CONTRACTS (number)
Purchase............................................................................... 215 110
Sell................................................................................... 275 489
NOTIONAL QUANTITIES (MWh)
Purchase............................................................................... 158,200 81,000
Sell................................................................................... 202,400 359,900
FAIR MARKET VALUE (millions of dollars)
Purchase............................................................................... $ -- $ 0.1
Sell................................................................................... 0.2 (0.7)
</TABLE>
Trading Activities--The fair market values of open positions at December 31,
1998 was $(1) million. Such transactions involve delivery of electricity, which
is accounted for as revenue or purchased power expense. At December 31, 1998,
the Company had open purchase positions with a notional amount of approximately
$72.9 million, or 3.0 million MWh, and open sell positions for approximately
$66.3 million, or 2.8 million MWh.
NOTE 12 FAIR VALUE OF FINANCIAL INSTRUMENTS
<TABLE>
<CAPTION>
DECEMBER 31, 1998 DECEMBER 31, 1997
-------------------- --------------------
CARRYING FAIR CARRYING FAIR
MILLIONS OF DOLLARS AMOUNT VALUE AMOUNT VALUE
- ------------------------------------------------------------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
Long-term debt..................................................... $ 4,835.0 $ 5,127.5 $ 4,753.7 $ 4,905.6
Preferred Securities............................................... 340.5 363.9 340.4 355.4
Preferred stock subject to mandatory redemption.................... 175.0 195.7 175.0 194.1
Derivatives relating to
Currency......................................................... 35.1 35.2 45.3 45.3
Interest......................................................... (8.5) (65.8) (9.4) (54.3)
</TABLE>
The carrying value of cash and cash equivalents, receivables, payables,
accrued liabilities and short-term borrowings approximates fair value because of
the short-term maturity of these instruments. The fair value of the finance note
receivable approximates its carrying value at December 31, 1998 and 1997.
The fair value of the Company's long-term debt has been estimated by
discounting projected future cash flows, using the current rate at which similar
loans would be made to borrowers with similar credit ratings and for the same
maturities. Current maturities of long-term debt were included. The fair value
of the Preferred Securities was based on closing market prices and the fair
value of redeemable preferred stock was based on bid prices from an investment
bank.
The fair value of interest rate derivatives and currency swaps is the
estimated amount the Company would receive (pay) to terminate the agreements,
taking into account current interest and currency exchange rates and the current
creditworthiness of the agreement counterparties.
78
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
NOTE 13 COMMITMENTS AND CONTINGENCIES
The Company is subject to numerous environmental laws including: the Federal
Clean Air Act, as enforced by the Environmental Protection Agency and various
state agencies; the 1990 Clean Air Act Amendments; the Endangered Species Act as
it relates to certain potentially endangered species of salmon; the
Comprehensive Environmental Response, Compensation and Liability Act, relating
to environmental cleanups; along with the Federal Resource Conservation and
Recovery Act and the Clean Water Act relating to water quality. These laws could
potentially impact future operations. For those contingencies identified at
December 31, 1998, principally the Superfund sites where the Company has been or
may be designated as a potentially responsible party and Clean Air Act matters,
future costs associated with the disposition of these matters are not expected
to be material to the Company's consolidated financial statements.
The Company's mining operations are subject to reclamation and closure
requirements. The Company monitors these requirements and periodically revises
its cost estimates to meet existing legal and regulatory requirements of the
various jurisdictions in which it operates. Costs for reclamation are accrued
using the units-of-production method such that estimated final mine reclamation
and closure costs are fully accrued at completion of mining activities, except
where the Company has decided to close a mine. When a mine is closed, the
Company records the estimated cost to complete the mine closure. This is
consistent with industry practices, and the Company believes that it has
adequately provided for its reclamation obligations, assuming ongoing operations
of its mines.
The utility partners who own the 1,340 MW coal-fired Centralia Power Plant
in Washington have hired an investment advisor to pursue the possible sale of
the plant and the adjacent Centralia coal mine. The sale of the plant and
adjacent mine is being considered by the owners, in part, because of emerging
deregulation, competition in the electricity industry and the need for
environmental compliance expenditures at the plant. The Company operates the
plant and owns a 47.5% share. In addition, the Company owns and operates the
adjacent Centralia coal mine. The Company is investigating the effect of a
potential sale on the reclamation costs for the Centralia coal mine. Preliminary
studies indicate that reclamation costs for the Centralia coal mine could be
significantly higher than previous estimates, assuming the mine is closed, with
the Company's portion being 47.5% of the final total amount. At December 31,
1998, the Company had approximately $24 million accrued for its share of the
Centralia mine reclamation costs. The final amount and timing of any charge for
additional reclamation at the mine are dependent upon a number of factors,
including the results of the sale process, completion of the preliminary
reclamation studies at the mine and the reclamation procedure used. The Company
will seek to recover through rates any increase in the reclamation costs for the
mine.
See Note 2, Proposed ScottishPower Merger, for information concerning
termination fees that are payable in certain circumstances if the merger
agreement is terminated.
The Company and its subsidiaries are parties to various legal claims,
actions and complaints, certain of which involve material amounts. Although the
Company is unable to predict with certainty whether or not it will ultimately be
successful in these legal proceedings or, if not, what the impact might be,
management currently believes that disposition of these matters will not have a
materially adverse effect on the Company's consolidated financial statements.
Construction and Other--Construction and acquisitions are estimated at $539
million for 1999. As a part of these programs, substantial commitments have been
made.
79
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
NOTE 13 COMMITMENTS AND CONTINGENCIES (CONTINUED)
Leases--The Companies have certain properties under leases with various
expiration dates and renewal options. Rentals on lease renewals are subject to
negotiation. Certain leases provide for options to purchase at fair market
value. The Companies are also committed to pay all taxes, expenses of operation
(other than depreciation) and maintenance applicable to the leased property.
Net rent expense for the years ended December 31, 1998, 1997 and 1996 was
$17 million, $15 million and $12 million, respectively.
Future minimum lease payments under noncancellable operating leases are $6
million, $5 million, $5 million, $4 million and $3 million for 1999 through
2003, respectively.
Jointly Owned Facilities--At December 31, 1998, Domestic Electric
Operations' participation in jointly owned facilities was as follows:
<TABLE>
<CAPTION>
ELECTRIC PLANT CONSTRUCTION
OPERATIONS' IN ACCUMULATED WORK IN
MILLIONS OF DOLLARS SHARE SERVICE DEPRECIATION PROGRESS
- ---------------------------------------- ----------- ------- ----------- ------------
<S> <C> <C> <C> <C>
Centralia(a)............................ 47.5% $ 183.2 $115.6 $0.5
Jim Bridger
Units 1,2,3 and 4(a).................. 66.7 811.2 336.6 0.3
Trojan(b)............................... 2.5 -- -- --
Colstrip Units 3 and 4(a)............... 10.0 233.0 83.3 0.3
Hunter Unit 1........................... 93.8 261.5 112.4 5.3
Hunter Unit 2........................... 60.3 198.0 74.9 0.4
Wyodak.................................. 80.0 305.4 111.2 0.4
Craig Station
Units 1 and 2......................... 19.3 151.4(c) 62.0 0.4
Hayden Station Unit 1................... 24.5 30.6(c) 12.3 3.2
Hayden Station Unit 2................... 12.6 18.1(c) 9.1 5.7
Hermiston(d)............................ 50.0 156.5 17.2 0.2
Foote Creek(a).......................... 78.8 55.7 2.5 --
Other KV lines and substations.......... Various 82.3 10.1 --
</TABLE>
- ------------------------
(a) Includes KV lines and substations.
(b) Plant, inventory, fuel and decommissioning costs totaling $22 million
relating to the Trojan Plant were included in regulatory assets-net at
December 31, 1998.
(c) Excludes unallocated acquisition adjustments of $110 million at December
31, 1998, that represents for regulatory accounting the excess of the cost
of the acquired interest in the facilities over their original cost net of
accumulated depreciation.
(d) Additionally, the Company has contracted to purchase the remaining 50% of
the output of the plant.
Under the joint agreements, each participating utility is responsible for
financing its share of construction, operating and leasing costs. Domestic
Electric Operations' portion is recorded in its applicable operations,
maintenance and tax accounts.
Long-Term Wholesale Sales and Purchased Power Contracts--Domestic Electric
Operations manages its energy resource requirements by integrating long-term
firm, short-term and spot market purchases
80
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
NOTE 13 COMMITMENTS AND CONTINGENCIES (CONTINUED)
with its own generating resources to economically dispatch the system and meet
commitments for wholesale sales and retail load growth. The long-term wholesale
sales commitments include contracts with minimum sales requirements of $461
million, $427 million, $328 million, $317 million and $305 million for 1999
through 2003, respectively. As part of its energy resource portfolio, Domestic
Electric Operations acquires a portion of its power through long-term purchases
and/or exchange agreements which require minimum fixed payments of $316 million,
$310 million, $286 million, $294 million and $260 million for 1999 through 2003,
respectively. The purchase contracts include agreements with the Bonneville
Power Administration, the Hermiston Plant and a number of cogenerating
facilities.
Excluded from the minimum fixed annual payments above are commitments to
purchase power from several hydroelectric projects under long-term arrangements
with public utility districts. These purchases are made on a "cost-of-service"
basis for a stated percentage of project output and for a like percentage of
project annual costs (operating expenses and debt service). These costs are
included in operations expense. Domestic Electric Operations is required to pay
its portion of the debt service, whether or not any power is produced. The
arrangements provide for nonwithdrawable power and the majority also provide for
additional power, withdrawable by the districts upon one to five years' notice.
For 1998, such purchases approximated 2% of energy requirements.
At December 31, 1998, Domestic Electric Operations' share of long-term
arrangements with public utility districts was as follows:
<TABLE>
<CAPTION>
YEAR CONTRACT CAPACITY PERCENTAGE ANNUAL
GENERATING FACILITY EXPIRES (KW) OF OUTPUT COSTS(A)
- ------------------------------------------------------------------ ------------- --------- ------------- -----------
<S> <C> <C> <C> <C>
Wanapum........................................................... 2009 155,444 18.7% $ 5.2
Priest Rapids..................................................... 2005 109,602 13.9 3.3
Rocky Reach....................................................... 2011 64,297 5.3 3.0
Wells............................................................. 2018 59,617 7.7 2.0
--------- -----
Total............................................................. 388,960 $ 13.5
--------- -----
--------- -----
</TABLE>
- ------------------------
(a) Annual costs, in millions of dollars, include debt service of $7.6 million.
The Company has a 4% interest in the Intermountain Power Project (the
"Project"), located in central Utah. The Company and the city of Los Angeles
have agreed that the City will purchase capacity and energy from Company plants
equal to the Company's 4% entitlement of the Project at a price equivalent to 4%
of the expenses and debt service of the Project.
Fuel Contracts--Domestic Electric Operations has take or pay coal and
natural gas contracts which require minimum fixed payments of $108 million, $114
million, $98 million, $99 million and $101 million for 1999 through 2003,
respectively.
NOTE 14 INCOME TAXES
The Company's combined federal and state effective income tax rate from
continuing operations was 35% in 1998, 32% in 1997 and 35% in 1996. The
difference between taxes calculated as if the statutory
81
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
NOTE 14 INCOME TAXES (CONTINUED)
federal tax rate of 35% was applied to income from continuing operations before
income taxes and the recorded tax expense is reconciled as follows:
<TABLE>
<CAPTION>
FOR THE YEAR/MILLIONS OF DOLLARS 1998 1997 1996
- -------------------------------------------------------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
Computed Federal Income Taxes......................................................... $ 59.4 $ 120.6 $ 233.4
--------- --------- ---------
Increase (Reduction) in Tax Resulting from
Depreciation differences............................................................ 17.4 14.3 12.8
Investment tax credits.............................................................. (8.8) (8.5) (9.3)
Audit settlement.................................................................... -- -- 0.5
Affordable housing and alternative fuel credits..................................... (5.9) (13.4) (10.6)
Other items capitalized and miscellaneous differences............................... (9.7) (10.7) (8.4)
--------- --------- ---------
Total............................................................................... (7.0) (18.3) (15.0)
--------- --------- ---------
Federal Income Tax.................................................................... 52.4 102.3 218.4
State Income Tax, Net of Federal Income Tax Benefit................................... 6.7 9.5 18.1
--------- --------- ---------
Total Income Tax Expense.............................................................. $ 59.1 $ 111.8 $ 236.5
--------- --------- ---------
--------- --------- ---------
</TABLE>
The provision for income taxes is summarized as follows:
<TABLE>
<CAPTION>
FOR THE YEAR/MILLIONS OF DOLLARS 1998 1997 1996
- -------------------------------------------------------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
CURRENT
Federal............................................................................. $ 89.1 $ 150.1 $ 186.3
State............................................................................... 17.9 17.2 24.1
--------- --------- ---------
Total............................................................................... 107.0 167.3 210.4
--------- --------- ---------
DEFERRED
Federal............................................................................. (31.5) (44.3) 22.4
State............................................................................... (7.6) (2.7) 4.9
Foreign............................................................................. -- -- 8.1
--------- --------- ---------
Total............................................................................... (39.1) (47.0) 35.4
--------- --------- ---------
INVESTMENT TAX CREDITS................................................................ (8.8) (8.5) (9.3)
--------- --------- ---------
Total Income Tax Expense.............................................................. $ 59.1 $ 111.8 $ 236.5
--------- --------- ---------
--------- --------- ---------
</TABLE>
82
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
NOTE 14 INCOME TAXES (CONTINUED)
The tax effects of significant items comprising the Company's net deferred
tax liability were as follows:
<TABLE>
<CAPTION>
DECEMBER 31/MILLIONS OF DOLLARS 1998 1997
- ------------------------------------------------------------------------------------------- --------- ---------
<S> <C> <C>
DEFERRED TAX LIABILITIES
Property, plant and equipment............................................................ $ 1,246.0 $ 1,178.8
Regulatory assets........................................................................ 653.7 704.1
Other deferred liabilities............................................................... 37.2 84.3
--------- ---------
1,936.9 1,967.2
--------- ---------
DEFERRED TAX ASSETS
Regulatory liabilities................................................................... (50.8) (54.0)
Book reserves not currently deductible for tax........................................... (138.4) (56.6)
Foreign net operating loss............................................................... (28.9) (45.9)
Foreign currency adjustment.............................................................. (53.2) (46.4)
Pension accrual.......................................................................... (72.7) (39.9)
Safe harbor lease........................................................................ (31.1) (28.4)
Other deferred assets.................................................................... (19.2) (29.8)
--------- ---------
(394.3) (301.0)
--------- ---------
Net Deferred Tax Liability................................................................. $ 1,542.6 $ 1,666.2
--------- ---------
--------- ---------
</TABLE>
The Company has received an Internal Revenue Service ("IRS") examination
report for 1991, 1992 and 1993, proposing adjustments that would increase
current taxes payable by $97 million. The Company filed a protest of many of
these proposed adjustments on December 30, 1998. Discussions with the Appeals
Division of the IRS will commence during 1999.
During 1998, the Company completed its discussions with the Appeals Division
for the protest of the 1989 and 1990 examinations. The Company paid $10 million
in additional tax for these years for agreed issues. The Company will be filing
for relief in the Tax Court with respect to two remaining issues. The additional
tax in dispute for these issues is $4 million.
The Company expects the IRS to commence audit of 1994 through 1997 during
1999.
The Company made income tax payments of $504 million, $134 million and $208
million in 1998, 1997 and 1996, respectively. The significant increase in tax
payments during 1998 was the result of taxes paid on assets sold during 1997,
including PTI.
NOTE 15 EMPLOYMENT BENEFIT PLANS
Retirement Plans--The Companies have pension plans covering substantially
all of their employees. Benefits under the plan in the United States are based
on the employee's years of service and average monthly pay in the 60 consecutive
months of highest pay out of the last 120 months, with adjustments to reflect
benefits estimated to be received from Social Security. Pension costs are funded
annually by no more than the maximum amount of pension expense which can be
deducted for federal income tax purposes. Unfunded prior service costs are
amortized over the remaining service period of employees expected to receive
benefits. At December 31, 1998, plan assets were primarily invested in common
stocks, bonds and United States government obligations.
83
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
NOTE 15 EMPLOYMENT BENEFIT PLANS (CONTINUED)
All permanent employees of Powercor engaged prior to October 4, 1994 are
members of Division B or C of the Superannuation Fund (the "Fund") which
provides defined benefits in the form of pensions (Division B) or lump sums
(Division C). Both defined benefit Funds are closed to new members. Members who
choose to contribute do so at rates of 3% or 6% of eligible salaries. Powercor
employees engaged after October 4, 1994 are members of Division D of the Fund,
which is a defined contribution fund in which members may contribute up to 20%
of eligible salaries. During the year ended December 31, 1998, Powercor made no
contributions to Division B and C funds due to surplus amounts in these funds
and contributed to the Division D Fund at rates ranging from 6%-10% of eligible
salaries.
The net periodic pension cost and significant assumptions are summarized as
follows:
<TABLE>
<CAPTION>
FOR THE YEAR/MILLIONS OF DOLLARS 1998 1997 1996
- ----------------------------------------------------------------------------- ----------- ----------- -----------
<S> <C> <C> <C>
Service cost................................................................. $ 25.6 $ 27.6 $ 31.5
Interest cost................................................................ 82.0 82.1 78.8
Expected return on plan assets............................................... (89.4) (76.7) (65.8)
Amortization of unrecognized net obligation.................................. 6.9 7.2 7.2
Recognized prior service cost................................................ 3.0 2.2 2.0
Recognized (gain) loss....................................................... (0.3) 0.1 0.2
Regulatory deferral.......................................................... -- -- 14.2
----------- ----------- -----------
Net periodic pension cost.................................................... $ 27.8 $ 42.5 $ 68.1
----------- ----------- -----------
----------- ----------- -----------
Discount rate................................................................ 6.3%-6.8% 6.3%-7% 7.3%-7.5%
Expected long-term rate of return on assets.................................. 7.5%-9.3% 7.5%-9.3% 8.5%-9%
Rate of increase in compensation levels...................................... 4%-5% 4%-5% 4.5%-6%
</TABLE>
The change in the projected benefit obligation, change in plan assets and
funded status are as follows:
<TABLE>
<CAPTION>
FOR THE YEAR/MILLIONS OF DOLLARS 1998 1997
- ------------------------------------------------------------------------------------------- --------- ---------
<S> <C> <C>
CHANGE IN PROJECTED BENEFIT OBLIGATION
Projected benefit obligation--beginning of year............................................ $ 1,216.3 $ 1,125.8
Service cost............................................................................... 25.6 27.6
Interest cost.............................................................................. 82.0 82.1
Foreign currency exchange rate changes..................................................... (4.3) (15.2)
Plan participant contributions............................................................. 1.5 1.2
Plan amendments............................................................................ 11.7 1.6
Curtailment gain........................................................................... (9.0) --
Special termination benefit loss........................................................... 110.9 --
Actuarial loss............................................................................. 38.2 65.3
Benefits paid.............................................................................. (202.7) (72.1)
--------- ---------
Projected benefit obligation--end of year.................................................. $ 1,270.2 $ 1,216.3
--------- ---------
--------- ---------
</TABLE>
84
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
NOTE 15 EMPLOYMENT BENEFIT PLANS (CONTINUED)
<TABLE>
<CAPTION>
FOR THE YEAR/MILLIONS OF DOLLARS 1998 1997
- ------------------------------------------------------------------------------------------- --------- ---------
<S> <C> <C>
CHANGE IN PLAN ASSETS
Plan assets at fair value--beginning of year............................................... $ 1,003.5 $ 871.5
Foreign currency exchange rate changes..................................................... (4.4) (14.7)
Actual return on plan assets............................................................... 154.5 148.0
Plan participant contributions............................................................. 1.5 1.2
Company contributions...................................................................... 96.6 69.6
Benefits paid.............................................................................. (202.7) (72.1)
--------- ---------
Plan assets at fair value--end of year..................................................... $ 1,049.0 $ 1,003.5
--------- ---------
--------- ---------
RECONCILIATION OF ACCRUED PENSION COST AND TOTAL AMOUNT RECOGNIZED
Funded status of the plan.................................................................. $ (221.2) $ (212.7)
Unrecognized net (gain) loss............................................................... (5.0) 4.9
Unrecognized prior service cost............................................................ 22.5 15.2
Unrecognized net transition obligation..................................................... 67.7 80.0
--------- ---------
Accrued pension cost....................................................................... (136.0) $ (112.6)
--------- ---------
Accrued benefit liability.................................................................. (138.5) (118.2)
Intangible asset........................................................................... 2.5 5.6
--------- ---------
Accrued pension cost....................................................................... $ (136.0) $ (112.6)
--------- ---------
--------- ---------
</TABLE>
Employee Savings and Stock Ownership Plan--The Company has an employee
savings and stock ownership plan that qualifies as a tax-deferred arrangement
under Section 401(k), 401(a), 409, 501 and 4975(e)(7) of the Internal Revenue
Code. Participating United States employees may defer up to 16% of their
compensation, subject to certain regulatory limitations. The Company matches a
portion of employee contributions with common stock, vesting that portion over
five years. The Company makes an additional contribution of common stock to
qualifying employees equal to a percentage of the employee's eligible earnings.
These contributions are immediately vested. Company contributions to the savings
plan were $18 million, $20 million and $17 million for the years ended 1998,
1997 and 1996, respectively.
Other Postretirement Benefits--Domestic Electric Operations provides health
care and life insurance benefits through various plans for eligible retirees on
a basis substantially similar to those who are active employees. The cost of
postretirement benefits is accrued over the active service period of employees.
The transition obligation represents the unrecognized prior service cost and is
being amortized over a period of 20 years. For those employees retired at
January 1, 1993, the Company funds postretirement benefit expense on a
pay-as-you-go basis and has an unfunded accrued liability of $65 million at
December 31, 1998. For those employees retiring after January 1, 1993, the
Company funds postretirement benefit expense through a combination of funding
vehicles. The Company funded $27 million and $18 million of postretirement
benefits during 1998 and 1997, respectively. These funds are invested in common
stocks, bonds and United States government obligations.
85
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
NOTE 15 EMPLOYMENT BENEFIT PLANS (CONTINUED)
The net periodic postretirement benefit cost is summarized as follows:
<TABLE>
<CAPTION>
FOR THE YEAR/MILLIONS OF DOLLARS 1998 1997 1996
- --------------------------------------------------------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
Service cost........................................................................... $ 7.2 $ 7.2 $ 6.9
Interest cost.......................................................................... 24.5 21.8 21.8
Expected return on plan assets......................................................... (17.2) (12.5) (9.1)
Amortization of unrecognized net obligation............................................ 13.8 13.9 14.0
Recognized gain........................................................................ (2.0) (2.1) (1.4)
Regulatory deferral.................................................................... 1.9 6.4 3.4
--------- --------- ---------
Net periodic postretirement benefit cost............................................... $ 28.2 $ 34.7 $ 35.6
--------- --------- ---------
--------- --------- ---------
Discount rate.......................................................................... 6.8% 7% 7.5%
Estimated long-term rate of return on assets........................................... 9.3% 9.3% 9%
Initial health care cost trend rate--under 65.......................................... 7.8% 8.3% 8.8%
Initial health care cost trend rate--over 65........................................... 7.8% 8.3% 8.4%
Ultimate health care cost trend rate................................................... 4.5% 4.5% 4.5%
</TABLE>
The change in the accumulated postretirement benefit obligation, change in
plan assets, funded status and significant assumptions are as follows:
<TABLE>
<CAPTION>
FOR THE YEAR/MILLIONS OF DOLLARS 1998 1997
- --------------------------------------------------------------------------------------------- --------- ---------
<S> <C> <C>
CHANGE IN ACCUMULATED POSTRETIREMENT BENEFIT OBLIGATION
Accumulated postretirement benefit obligation--beginning of year............................. $ 327.4 $ 316.2
Service cost................................................................................. 7.2 7.2
Interest cost................................................................................ 24.5 21.8
Plan participant contributions............................................................... 2.8 1.1
Curtailment loss............................................................................. 18.1 --
Special termination benefit loss............................................................. 11.0 --
Actuarial (gain) loss........................................................................ 22.4 (4.9)
Benefits paid................................................................................ (16.8) (14.0)
--------- ---------
Accumulated postretirement benefit obligation--end of year................................... $ 396.6 $ 327.4
--------- ---------
--------- ---------
CHANGE IN PLAN ASSETS
Plan assets at fair value--beginning of year................................................. $ 179.8 $ 139.7
Actual return on plan assets................................................................. 36.4 26.6
Company contributions........................................................................ 37.9 28.9
Benefits paid................................................................................ (14.0) (12.9)
Other disbursements.......................................................................... -- (2.5)
--------- ---------
Plan assets at fair value--end of year....................................................... $ 240.1 $ 179.8
--------- ---------
--------- ---------
</TABLE>
86
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
NOTE 15 EMPLOYMENT BENEFIT PLANS (CONTINUED)
<TABLE>
<CAPTION>
FOR THE YEAR/MILLIONS OF DOLLARS 1998 1997
- --------------------------------------------------------------------------------------------- --------- ---------
<S> <C> <C>
RECONCILIATION OF ACCRUED POSTRETIREMENT COSTS AND TOTAL AMOUNT RECOGNIZED
Funded status of the plan.................................................................... $ (156.5) $ (147.6)
Unrecognized net gain........................................................................ (40.7) (64.3)
Unrecognized net transition obligation....................................................... 191.5 209.3
--------- ---------
Accrued postretirement benefit cost, before adjustment....................................... (5.7) (2.6)
Deferred loss................................................................................ (0.4) --
--------- ---------
Accrued postretirement benefit cost after adjustment......................................... $ (6.1) $ (2.6)
--------- ---------
--------- ---------
</TABLE>
The assumed health care cost trend rate gradually decreases over eight
years. The health care cost trend rate assumption has a significant effect on
the amounts reported. Increasing the assumed health care cost trend rate by one
percentage point would have increased the accumulated postretirement benefit
obligation (the "APBO") as of December 31, 1998 by $36 million, and the annual
net periodic postretirement benefit costs by $3 million. Decreasing the assumed
health care cost trend rate by one percentage point would have reduced the APBO
as of December 31, 1998 by $38 million, and the annual net periodic
postretirement benefit costs by $3 million.
Postemployment Benefits--Domestic Electric Operations provides certain
postemployment benefits to former employees and their dependents during the
period following employment but before retirement. The costs of these benefits
are accrued as they are incurred. Benefits include salary continuation,
severance benefits, disability benefits and continuation of health care benefits
for terminated and disabled employees and workers compensation benefits. Accrued
costs for postemployment benefits were $8 million and $13 million in 1998 and
1997, respectively.
Early Retirement Offer--See Note 6 for details on the early retirement
offering in 1998.
NOTE 16 ACQUISITIONS AND DISPOSITIONS
On November 5, 1998, the Company sold its Montana distribution assets to
Flathead Electric Cooperative, Inc. and received proceeds of $89 million, net of
taxes and customer refunds. The Company returned $4 million of the $8 million
gain to Montana customers.
In October 1998, the Company decided to exit the majority of its other
energy development businesses as a result of its refocus on the western United
States and Australian electricity businesses. These energy development
businesses are generally wholly owned subsidiaries of the Company or
subsidiaries in which the Company has a majority ownership. These businesses are
consolidated in the Company's financial statements and are included in Other
Operations. The pretax loss associated with exiting the energy development
businesses was $52 million ($32 million after-tax, or $0.11 per share) and is
included in "Write down of investment in energy development businesses" on the
income statement. This loss consisted of reductions in net intercompany
receivables. The remaining values for these businesses were arrived at using
cash flow projections and estimated market value for fixed assets. Some of these
businesses have been exited through the discontinuance of their operations while
others are for sale. The Company believes that the businesses currently for sale
can be exited by the end of 1999. Through September 1998, these businesses
recorded pretax losses of $18 million ($13 million after-tax, or $0.04 per
share). From
87
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
NOTE 16 ACQUISITIONS AND DISPOSITIONS (CONTINUED)
October 1, 1998 through December 31, 1998, Holdings recorded a pretax expense of
$5 million ($3 million after-tax, or $0.01 per share) relating to these
operations.
During May 1998, PFS received approximately $80 million in cash proceeds for
the sale of a majority of its real estate assets, which approximated book value.
On April 15, 1997, Holdings, through a subsidiary, acquired all of the
outstanding shares of common stock of TPC, a natural gas gathering, processing,
storage and marketing company based in Houston, Texas, for approximately $265
million in cash and assumed debt of approximately $140 million. Following
completion of a tender offer, TPC became a wholly owned subsidiary of Holdings
through a cash merger at the same price. During May 1997, TPC retired $131
million of its outstanding long-term debt. This transaction was funded with
capital contributions from PacifiCorp parent.
On December 1, 1997, TPC sold all of the capital stock of three subsidiaries
that hold its natural gas gathering and processing systems for $195 million in
cash, before tax payments of $23 million. No gain or loss was recognized on the
sale. In October 1998, the Company announced its intention to sell the remaining
business of TPC. See Note 4.
On November 5, 1997, Holdings completed the sale of PGC for approximately
$150 million in cash. A pretax gain on the sale of $57 million ($30 million
after-tax, or $0.10 per share) was recognized in the fourth quarter of 1997.
In September 1996, a consortium, known as the Hazelwood Power Partnership,
purchased a 1,600 megawatt, coal-fired generating station and associated coal
mine in Victoria, Australia for approximately $1.9 billion. The consortium
financed the acquisition of the Hazelwood Plant and mine with approximately $858
million in equity contributions from the partners and $1 billion of nonrecourse
borrowings at the partnership level. Holdings, which has a 19.9% interest in the
partnership, financed its $145 million portion of the equity investment and the
associated $12 million advance with long-term borrowings in the United States.
In October 1998, the Company announced its intention to sell its interest in
Hazelwood as a result of its refocus on the western United States and Australian
electricity businesses. Hazelwood is an equity investment included in the
Company's financial statements as part of Australian Electric Operations. The
Company recorded a pretax loss of $28 million ($17 million after-tax, or $0.06
per share), which is included in "Write down of investment in energy development
businesses" on the income statement, to reduce its carrying value in the
Hazelwood Power Station to estimated net realizable value less selling costs.
This write down was arrived at using cash flow projections. For the year ended
December 31, 1998, Hazelwood recorded a pretax loss of $7 million ($5 million
after-tax, or $0.02 per share).
NOTE 17 SEGMENT INFORMATION
The Company operates in two business segments (excluding other and
discontinued operations): Domestic Electric Operations and Australian Electric
Operations. The Company identified the segments based on management
responsibility within the United States and Australia. Domestic Electric
Operations includes the regulated retail and wholesale electric operations in
the six western states in which it operates. Australian Electric Operations
includes the deregulated electric operations in Australia. Other Operations
consists of PFS, the western energy trading activities and other energy
development businesses, as well as
88
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
NOTE 17 SEGMENT INFORMATION (CONTINUED)
the activities of Holdings, including financing costs. None of the businesses
within Other Operations are significant enough for segment treatment.
<TABLE>
<CAPTION>
DOMESTIC AUSTRALIAN OTHER
TOTAL ELECTRIC ELECTRIC DISCONTINUED OPERATIONS &
MILLIONS OF DOLLARS COMPANY OPERATIONS OPERATIONS OPERATIONS ELIMINATIONS
- ------------------------------------------------ --------- ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
1998
Net sales and revenue (all external)............ $ 5,580.4 $ 4,845.1 $ 614.5 $ -- $ 120.8
Depreciation and amortization................... 451.2 386.6 58.2 -- 6.4
Interest expense................................ 371.6 319.1 57.9 -- (5.4)
Losses of nonconsolidated affiliates............ (13.9) -- (5.5) -- (8.4)
Income tax expense (benefit).................... 59.1 102.9 7.7 -- (51.5)
Extraordinary item.............................. -- -- -- -- --
Income (loss) from continuing operations........ 110.6 149.8 13.0 -- (52.2)
Loss from discontinued operations............... (146.7) -- -- (146.7) --
Identifiable assets............................. 12,988.5 9,834.6 1,660.8 175.0 1,318.1
Investments in nonconsolidated affiliates....... 114.9 6.1 100.9 -- 7.9
Capital spending................................ 667.0 539.0 75.0 -- 53.0
1997
Net sales and revenue (all external)............ $ 4,548.9 $ 3,706.9 $ 716.2 $ -- $ 125.8
Depreciation and amortization................... 466.1 389.1 67.1 -- 9.9
Interest expense (benefit)...................... 437.8 319.0 63.5 -- 55.3
Losses of nonconsolidated affiliates............ (12.8) -- (2.9) -- (9.9)
Income tax expense.............................. 111.8 112.0 32.3 -- (32.5)
Extraordinary item.............................. (16.0) (16.0) -- -- --
Income (loss) from continuing operations........ 232.9 188.3 47.9 -- (3.3)
Income from discontinued operations............. 446.8 -- -- 446.8 --
Identifiable assets............................. 13,627.0 9,862.7 1,786.3 223.4 1,754.6
Investments in nonconsolidated affiliates....... 166.1 6.1 123.7 -- 36.3
Capital spending................................ 714.0 490.0 84.0 -- 140.0
1996
Net sales and revenue (all external)............ $ 3,792.0 $ 2,991.8 $ 658.8 $ -- $ 141.4
Depreciation and amortization................... 423.8 343.4 71.6 -- 8.8
Interest expense................................ 415.0 291.8 75.2 -- 48.0
Losses of nonconsolidated affiliates............ (4.1) -- (1.3) -- (2.8)
Income tax expense.............................. 236.5 216.9 18.7 -- 0.9
Income from continuing operations............... 430.3 371.3 30.1 -- 28.9
Income from discontinued operations............. 74.6 -- -- 74.6 --
Identifiable assets............................. 13,809.0 9,864.0 2,065.0 783.0 1,097.0
Investments in nonconsolidated affiliates....... 253.9 6.1 145.7 -- 102.1
Capital spending................................ 877.0 596.0 225.0 -- 56.0
</TABLE>
89
<PAGE>
SELECTED FINANICAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
FOR THE YEAR/MILLIONS OF DOLLARS, EXCEPT PER SHARE
INFORMATION 1998 1997 1996 1995 1994
- ------------------------------------------------------------ --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
REVENUES
Domestic Electric Operations.............................. $ 4,845.1 $ 3,706.9 $ 2,991.8 $ 2,646.1 $ 2,686.2
Australian Electric Operations............................ 614.5 716.2 658.8 25.9 --
Other Operations(a)....................................... 120.8 125.8 141.4 134.8 153.7
--------- --------- --------- --------- ---------
Total..................................................... $ 5,580.4 $ 4,548.9 $ 3,792.0 $ 2,806.8 $ 2,839.9
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
INCOME (LOSS) FROM OPERATIONS
Domestic Electric Operations.............................. $ 571.8 $ 601.3 $ 869.8 $ 800.9 $ 819.3
Australian Electric Operations............................ 114.5 150.5 127.4 5.5 --
Other Operations(a)....................................... (5.5) 58.9 89.1 84.2 38.3
--------- --------- --------- --------- ---------
Total..................................................... $ 680.8 $ 810.7 $ 1,086.3 $ 890.6 $ 857.6
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
NET INCOME.................................................. $ (36.1) $ 663.7 $ 504.9 $ 505.0 $ 468.0
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
EARNINGS CONTRIBUTION (LOSS) ON COMMON STOCK
Continuing operations
Domestic Electric Operations............................ $ 130.5 $ 165.5 $ 341.5 $ 276.4 $ 339.8
Australian Electric Operations.......................... 13.0 54.2 31.9 0.7 --
Other Operations(a)..................................... (52.2) (9.6) 27.1 86.2 18.0
--------- --------- --------- --------- ---------
Total................................................... 91.3 210.1 400.5 363.3 357.8
Discontinued operations(b)................................ (146.7) 446.8 74.6 103.0 70.5
Extraordinary item(c)..................................... -- (16.0) -- -- --
--------- --------- --------- --------- ---------
Total..................................................... $ (55.4) $ 640.9 $ 475.1 $ 466.3 $ 428.3
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
EARNINGS (LOSS) PER SHARE--BASIC AND DILUTED
Continuing operations
Domestic Electric Operations............................ $ 0.44 $ 0.56 $ 1.17 $ 0.97 $ 1.20
Australian Electric Operations.......................... 0.04 0.18 0.11 -- --
Other Operations(a)..................................... (0.18) (0.03) 0.09 0.31 0.06
--------- --------- --------- --------- ---------
Total................................................... 0.30 0.71 1.37 1.28 1.26
Discontinued operations(b)................................ (0.49) 1.50 0.25 0.36 0.25
Extraordinary item(c)..................................... -- (0.05) -- -- --
--------- --------- --------- --------- ---------
Total..................................................... $ (0.19) $ 2.16 $ 1.62 $ 1.64 $ 1.51
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
CASH DIVIDENDS DECLARED PER COMMON SHARE.................... $ 1.08 $ 1.08 $ 1.08 $ 1.08 $ 1.08
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
MARKET PRICE PER COMMON SHARE............................... $ 21 1/16 $ 27 5/16 $ 20 1/2 $ 21 1/8 $ 18 1/8
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
CAPITALIZATION
Short-term debt........................................... $ 560 $ 555 $ 903 $ 1,132 $ 513
Long-term debt............................................ 4,559 4,413 4,829 4,509 3,391
Preferred securities of Trusts............................ 341 340 210 -- --
Redeemable preferred stock................................ 175 175 178 219 219
Preferred stock........................................... 66 66 136 312 367
Common equity............................................. 3,957 4,321 4,032 3,633 3,460
--------- --------- --------- --------- ---------
Total..................................................... $ 9,658 $ 9,870 $ 10,288 $ 9,805 $ 7,950
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
TOTAL ASSETS................................................ $ 12,989 $ 13,627 $ 13,809 $ 13,167 $ 11,000
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
TOTAL EMPLOYEES............................................. 9,120 10,087 10,118 10,418 10,083
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
- --------------------------
(a) Other Operations includes the operations of PFS, PGC, the western United
States wholesale trading activities, as well as the activities of Holdings,
including financing costs, and elimination entries.
(b) Discontinued operations includes the Company's interest in PTI, TPC and the
eastern energy trading business of PPM.
(c) Extraordinary item includes a regulatory asset impairment pertaining to
generation resources that are allocable to operations in California and
Montana.
90
<PAGE>
DOMESTIC ELECTRIC OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
5-YEAR
1998 TO 1997 COMPOUND
FOR THE YEAR/MILLIONS OF DOLLARS, EXCEPT PERCENTAGE ANNUAL
AS NOTED 1998 1997 1996 1995 1994 COMPARISON GROWTH
- ---------------------------------------- -------- -------- -------- -------- -------- ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUES
Residential........................... $ 806.6 $ 814.0 $ 801.4 $ 739.7 $ 746.0 (1)% 2%
Commercial............................ 653.5 640.9 623.3 576.9 571.7 2 4
Industrial............................ 705.5 709.9 719.3 708.8 742.3 (1) --
Other................................. 30.2 31.7 32.5 29.7 30.7 (5) --
-------- -------- -------- -------- --------
Retail sales........................ 2,195.8 2,196.5 2,176.5 2,055.1 2,090.7 -- 2
Wholesale sales and market trading.... 2,583.6 1,428.0 738.8 520.0 532.7 81 39
Other................................. 65.7 82.4 76.5 71.0 62.8 (20) 11
-------- -------- -------- -------- --------
Total................................. 4,845.1 3,706.9 2,991.8 2,646.1 2,686.2 31 14
-------- -------- -------- -------- --------
EXPENSES
Fuel.................................. 477.6 454.2 443.0 431.6 483.0 5 1
Purchased power....................... 2,497.0 1,296.5 618.7 386.7 394.5 93 47
Other operations...................... 292.4 292.0 276.9 273.7 263.8 -- 2
Maintenance........................... 164.9 178.0 167.3 168.4 174.5 (7) (1)
Administrative and general............ 233.9 227.8 176.3 160.5 142.7 3 11
Depreciation and amortization......... 386.6 389.1 343.4 320.4 301.6 (1) 7
Taxes, other than income taxes........ 97.5 97.6 96.4 103.9 106.8 -- (1)
Special charges....................... 123.4 170.4 -- -- -- (28) --
-------- -------- -------- -------- --------
Total................................. 4,273.3 3,105.6 2,122.0 1,845.2 1,866.9 38 19
-------- -------- -------- -------- --------
INCOME FROM OPERATIONS.................. 571.8 601.3 869.8 800.9 819.3 (5) (6)
Interest expense........................ 319.1 319.0 291.8 311.9 264.3 -- 3
Interest capitalized.................... (14.5) (12.2) (11.4) (14.9) (14.5) 19 1
Other (income) expense--net............. 14.5 (5.8) 1.2 (25.3) (30.2) * *
Income tax expense...................... 102.9 112.0 216.9 214.1 220.2 (8) (11)
-------- -------- -------- -------- --------
NET INCOME.............................. 149.8 188.3 371.3 315.1 379.5 (20) (16)
PREFERRED DIVIDEND REQUIREMENT.......... 19.3 22.8 29.8 38.7 39.7 (16) (13)
-------- -------- -------- -------- --------
EARNINGS CONTRIBUTION(A)................ $ 130.5 $ 165.5 $ 341.5 $ 276.4 $ 339.8 (21) (17)
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
IDENTIFIABLE ASSETS..................... $ 9,835 $ 9,863 $ 9,864 $ 9,599 $ 9,372 -- 2
CAPITAL SPENDING........................ $ 539 $ 490 $ 596 $ 455 $ 638 10 (3)
</TABLE>
- --------------------------
* Not a meaningful number.
(a) Does not reflect elimination of interest on intercompany borrowing
arrangements and includes income taxes on a separate-company basis.
91
<PAGE>
DOMESTIC ELECTRIC OPERATIONS STATISTICS (UNAUDITED)
<TABLE>
<CAPTION>
5-YEAR
1998 TO 1997 COMPOUND
PERCENTAGE ANNUAL
FOR THE YEAR/MILLIONS OF DOLLARS, EXCEPT AS NOTED 1998 1997 1996 1995 1994 COMPARISON GROWTH
- --------------------------------------------------- ------- ------- ------ ------ ------ ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C>
ENERGY SALES (Millions of kWh)
Residential...................................... 12,969 12,902 12,819 12,030 12,127 1% 1%
Commercial....................................... 12,299 11,868 11,497 10,797 10,645 4 4
Industrial....................................... 20,966 20,674 20,332 19,748 20,306 1 1
Other............................................ 651 705 640 592 623 (8) 2
------- ------- ------ ------ ------
Retail sales................................... 46,885 46,149 45,288 43,167 43,701 2 2
Wholesale sales and market trading............... 94,077 59,143 29,665 16,376 15,625 59 44
------- ------- ------ ------ ------
Total.............................................. 140,962 105,292 74,953 59,543 59,326 34 20
------- ------- ------ ------ ------
------- ------- ------ ------ ------
ENERGY SOURCE (%)
Coal............................................. 51 43 60 74 79 19 (8)
Hydroelectric.................................... 6 5 7 7 5 20 --
Other............................................ 2 2 1 2 2 -- 15
Purchase and exchange contracts.................. 41 50 32 17 14 (18) 21
------- ------- ------ ------ ------
NUMBER OF RETAIL CUSTOMERS (Thousands)
Residential...................................... 1,255 1,228 1,194 1,167 1,147 2 2
Commercial....................................... 174 170 167 160 158 2 2
Industrial....................................... 36 36 37 35 34 -- 2
Other............................................ 5 4 4 4 3 25 5
------- ------- ------ ------ ------
Total.............................................. 1,470 1,438 1,402 1,366 1,342 2 2
------- ------- ------ ------ ------
------- ------- ------ ------ ------
RESIDENTIAL CUSTOMERS
Average annual usage (kWh)....................... 10,443 10,644 10,866 10,395 10,646 (2) (1)
Average annual revenue per customer (Dollars).... 650 672 679 639 655 (1) --
Revenue per kWh (Cents).......................... 6.2 6.3 6.3 6.1 6.1 -- --
MILES OF LINE
Transmission..................................... 15,000 15,000 14,900 14,900 14,900 -- --
Distribution
--overhead..................................... 45,000 45,000 45,000 44,900 44,800 -- --
--underground.................................. 10,000 10,000 9,600 9,100 8,800 -- 4
SYSTEM PEAK DEMAND (Megawatts)
Net system load(a)
--summer....................................... 7,666 7,110 7,257 6,855 7,151 8 3
--winter....................................... 7,909 7,403 7,615 7,030 7,174 7 2
Total firm load
--summer(b).................................... 11,629 10,871 10,572 8,899 8,830 7 7
--winter....................................... 12,301 10,830 10,775 8,904 8,903 14 7
SYSTEM CAPABILITY (Megawatts)(c)
--summer....................................... 12,632 12,343 12,115 10,224 10,020 2 5
--winter....................................... 13,427 12,618 12,160 10,994 10,391 6 6
</TABLE>
- ------------------------------
(a) Excludes off-system sales.
(b) Includes firm off-system sales.
(c) Generating capability and firm purchases at time of firm peak.
92
<PAGE>
AUSTRALIAN ELECTRIC OPERATIONS (UNAUDITED)(A)
<TABLE>
<CAPTION>
1998 TO 1997
PERCENTAGE
FOR THE YEAR/MILLIONS OF DOLLARS, EXCEPT AS NOTED 1998 1997 1996 1995 COMPARISON(B)
- ------------------------------------------------------- --------- --------- --------- --------- -------------------
<S> <C> <C> <C> <C> <C>
REVENUES
Powercor area........................................ $ 437.8 $ 538.6 $ 583.6 $ 25.4 (19)%
Outside Powercor area
Victoria......................................... 79.1 98.7 45.0 -- (20 )
New South Wales.................................. 71.6 46.0 -- -- 56
Australian Capital Territory..................... 0.6 -- -- -- *
Queensland....................................... 0.3 -- -- -- *
--------- --------- --------- ---------
Energy sales................................... 589.4 683.3 628.6 25.4 (14 )
Other.............................................. 25.1 32.9 30.2 0.5 (24 )
--------- --------- --------- ---------
Total.............................................. 614.5 716.2 658.8 25.9 (14 )
--------- --------- --------- ---------
EXPENSES
Purchased power.................................... 255.0 308.5 305.1 11.0 (17 )
Other operations................................... 108.7 100.7 62.3 2.5 8
Maintenance........................................ 31.4 33.3 50.0 0.3 (6 )
Administrative and general......................... 45.7 54.9 40.7 3.4 (17 )
Depreciation and amortization...................... 58.2 67.1 71.6 3.1 (13 )
Taxes, other than income taxes..................... 1.0 1.2 1.7 0.1 (17 )
--------- --------- --------- ---------
Total.............................................. 500.0 565.7 531.4 20.4 (12 )
--------- --------- --------- ---------
INCOME FROM OPERATIONS............................... 114.5 150.5 127.4 5.5 (24 )
Interest expense..................................... 57.9 63.5 75.2 3.8 (9 )
Equity in losses of Hazelwood(a)..................... 5.5 2.9 1.3 -- 90
Other (income) expense--net.......................... 30.4 (2.4) 0.3 0.5 *
Income tax expense................................... 7.7 32.3 18.7 0.5 (76 )
--------- --------- --------- ---------
EARNINGS CONTRIBUTION.................................. $ 13.0 $ 54.2 $ 31.9 $ 0.7 (76 )
--------- --------- --------- ---------
--------- --------- --------- ---------
IDENTIFIABLE ASSETS.................................... $ 1,661 $ 1,786 $ 2,065 $ 1,751 (7 )
CAPITAL SPENDING....................................... $ 75 $ 84 $ 225 $ 1,591 (11 )
ENERGY SALES (Millions of kWh)
Powercor area........................................ 7,233 7,410 7,519 362 (2 )
Outside Powercor area
Victoria........................................... 2,396 2,262 791 -- 6
New South Wales.................................... 2,241 1,372 -- -- 63
Australian Capital Territory....................... 12 -- -- -- *
Queensland......................................... 6 -- -- -- *
--------- --------- --------- ---------
Total................................................ 11,888 11,044 8,310 362 8
--------- --------- --------- ---------
--------- --------- --------- ---------
NUMBER OF CUSTOMERS
Powercor area........................................ 562,394 553,457 546,247 540,125 2
Outside Powercor area
Victoria........................................... 1,102 622 567 -- 77
New South Wales.................................... 1,189 811 -- -- 47
Australian Capital Territory....................... 23 -- -- -- *
Queensland......................................... 4 -- -- -- *
--------- --------- --------- ---------
Total................................................ 564,712 554,890 546,814 540,125 2
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
- ------------------------------
* Not a meaningful number.
(a) Results of operations are included since dates of acquisition, December 12,
1995 for Powercor and September 13, 1996 for Hazelwood.
(b) Comparison done without consideration of the changes in currency exchange
rates.
93
<PAGE>
OTHER OPERATIONS (UNAUDITED)
Other Operations include the operations of PFS, PGC, the western United
States energy trading activities and several start-up-phase ventures, as well as
the activities of Holdings, including financing costs. PGC assets were sold on
November 5, 1997 and a majority of the real estate assets of PFS were sold
during May 1998.
<TABLE>
<CAPTION>
FOR THE YEAR/MILLIONS OF DOLLARS 1998 1997 1996 1995 1994
- ----------------------------------------------------------------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
EARNINGS CONTRIBUTION
PFS............................................................ $ 8.1 $ 30.2 $ 34.1 $ 30.4 $ 3.0
PGC............................................................ -- 10.4 7.8 5.6 8.5
Tax settlement................................................. -- -- -- 32.2 --
Holdings and other............................................. (60.3) (50.2) (14.8) 18.0 6.5
--------- --------- --------- --------- ---------
Total.......................................................... $ (52.2) $ (9.6) $ 27.1 $ 86.2 $ 18.0
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
IDENTIFIABLE ASSETS
PFS............................................................ 422 692 708 697 731
PGC............................................................ -- -- 123 116 113
Holdings and other(a).......................................... 896 1,063 266 246 252
--------- --------- --------- --------- ---------
Total.......................................................... $ 1,318 $ 1,755 $ 1,097 $ 1,059 $ 1,096
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
CAPITAL SPENDING................................................. $ 53 $ 140 $ 56 $ 44 $ 13
</TABLE>
- ------------------------
(a) During 1997, the Company generated $1.8 billion of cash, excluding $370
million of current income tax liabilities, from sales of assets with
carrying values of $822 million. See Notes 4 and 16.
94
<PAGE>
SUPPLEMENTAL INFORMATION
QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
QUARTER ENDED/MILLIONS OF DOLLARS,
EXCEPT PER SHARE AMOUNTS MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
- ----------------------------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
1998
Revenues........................... $ 1,260.2 $ 1,202.2 $ 1,918.2 $ 1,199.8
Income from operations............. 140.2 194.3 190.4 155.9
Income (loss) from continuing
operations....................... (14.6) 78.9 34.6 11.7
Discontinued operations............ (0.5) (38.1) (122.2) 14.1
Net income (loss).................. (15.1) 40.8 (87.6) 25.8
Earnings (loss) on common stock.... (19.9) 36.0 (92.4) 20.9
Earnings (loss) per common share:
Continuing operations............ (0.07) 0.25 0.10 0.02
Discontinued operations.......... -- (0.13) (0.41) 0.05
Common dividends declared and paid
per share........................ 0.27 0.27 0.27 0.27
Common stock price per share (NYSE)
High............................. 26 3/4 24 7/16 23 1/8 22 5/16
Low.............................. 22 13/16 21 13/16 18 7/8 18 3/4
1997
Revenues........................... $ 1,002.8 $ 998.1 $ 1,207.7 $ 1,340.3
Income from operations............. 262.8 223.2 279.1 45.6
Income from continuing
operations....................... 103.6 77.7 46.3 5.3
Discontinued operations............ 17.4 17.1 27.7 384.6
Extraordinary item................. -- -- -- (16.0)
Net income......................... 121.0 94.8 74.0 373.9
Earnings on common stock........... 114.9 88.7 68.2 369.1
Earnings (loss) per common share:
Continuing operations............ 0.33 0.24 0.14 --
Discontinued operations.......... 0.06 0.06 0.09 1.29
Extraordinary item............... -- -- -- (0.05)
Common dividends declared and paid
per share........................ 0.27 0.27 0.27 0.27
Common stock price per share (NYSE)
High............................. 21 3/4 22 3/8 23 3/8 27 5/16
Low.............................. 20 1/8 19 1/4 20 9/16 21 7/16
</TABLE>
A significant portion of the operations are of a seasonal nature. Previously
reported quarterly information has been revised to reflect certain
reclassifications. These reclassifications had no effect on previously reported
consolidated net income.
In the first quarter of 1998, the Company recorded an after-tax charge of
$54 million, or $0.18 per share, relating to the write off of TEG transaction
costs and $70 million, or $0.24 per share, relating to the early retirement
offer. See Notes 3 and 6.
In the third quarter 1998, the Company recorded an after-tax charge of $119
million, or $0.40 per share, relating to the provision for losses anticipated in
the disposition of PPM and TPC. In addition, the Company recorded an after-tax
charge of $32 million, or $0.11 per share, relating to the provision for losses
anticipated in the disposition of the Company's other energy businesses. See
Notes 4 and 16.
In the fourth quarter of 1998, the Company recorded an after-tax adjustment
of $23 million, or $0.08 per share, relating to the Utah rate case, $13 million,
or $0.04 per share, relating to ScottishPower merger
95
<PAGE>
costs, $17 million, or $0.06 per share, relating to the write down of its
investment in Hazelwood and $14 million, or $0.05 per share, of income relating
to revised losses for discontinued operations due to the pending sale of TPC for
$133 million plus a working capital adjustment at closing. See Notes 2, 4, 5 and
16.
In the fourth quarter of 1997, the Company recorded after-tax amounts as
follows: asset sales gains of $395 million, or $1.33 per share, special charges
of $106 million, or $0.36 per share, and an extraordinary charge of $16 million,
or $0.05 per share. See Notes 4, 5 and 15.
See Note 4 for information regarding discontinued operations.
On March 1, 1999, there were 105,133 common shareholders of record.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
No information is required to be reported pursuant to this item.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item with respect to the Company's
directors is incorporated herein by this reference to "Proposal for Election of
Directors" in the Proxy Statement for the 1999 Annual Meeting of Shareholders.
The information required by this item with respect to the Company's executive
officers is set forth in Part I of this report under Item 4A. The information
required by this item with respect to compliance with Section 16(a) of the
Securities Exchange Act of 1934 is incorporated herein by this reference to
"Section 16(a) Beneficial Ownership Reporting Compliance" in the Proxy Statement
for the 1999 Annual Meeting of Shareholders.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated herein by this
reference to "Proposal for Election of Directors--Executive Compensation" in the
Proxy Statement for the 1999 Annual Meeting of Shareholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated herein by this
reference to "Proposal for Election of Directors--Security Ownership of Certain
Beneficial Owners and Management" in the Proxy Statement for the 1999 Annual
Meeting of Shareholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated herein by this
reference to "Proposal for Election of Directors--Director Compensation and
Certain Transactions" in the Proxy Statement for the 1999 Annual Meeting of
Shareholders.
96
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. The list of all financial statements filed as a part of this report is
included in ITEM 8.
2. Schedules:*
- ------------------------
* All schedules have been omitted because of the absence of the conditions
under which they are required or because the required information is
included elsewhere in the financial statements included under ITEM 8.
3. Exhibits:
<TABLE>
<C> <S>
*(2)a -- Agreement and Plan of Merger, dated as of December 6, 1998, by and among
Scottish Power plc, NA General Partnership, Scottish Power NA 1 Limited and
Scottish Power NA 2 Limited. (Incorporated by reference to Exhibit 1 to the
Form 6-K, dated December 11, 1998, filed by Scottish Power plc, File No.
1-14676).
(2)b -- Amended and Restated Agreement and Plan of Merger, dated as of December 6,
1998, as amended as of January 29, 1999 and February 9, 1999, and amended and
restated as of February 23, 1999, by and among New Scottish Power PLC,
Scottish Power plc, NA General Partnership and PacifiCorp.
*(2)c -- Stock Purchase Agreement, dated as of June 11, 1997, by and among PacifiCorp
Holdings, Inc., Pacific Telecom, Inc., Century Telephone Enterprises, Inc.
and Century Cellunet, Inc. (Incorporated by reference to Exhibit 2.1 of
Century Telephone Enterprises, Inc.'s Current Report on Form 8-K dated June
11, 1997, File No. 1-7784).
*(3)a -- Third Restated Articles of Incorporation of the Company (Exhibit (3)b, Form
10-K for the fiscal year ended December 31, 1996, File No. 1-5152).
(3)b -- Bylaws of the Company as amended November 18, 1998.
*(4)a -- Mortgage and Deed of Trust dated as of January 9, 1989, between the Company and
Morgan Guaranty Trust Company of New York (The Chase Manhattan Bank,
successor), Trustee, as supplemented and modified by twelve Supplemental
Indentures (Exhibit 4-E, Form 8-B, File No. 1-5152; Exhibit (4)(b), File No.
33-31861; Exhibit (4)(a), Form 8-K dated January 9, 1990, File No. 1-5152;
Exhibit 4(a), Form 8-K dated September 11, 1991, File No. 1-5152; Exhibit
4(a), Form 8-K dated January 7, 1992, File No. 1-5152; Exhibit 4(a), Form
10-Q for the quarter ended March 31, 1992, File No. 1-5152; and Exhibit 4(a),
Form 10-Q for the quarter ended September 30, 1992, File No. 1-5152; Exhibit
4(a), Form 8-K dated April 1, 1993, File No. 1-5152; Exhibit 4(a), Form 10-Q
for the quarter ended September 30, 1993, File No. 1-5152; Exhibit 4(a), Form
10-Q for the quarter ended June 30, 1994, File No. 1-5152; Exhibit (4)b, Form
10-K for the fiscal year ended December 31, 1994, File No. 1-5152; and
Exhibit (4)b, Form 10-K for the fiscal year ended December 31, 1995, File No.
1-5152; Exhibit (4)b, Form 10-K for the fiscal year ended December 31, 1996,
File No. 1-5152).
(4)b -- Thirteenth Supplemental Indenture, dated as of November 1, 1998.
</TABLE>
97
<PAGE>
<TABLE>
<C> <S>
*(4)c -- Third Restated Articles of Incorporation and Bylaws. See (3)a and (3)b above.
In reliance upon item 601(4)(iii) of Regulation S-K, various instruments
defining the rights of holders of long-term debt of the Registrant and its
subsidiaries are not being filed because the total amount authorized under
each such instrument does not exceed 10% of the total assets of the
Registrant and its subsidiaries on a consolidated basis. The Registrant
hereby agrees to furnish a copy of any such instrument to the Commission upon
request.
*+(10)a -- PacifiCorp Deferred Compensation Payment Plan, as amended (Exhibit 10-F, Form
10-K for fiscal year ended December 31, 1992, File No. 1-8749) (Exhibit
(10)b, Form 10-K for fiscal year ended December 31, 1994, File No. 1-5152).
+(10)b -- PacifiCorp Compensation Reduction Plan dated December 1, 1994, as amended.
*+(10)c -- PacifiCorp Executive Incentive Program (Exhibit (10)d, Form 10-K for the fiscal
year ended December 31, 1996, File No. 1-5152).
*+(10)d -- PacifiCorp Non-Employee Directors' Stock Compensation Plan dated August 1,
1985, as amended (Exhibit (10)f, Form 10-K for fiscal year ended December 31,
1994, File No. 1-5152).
+(10)e -- PacifiCorp Long Term Incentive Plan, 1993 Restatement, as amended.
*+(10)f -- Form of Restricted Stock Agreement under PacifiCorp Long-Term Incentive Plan,
1993 Restatement, as amended (Exhibit 10H, Form 10-K for the year ended
December 31, 1993, File No. 0-873).
+(10)g -- PacifiCorp Supplemental Executive Retirement Plan, as amended.
*+(10)h -- Incentive Compensation Agreement dated as of February 1, 1994 between
PacifiCorp and Frederick W. Buckman (Exhibit (10)k, Form 10-K for the fiscal
year ended December 31, 1993, File No. 1-5152).
*+(10)i -- Compensation Agreement dated as of February 9, 1994 between PacifiCorp and
Keith R. McKennon, as amended (Exhibit (10)m, Form 10-K for the fiscal year
ended December 31, 1993, File No. 1-5152).
*+(10)j -- Amendment No. 1 to Compensation Agreement between PacifiCorp and Keith R.
McKennon dated as of February 9, 1995 (Exhibit (10)r, Form 10-K for the
fiscal year ended December 31, 1994, File No. 1-5152).
+(10)k -- PacifiCorp Stock Incentive Plan dated August 14, 1996, as amended.
+(10)l -- Form of Restricted Stock Agreement under PacifiCorp Stock Incentive Plan, as
amended.
+(10)m -- PacifiCorp 1998 Restricted Stock Program.
+(10)n -- Form of Nonstatutory Stock Option Agreement under PacifiCorp Stock Incentive
Plan.
+(10)o -- PacifiCorp Executive Severance Plan, as amended.
+(10)p -- Severance Agreement between PacifiCorp and Frederick W. Buckman dated as of
September 18, 1998.
+(10)q -- Employment Agreement between PacifiCorp and Keith R. McKennon dated as of
December 4, 1998.
*(10)r -- Short-Term Surplus Firm Capacity Sale Agreement executed July 9, 1992 by the
United States of America Department of Energy acting by and through the
Bonneville Power Administration and Pacific Power & Light Company (Exhibit
(10)n, Form 10-K for the fiscal year ended December 31, 1992, File No.
1-5152).
</TABLE>
98
<PAGE>
<TABLE>
<C> <S>
*(10)s -- Restated Surplus Firm Capacity Sale Agreement executed September 27, 1994 by
the United States of America Department of Energy acting by and through the
Bonneville Power Administration and Pacific Power & Light Company (Exhibit
(10)t, Form 10-K for the fiscal year ended December 31, 1994, File No.
1-5152).
(12)a -- Statements of Computation of Ratio of Earnings to Fixed Charges (See page S-1).
(12)b -- Statements of Computation of Ratio of Earnings to Combined Fixed Charges and
Preferred Stock Dividends (See page S-2).
(21) -- Subsidiaries (See page S-3).
(23) -- Consent of Deloitte & Touche LLP with respect to Annual Report on Form 10-K.
(24) -- Powers of Attorney.
(27) -- Financial Data Schedule (filed electronically only).
</TABLE>
- ------------------------
* Incorporated herein by reference.
+ This exhibit constitutes a management contract or compensatory plan or
arrangement.
(b) Reports on Form 8-K.
On Form 8-K and Form 8-K/A Amendment No. 1 dated December 7, 1998, under
"Item 5. Other Events," the Company filed a news release concerning a merger
agreement between the Company, Scottish Power plc, NA General Partnership,
Scottish Power NA 1 Limited and Scottish Power NA 2 Limited.
On Form 8-K, dated February 16, 1999, under "Item 5. Other Events," the
Company filed a news release announcing an agreement to sell TPC Corporation.
(c) See (a) 3. above.
(d) See (a) 2. above.
99
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED THEREUNTO DULY AUTHORIZED.
PACIFICORP
By: /s/ KEITH R. MCKENNON
-----------------------------------------
Keith R. McKennon
(PRESIDENT)
Date: March 30, 1999
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
/s/ KEITH R. MCKENNON
- ------------------------------ President, Chief Executive
Keith R. McKennon Officer and Chairman March 30, 1999
(PRESIDENT)
/s/ RICHARD T. O'BRIEN
- ------------------------------ Executive Vice President
Richard T. O'Brien and Chief Operating March 30, 1999
(EXECUTIVE VICE PRESIDENT) Officer
/s/ ROBERT R. DALLEY
- ------------------------------
Robert R. Dalley Controller and Chief March 30, 1999
(CONTROLLER AND CHIEF Accounting Officer
ACCOUNTING OFFICER)
/s/ *W. CHARLES ARMSTRONG
- ------------------------------
W. Charles Armstrong
Director March 30, 1999
/s/ *KATHRYN A. BRAUN
- ------------------------------
Kathryn A. Braun
</TABLE>
100
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
/s/ *C. TODD CONOVER
- ------------------------------
C. Todd Conover
/s/ *NOLAN E. KARRAS
- ------------------------------
Nolan E. Karras
/s/ *ROBERT G. MILLER
- ------------------------------
Robert G. Miller
/s/ *ALAN K. SIMPSON
- ------------------------------
Alan K. Simpson
Director March 30, 1999
/s/ *VERL R. TOPHAM
- ------------------------------
Verl R. Topham
/s/ *DON M. WHEELER
- ------------------------------
Don M. Wheeler
/s/ NANCY WILGENBUSCH
- ------------------------------
Nancy Wilgenbusch
/s/ *PETER I. WOLD
- ------------------------------
Peter I. Wold
</TABLE>
*By: /s/ NANCY WILGENBUSCH
-------------------------
Nancy Wilgenbusch
101
<PAGE>
Execution Copy
AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER
dated as of December 6, 1998,
as amended as of January 29, 1999 and February 9, 1999,
and amended and restated as of February 23, 1999,
by and among
NEW SCOTTISH POWER PLC,
SCOTTISH POWER PLC,
NA GENERAL PARTNERSHIP
and
PACIFICORP
<PAGE>
TABLE OF CONTENTS
This Table of Contents is not part of the Agreement to
which it is attached but is inserted for convenience only.
<TABLE>
<CAPTION>
Page
No.
----
<S> <C>
ARTICLE I THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
1.01 The Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
1.02 Closing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
1.03 Effective Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
1.04 Governing Instrument . . . . . . . . . . . . . . . . . . . . . . . . . . .3
1.05 Directors and Officers of the Surviving Corporation. . . . . . . . . . . .3
1.06 Effects of the Merger. . . . . . . . . . . . . . . . . . . . . . . . . . .3
1.07 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
ARTICLE II CONVERSION OF SHARES. . . . . . . . . . . . . . . . . . . . . . . . . . .4
2.01 Conversion of Capital Stock. . . . . . . . . . . . . . . . . . . . . . . .4
2.02 Procedure for Election . . . . . . . . . . . . . . . . . . . . . . . . . .6
2.03 Exchange of Certificates.. . . . . . . . . . . . . . . . . . . . . . . . .7
2.04 Withholding Rights.. . . . . . . . . . . . . . . . . . . . . . . . . . . 10
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY. . . . . . . . . . . . . 10
3.01 Organization and Qualification . . . . . . . . . . . . . . . . . . . . . 10
3.02 Capital Stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
3.03 Authority Relative to this Agreement . . . . . . . . . . . . . . . . . . 13
3.04 Non-Contravention; Approvals and Consents. . . . . . . . . . . . . . . . 13
3.05 SEC Reports, Financial Statements and Utility Reports. . . . . . . . . . 15
3.06 Absence of Certain Changes or Events . . . . . . . . . . . . . . . . . . 15
3.07 Absence of Undisclosed Liabilities . . . . . . . . . . . . . . . . . . . 16
3.08 Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
3.09 Information Supplied . . . . . . . . . . . . . . . . . . . . . . . . . . 17
3.10 Permits; Compliance with Laws and Orders . . . . . . . . . . . . . . . . 17
3.11 Compliance with Agreements . . . . . . . . . . . . . . . . . . . . . . . 18
3.12 Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
3.13 Employee Benefit Plans; ERISA. . . . . . . . . . . . . . . . . . . . . . 19
3.14 Labor Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
3.15 Environmental Matters. . . . . . . . . . . . . . . . . . . . . . . . . . 22
3.16 Intellectual Property Rights . . . . . . . . . . . . . . . . . . . . . . 25
3.17 Regulation as a Utility. . . . . . . . . . . . . . . . . . . . . . . . . 25
3.18 Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
3.19 Vote Required. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
3.20 [Intentionally Omitted]. . . . . . . . . . . . . . . . . . . . . . . . . 26
3.21 Ownership of HoldCo or ScottishPower Stock . . . . . . . . . . . . . . . 26
i
<PAGE>
3.22 Article VII of the Company's Articles of Incorporation and Sections
60.825-60.845 of the BCA Not Applicable. . . . . . . . . . . . . . . . . 26
3.23 Certain Contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
3.24 Year 2000. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
3.25 Joint Venture Representations. . . . . . . . . . . . . . . . . . . . . . 26
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF HOLDCO, SCOTTISHPOWER and the
partnership. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
4.01 Organization and Qualification . . . . . . . . . . . . . . . . . . . . . 27
4.02 Capital Stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
4.03 Authority Relative to this Agreement . . . . . . . . . . . . . . . . . . 30
4.04 Non-Contravention; Approvals and Consents. . . . . . . . . . . . . . . . 30
4.05 SEC Reports and Financial Statements . . . . . . . . . . . . . . . . . . 32
4.06 Absence of Certain Changes or Events . . . . . . . . . . . . . . . . . . 32
4.07 Absence of Undisclosed Liabilities . . . . . . . . . . . . . . . . . . . 33
4.08 Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
4.09 Information Supplied . . . . . . . . . . . . . . . . . . . . . . . . . . 33
4.10 Permits; Compliance with Laws and Orders . . . . . . . . . . . . . . . . 34
4.11 Compliance with Agreements . . . . . . . . . . . . . . . . . . . . . . . 35
4.12 Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
4.13 ScottishPower Employee Benefit Plans . . . . . . . . . . . . . . . . . . 36
4.14 Labor Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
4.15 Environmental Matters. . . . . . . . . . . . . . . . . . . . . . . . . . 38
4.16 Intellectual Property Rights . . . . . . . . . . . . . . . . . . . . . . 40
4.17 Vote Required. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
4.18 [Intentionally Omitted . . . . . . . . . . . . . . . . . . . . . . . . . 41
4.19 Ownership of Company Common Stock. . . . . . . . . . . . . . . . . . . . 41
4.20 Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
4.21 Year 2000. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
4.22 Joint Venture Representations. . . . . . . . . . . . . . . . . . . . . . 42
ARTICLE V COVENANTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
5.01 Covenants of the Company . . . . . . . . . . . . . . . . . . . . . . . . 42
5.02 Covenants of HoldCo and ScottishPower. . . . . . . . . . . . . . . . . . 47
5.03 Joint Executive Committee. . . . . . . . . . . . . . . . . . . . . . . . 52
5.04 Tax Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
5.05 Discharge of Liabilities . . . . . . . . . . . . . . . . . . . . . . . . 52
5.06 Contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
5.07 No Solicitations . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
5.08 Conduct of Business of Merger Sub. . . . . . . . . . . . . . . . . . . . 54
5.09 Third Party Standstill Agreements. . . . . . . . . . . . . . . . . . . . 54
5.10 Control of Other Party's Business. . . . . . . . . . . . . . . . . . . . 54
ARTICLE VI ADDITIONAL AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . 55
6.01 Access to Information. . . . . . . . . . . . . . . . . . . . . . . . . . 55
6.02 Preparation of Registration Statement and Proxy Statement. . . . . . . . 55
ii
<PAGE>
6.03 Approval of Shareholders.. . . . . . . . . . . . . . . . . . . . . . . . 56
6.04 Company Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
6.05 Auditors' Letters. . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
6.06 Stock Exchange Listing; Deposit Agreement. . . . . . . . . . . . . . . . 58
6.07 Restructuring of Merger. . . . . . . . . . . . . . . . . . . . . . . . . 58
6.08 Regulatory and Other Approvals . . . . . . . . . . . . . . . . . . . . . 59
6.09 Employee Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . . 59
6.10 Company Stock Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
6.11 Directors' and Officers' Indemnification and Insurance . . . . . . . . . 61
6.12 HoldCo Governance; Additional Matters. . . . . . . . . . . . . . . . . . 61
6.13 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
6.14 Brokers or Finders . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
6.15 Takeover Statutes. . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
6.16 Conveyance Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
6.17 Rate Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
6.18 Tax Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
6.19 Dividends. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
ARTICLE VII CONDITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
7.01 Conditions to Each Party's Obligation to Effect the Merger . . . . . . . 65
7.02 Conditions to Obligation of HoldCo, ScottishPower and Merger Sub to
Effect the Merger. . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
7.03 Conditions to Obligation of the Company to Effect the Merger . . . . . . 69
ARTICLE VIII TERMINATION, AMENDMENT AND WAIVER . . . . . . . . . . . . . . . . . . 70
8.01 Termination. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
8.02 Effect of Termination. . . . . . . . . . . . . . . . . . . . . . . . . . 72
8.03 Amendment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
8.04 Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
ARTICLE IX GENERAL PROVISIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . 73
9.01 Non-Survival of Representations, Warranties, Covenants and Agreements. . 73
9.02 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
9.03 Entire Agreement; Incorporation of Exhibits. . . . . . . . . . . . . . . 75
9.04 [Intentionally Omitted.] . . . . . . . . . . . . . . . . . . . . . . . . 75
9.05 Public Announcements . . . . . . . . . . . . . . . . . . . . . . . . . . 75
9.06 No Third Party Beneficiary . . . . . . . . . . . . . . . . . . . . . . . 76
9.07 No Assignment; Binding Effect. . . . . . . . . . . . . . . . . . . . . . 76
9.08 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
9.09 Invalid Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
9.10 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
9.11 Submission to Jurisdiction; Waivers. . . . . . . . . . . . . . . . . . . 76
9.12 Enforcement of Agreement . . . . . . . . . . . . . . . . . . . . . . . . 77
9.13 Certain Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . 77
9.14 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
9.15 WAIVER OF JURY TRIAL . . . . . . . . . . . . . . . . . . . . . . . . . . 79
</TABLE>
iii
<PAGE>
SCHEDULES
SCHEDULE I Scheme Consents
SCHEDULE II Articles of Association of Holdco
EXHIBITS
EXHIBIT A Scheme of Arrangement
EXHIBIT B Allotment of Shares
EXHIBIT C Form of Affiliate Agreement
iv
<PAGE>
GLOSSARY OF DEFINED TERMS
The following terms, when used in this Agreement, have the meanings
ascribed to them in the corresponding Sections of this Agreement listed below:
<TABLE>
<S> <C> <C>
"1935 Act" -- Section 3.02(c)
"ADR Depositary" -- Section 2.01(e)
"ADR Holder Proposal -- Section 6.03(c)
"ADS Consideration" -- Section 2.01(c)(i)
"Advisory Board" -- Section 6.12(b)
"affiliate" -- Section 9.12 (a)
"Affiliate Agreement" -- Section 6.04
"Agreement" -- Preamble
"Alternative Proposal" -- Section 5.08
"Antitrust Division" -- Section 6.08
"Articles of Merger" -- Section 1.03
"BCA" -- Section 1.01
"beneficially" -- Section 9.12(b)
"business day" -- Section 9.12(c)
"Certificates" -- Section 2.03(b)
"Circular" -- Section 3.09(b)
"Closing" -- Section 1.02
"Closing Date" -- Section 1.02
"Code" -- Preamble
"Companies Act" -- Section 4.02(a)
"Company" -- Preamble
"Company Affiliates" -- Section 6.04
"Company Budget" -- Section 5.01(e)
"Company Common Stock" -- Preamble
"Company Disclosure Letter" -- Section 3.01(a)
"Company Employee Benefit Plan" -- Section 3.13(b)(i)
"Company Financial Statements" -- Section 3.05(a)
"Company Joint Venture" -- Section 3.01(b)(ii)
"Company Option" -- Section 2.01(f)
"Company Option Plan" -- Section 2.01(f)
"Company Permits" -- Section 3.10
"Company Preferred Stock" -- Section 3.02(a)
"Company SEC Reports" -- Section 3.05(a)
"Company Stock Option" -- Section 6.10(a)
"Company Stockholders' Approval" -- Section 6.03(b)
"Company Stockholders' Meeting" -- Section 6.03(b)
"Confidentiality Agreement" -- Section 6.01
"Constituent Corporations" -- Section 1.01
"Contracts" -- Section 3.04(a)
"control," "controlling," "controlled
by" and "under common control with" -- Section 9.12(a)
v
<PAGE>
"Converted Shares" -- Section 2.01(c)(i)
"DOE" -- Section 3.05(b)
"Effective Time" -- Section 1.03
"Election Date" -- Section 2.02(a)
"Environmental Claims" -- Section 3.15(g)(i)
"Environmental Laws" -- Section 3.15(g)(ii)
"Environmental Permits" -- Section 3.15(b)
"ERISA" -- Section 3.13(b)(i)
"ERISA Affiliate" -- Section 3.13(b)(iii)
"Exchange Act" -- Section 3.04(b)
"Exchange Agent" -- Section 2.03(a)
"Exchange Fund" -- Section 2.03(a)
"FERC" -- Section 3.05(b)
"FSA" -- Section 3.09(b)
"FTA" -- Section 7.01(k)
"FTC" -- Section 6.08
"Governmental or Regulatory Authority" -- Section 3.04(a)
"group" -- Section 9.12(f)
"Hazardous Materials" -- Section 3.15(g)(iii)
"HoldCo ADRs" -- Preamble
"HoldCo ADSs" -- Preamble
"HoldCo Employee Benefit Plans -- Section 4.13(b)
"HoldCo Group" -- Section 5.02(k)
"HoldCo Ordinary Shares" Preamble
"HoldCo Share Schemes" -- Section 4.02(a)
"HoldCo Special Share" -- Schedule II
"HSR Act" -- Section 3.04(b)
"Intellectual Property" -- Section 3.16
"Joint Executive Committee" -- Section 5.03(a)
"Joint Venture" -- Section 301(b)(i)
"knowledge" -- Section 9.13(d)
"laws" -- Section 3.04(a)
"Lien" -- Section 3.02(b)
"Listing Particulars" -- Section 3.09(b)
"LSE" -- Section 2.03(e)
"material adverse effect" -- Section 9.12(e)
"Merger" -- Preamble
"Merger Consideration" -- Section 2.01(c)(i)
"Merger Ordinary Shares" -- Preamble
"Merger Sub" -- Preamble
"Merger Sub Common Stock" -- Section 2.01
"MMC" -- Section 7.01(k)
"New Facilities" -- Section 9.13(f)
"NYSE" -- Section 2.03(e)
"OFFER" -- Section 7.01(l)
"OFT" -- Section 7.01(k)
vi
<PAGE>
"OFWAT" -- Section 7.01(l)
"Options" -- Section 3.02(a)
"orders" -- Section 3.04(a)
"Ordinary Share Consideration" -- Section 2.01(c)(i)
"Ordinary Share Election" -- Section 2.02
"Ordinary Share Election Form" -- Section 2.02
"Original Agreement" -- Preamble
"Partnership" -- Preamble
"Partnership Agreement" -- Section 4.01(a)
"Partnership Loan Note" -- Section 2.01(e)
"person" -- Section 9.13(g)
"Plan" -- Section 3.12(b)(ii)
"Policies" -- Section 4.14(b)
"Power Act" -- Section 3.05(b)
"Proxy Statement" -- Section 3.09(a)
"qualified stock options" -- Section 6.10(a)
"RCF" -- Section 9.13(h)
"Registration Statement" -- Section 4.09
"Release" -- Section 3.15(g)(iv)
"Representatives" -- Section 9.13(i)
"Review Material" -- Section 6.01
"Sales Price" -- Section 2.03(e)
"Scheme of Arrangement" -- Preamble
"Scheme Consents" -- Section 9.13(k)
"Scheme Date" -- Section 2.01(c)
"Scheme Document" -- Section 9.13(l)
"ScottishPower" -- Preamble
"ScottishPower ADRs" -- Preamble
"ScottishPower ADSs" -- Preamble
"ScottishPower Budget" -- Section 5.02(e)
"ScottishPower Disclosure Documents" -- Section 3.09(b)
"ScottishPower Disclosure Letter" -- Section 4.01(a)
"ScottishPower Employee Benefit Plans" -- Section 4.13
"ScottishPower Financial Statements" -- Section 4.05
"ScottishPower Joint Venture" -- Section 3.01(b)(iii)
"ScottishPower Ordinary Shares" -- Preamble
"ScottishPower Permits" -- Section 4.10
"ScottishPower SEC Reports" -- Section 4.05
"ScottishPower Share Schemes" -- Section 4.02(a)
"ScottishPower Shareholders' Approval" -- Section 6.03(a)
"ScottishPower Shareholders' Meeting" -- Section 6.03(a)
"ScottishPower Special Share" -- Section 4.02(a)
"SEC" -- Section 3.04(b)
"Secretary of State" -- Section 1.03
"Securities Act" -- Section 3.04(b)
"Share Transfer" -- Preamble
vii
<PAGE>
"SOS" -- Section 7.01(k)
"Subsidiary" -- Section 9.13(j)
"Surviving Corporation" -- Section 1.01
"Surviving Corporation Common Stock" -- Section 2.01
"taxes" -- Section 3.12(g)
"Trading Day" -- Section 2.03(e)
"UK Code" -- Section 6.03(a)
</TABLE>
viii
<PAGE>
This AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER, dated as of
December 6, 1998 and amended as of January 29, 1999 and February 9, 1999, and
amended and restated as of February 23, 1999 (this "AGREEMENT"), is made and
entered into by and among NEW SCOTTISH POWER PLC, a public limited company
incorporated under the laws of Scotland ("HOLDCO"), SCOTTISH POWER PLC, a
public limited company incorporated under the laws of Scotland
("SCOTTISHPOWER"), NA GENERAL PARTNERSHIP, a Nevada general partnership
indirectly wholly owned by ScottishPower (the "PARTNERSHIP"), and PACIFICORP,
an Oregon corporation (the "COMPANY"), and, with respect to SECTION 2.01
hereof only, Scottish Power NA 1 Limited, a limited liability company
incorporated under the laws of Scotland ("UKSUB1") and Scottish Power NA 2
Limited, a limited liability company incorporated under the laws of Scotland
("UKSUB2").
WHEREAS, ScottishPower, the Partnership, UKSub1, UKSub2 and the
Company entered into an Agreement and Plan of Merger dated as of December 6,
1998 and amended as of January 29, 1999 and February 9, 1999 (the "ORIGINAL
AGREEMENT");
WHEREAS, HoldCo, ScottishPower, the Partnership, UKSub1, UKSub2 and
the Company wish to amend and restate the Original Agreement in its entirety,
effective as of the date set forth in SECTION 9.03(c);
WHEREAS, the Board of Directors of ScottishPower intends to
recommend to its shareholders a proposal to introduce HoldCo as a new holding
company for the ScottishPower group pursuant to a scheme of arrangement
sanctioned by the Court of Session, Edinburgh (the "SCHEME OF ARRANGEMENT"),
substantially in the form of the draft Scheme of Arrangement attached hereto
as Exhibit A subject to such amendments as ScottishPower may reasonably deem
necessary or desirable; PROVIDED, that if such amendments would have a
material adverse effect on the benefits of the Merger for the holders of
Company Common Stock, such amendments may only be effected with the prior
written consent of the Company;
WHEREAS, pursuant to the Scheme of Arrangement, (A) all ordinary
shares of 50 pence each of ScottishPower ("SCOTTISHPOWER ORDINARY SHARES")
will be cancelled and the holders thereof will receive in place of the
ScottishPower Ordinary Shares then held by them an identical number of
ordinary shares of 50 pence each of HoldCo ("HOLDCO ORDINARY SHARES"), and
(B) all ScottishPower Ordinary Shares represented by American Depositary
Shares of ScottishPower ("SCOTTISHPOWER ADSS"), each representing four (4)
ScottishPower Ordinary Shares and evidenced by American Depositary Receipts
("SCOTTISHPOWER ADRS"), will be cancelled and the holders thereof will
receive in place of the ScottishPower ADSs then held by them an identical
number of American Depositary Shares of HoldCo ("HOLDCO ADSS"), each
representing four (4) HoldCo Ordinary Shares and evidenced by American
Depositary Receipts ("HOLDCO ADRS");
WHEREAS, after the Scheme Date (as defined in SECTION 2.01) and
prior to the Closing Date (as defined in SECTION 1.02) ScottishPower shall
transfer to HoldCo all of the outstanding shares of UKSub 1 and UKSub 2
("SHARE TRANSFER");
WHEREAS, the Boards of Directors of HoldCo, ScottishPower and the
Company and the partners of the Partnership, have each determined that it is
advisable and in the best
<PAGE>
interests of their respective stockholders and partners, as the case may be,
to consummate, and have approved, the business combination transaction
provided for herein in which Merger Sub (as defined below) would merge with
and into the Company and the Company would become an indirect, wholly-owned
subsidiary of HoldCo (the "MERGER") pursuant to the terms of this Agreement,
whereby each issued and outstanding share of common stock of the Company (the
"COMPANY COMMON STOCK"), other than shares owned directly or indirectly by
HoldCo, ScottishPower, the Partnership, Merger Sub or the Company, will be
converted into the right to receive either (i) HoldCo ADSs evidenced by
HoldCo ADRs or (ii) HoldCo Ordinary Shares (the "MERGER ORDINARY SHARES");
WHEREAS, immediately prior to the Closing Date (as defined in
SECTION 1.02), an Oregon corporation wholly-owned by the Partnership ("MERGER
SUB") will be formed for the purpose of effectuating the Merger;
WHEREAS, the respective Boards of Directors of HoldCo,
ScottishPower and the Company, and the partners of the Partnership, have
determined that the Merger is in furtherance of and consistent with their
respective long-term business strategies and is fair to and in the best
interests of their respective shareholders and stockholders, each of HoldCo
and ScottishPower has approved this Agreement and the Merger, UKSub 1 and
UKSub 2 in their capacity as general partners of the Partnership and as
parties to SECTION 2.01 have approved this Agreement and the Merger, and the
Partnership has agreed that, immediately following the formation of Merger
Sub, it will approve this Agreement and the Merger as the sole stockholder of
Merger Sub;
WHEREAS, for federal income tax purposes, it is intended that the
Merger shall qualify as a reorganization within the meaning of Section 368(a)
of the Internal Revenue Code of 1986, as amended (the "CODE"); and
WHEREAS, HoldCo, ScottishPower, the Partnership and the Company
desire to make certain representations, warranties and agreements in
connection with the Merger and also to prescribe various conditions to the
Merger;
NOW, THEREFORE, in consideration of the mutual covenants and
agreements set forth in this Agreement, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the parties hereto agree as follows:
ARTICLE I
THE MERGER
1.01 THE MERGER. Upon the terms and subject to the conditions of
this Agreement, at the Effective Time (as defined in SECTION 1.03), Merger
Sub shall be merged with and into the Company in accordance with the Business
Corporation Act of the State of Oregon (the "BCA"). At the Effective Time,
the separate existence of Merger Sub shall cease and the Company shall
continue as the surviving corporation in the Merger (the "SURVIVING
CORPORATION"). Merger Sub and the Company are sometimes referred to herein
as the "CONSTITUENT CORPORATIONS". As a result of the Merger, the
outstanding shares of capital stock of
2
<PAGE>
the Constituent Corporations shall be converted and cancelled in the manner
provided in Article II.
1.02 CLOSING. Unless this Agreement shall have been terminated and
the transactions herein contemplated shall have been abandoned pursuant to
SECTION 8.01, and subject to the satisfaction or waiver (where applicable) of
the conditions set forth in ARTICLE VII, the consummation of the Merger (the
"CLOSING") will take place at the offices of Milbank, Tweed, Hadley & McCloy,
1 Chase Manhattan Plaza, New York, New York 10005, at 10:00 a.m., local
time, on the fifth business day following satisfaction or waiver (where
applicable) of the conditions set forth in ARTICLE VII, unless another date,
time or place is agreed to in writing by the parties hereto (the "CLOSING
DATE"). At the Closing there shall be delivered to HoldCo, ScottishPower,
the Partnership, Merger Sub and the Company the certificates and other
documents and instruments required to be delivered under ARTICLE VII.
1.03 EFFECTIVE TIME. At the Closing, the parties shall cause to be
duly prepared and executed by the Company as the Surviving Corporation and
Merger Sub articles of merger (the "ARTICLES OF MERGER") for filing on, or as
soon as practicable after, the Closing Date with the Secretary of State of
the State of Oregon (the "SECRETARY OF STATE"), as provided in Section 60.494
of the BCA. The Merger shall become effective at the time of the filing of
the Articles of Merger with the Secretary of State (such date and time being
referred to herein as the "EFFECTIVE TIME").
1.04 GOVERNING INSTRUMENT. At the Effective Time, (i) the Articles
of Incorporation of the Company as in effect immediately prior to the
Effective Time shall be the Articles of Incorporation of the Surviving
Corporation until thereafter amended as provided by law and such Articles of
Incorporation, and (ii) the Bylaws of the Company as in effect immediately
prior to the Effective Time shall be the Bylaws of the Surviving Corporation
until thereafter amended as provided by law, the Articles of Incorporation of
the Surviving Corporation and such Bylaws.
1.05 DIRECTORS AND OFFICERS OF THE SURVIVING CORPORATION. The
individuals listed on SCHEDULE I shall, from and after the Effective Time, be
the directors and executive officers, respectively, of the Company as the
Surviving Corporation until their successors shall have been duly elected or
appointed and qualified or until their earlier death, resignation or removal
in accordance with the Surviving Corporation's Articles of Incorporation and
Bylaws.
1.06 EFFECTS OF THE MERGER. Subject to the foregoing, the effects
of the Merger shall be as provided in the applicable provisions of the BCA.
1.07 FURTHER ASSURANCES. Each party hereto will, either prior to
or after the Effective Time, execute such further documents, instruments,
deeds, bills of sale, assignments and assurances and take such further
actions as may reasonably be requested by one or more of the other parties
hereto to consummate the Merger, to vest the Surviving Corporation with full
title to all assets, properties, privileges, rights, approvals, immunities
and franchises of either of the Constituent Corporations or to effect the
other purposes of this Agreement.
3
<PAGE>
ARTICLE II
CONVERSION OF SHARES
2.01 CONVERSION OF CAPITAL STOCK. At the Effective Time, by virtue
of the Merger and, with respect to clauses (a)-(c), (f) and (g) hereof,
without any action on the part of the holder thereof:
(a) CAPITAL STOCK OF MERGER SUB. Each issued and outstanding
share of the common stock of Merger Sub ("MERGER SUB COMMON STOCK")
outstanding immediately prior to the Effective Time shall be cancelled and
the Surviving Corporation shall issue to the Partnership at the Effective
Time such number of shares of common stock as is equal to the number of
shares of Merger Sub Common Stock, with the same rights, powers and
privileges as the Merger Sub Common Stock, and shall constitute the only
outstanding shares of common stock of the Surviving Corporation ("SURVIVING
CORPORATION COMMON STOCK").
(b) CANCELLATION OF TREASURY STOCK AND STOCK OWNED BY HOLDCO,
SCOTTISHPOWER AND SUBSIDIARIES. All shares of Company Common Stock that are
owned by the Company as treasury stock and any shares of Company Common Stock
owned by HoldCo, ScottishPower, the Partnership, Merger Sub or any other
wholly-owned Subsidiary (as defined in SECTION 9.12) of HoldCo or
ScottishPower, shall be canceled and retired and shall cease to exist and no
stock of HoldCo or other consideration shall be delivered in exchange
therefor.
(c) CONVERSION OF COMPANY COMMON STOCK. (i) Each issued and
outstanding share of Company Common Stock (other than shares to be cancelled
in accordance with SECTION 2.01(b)), shall be converted into the right to
receive (A) .58 HoldCo ADSs (the "ADS CONSIDERATION"), or (B) if a properly
completed Ordinary Share Election Form (as defined in SECTION 2.02) shall
have been submitted to the Exchange Agent (as defined in SECTION 2.02) on a
timely basis with respect to such share of Company Common Stock, 2.32 fully
paid and nonassessable Merger Ordinary Shares (the "ORDINARY SHARE
CONSIDERATION"; the Ordinary Share Consideration and the ADS Consideration
are each sometimes referred to herein as the "MERGER CONSIDERATION"). All
shares of Company Common Stock to be converted into shares of HoldCo ADSs or
Merger Ordinary Shares pursuant to this SECTION 2.01(c) are hereinafter
referred to as "CONVERTED SHARES."
(ii) If, (A) prior to the time at which the Scheme of Arrangement
becomes effective (the "SCHEME DATE"), ScottishPower shall pay a dividend in,
subdivide, consolidate or, except pursuant to the Scheme of Arrangement,
issue by capitalization of its reserves, any ScottishPower Ordinary Shares or
(B) following the Scheme Date and prior to the Effective Time, HoldCo shall
pay a dividend in, subdivide, consolidate or issue by capitalization of its
reserves, any HoldCo Ordinary Shares, as applicable, the Merger Consideration
shall be multiplied by a fraction, the numerator of which shall be the number
of ScottishPower Ordinary Shares or HoldCo Ordinary Shares, as applicable,
outstanding immediately after, and the denominator of which shall be the
number of such shares outstanding immediately before, the occurrence of such
event, and the resulting product shall from and after the date of such event
be the Merger Consideration subject to further adjustment in accordance with
this sentence.
4
<PAGE>
(iii) All shares of Company Common Stock converted in
accordance with paragraph (i) of this SECTION 2.01(c) shall no longer be
outstanding and shall, as part of the consideration for the allotment and
issue by HoldCo referred to in SECTION 2.01(e) below, automatically be
canceled and retired and shall cease to exist, and each holder of a
certificate representing any such shares shall cease to have any rights with
respect thereto, except the right to receive the Merger Consideration and any
cash in lieu of fractional HoldCo ADSs or Merger Ordinary Shares (determined
in accordance with SECTION 2.03(e)), upon the surrender of such certificate
in accordance with SECTION 2.03, without interest.
(d) UKSub 1 shall continue to be the owner of a 90% general
partnership interest in the Partnership, and UKSub 2 shall continue to be the
owner of a 10% general partnership interest in the Partnership.
(e) As consideration for the acquisition by the Partnership of the
Surviving Corporation Common Stock in accordance with SECTION 2.01(a): (i)
the Partnership agrees to issue a loan note to HoldCo in the form and in an
amount to be mutually agreed upon by HoldCo and the Partnership (the
"PARTNERSHIP LOAN NOTE"), (ii) UKSub 1 agrees to allot and issue to HoldCo
fully paid ordinary shares of L1 each and (iii) UKSub 2 agrees to allot and
issue to HoldCo fully paid ordinary shares of L1 each. In consideration of
the other steps referred to in this SECTION 2.01 (including, to the extent
set out in column A of EXHIBIT B attached hereto, the issue of the
Partnership Loan Note by the Partnership), HoldCo shall allot and issue (i)
the number of HoldCo Ordinary Shares represented by HoldCo ADSs to be issued
in the Merger to HoldCo's United States Depositary (the "ADR DEPOSITARY") on
behalf of the holders of Company Common Stock entitled thereto for the
purposes of giving effect to the conversion and exchange referred to in this
Article II, and (ii) the number of Merger Ordinary Shares to be issued in the
Merger. In consideration of the other steps referred to in this SECTION 2.01
(including, to the extent set out in column B of EXHIBIT B, the issues of
ordinary shares by UKSub 1 and UKSub 2 referred to above), HoldCo shall allot
and issue (i) the number of HoldCo Ordinary Shares represented by HoldCo ADSs
to be issued in the Merger to the ADR Depositary on behalf of the holders of
Company Common Stock entitled thereto for the purposes of giving effect to
the conversion and exchange referred to in this Article II, and (ii) the
number of Merger Ordinary Shares to be issued in the Merger.
(f) Subject to the terms and conditions of the Company's Stock
Incentive Plan (the "COMPANY OPTION PLAN") and the stock option agreements
executed pursuant thereto, each option to purchase Company Common Stock
granted thereunder that is outstanding at the Effective Time (a "COMPANY
OPTION") shall be converted into an option to acquire, on the same terms and
conditions as were applicable under the Company Option Plan at the Effective
Time, a number of (i) HoldCo ADSs equal to the ADS Consideration, or (ii)
Merger Ordinary Shares equal to the Ordinary Share Consideration, in each
case multiplied by the number of shares of Company Common Stock subject to
such option immediately prior to the Effective Time, on the basis described
in SECTION 6.10. The Company as the Surviving Corporation and HoldCo shall
take all action necessary to ensure that HoldCo has control of the operation
of the Company Option Plan and the Company Restricted Stock Plans.
5
<PAGE>
(g) Subject to SECTION 5.01 (c)(iv)(C), the Company Preferred
Stock (as defined below) shall not be affected by the Merger and shall
continue to have the same rights and preferences as were in effect prior to
consummation of the Merger.
2.02 PROCEDURE FOR ELECTION. At such time as shall be sufficient
to permit the holders of Company Common Stock to exercise their right to make
an election pursuant to this SECTION 2.02, HoldCo will make available to all
holders of Company Common Stock of record a letter of transmittal and
election form and other appropriate materials (collectively, the "ORDINARY
SHARE ELECTION FORM") providing for such holder to elect to receive the
Ordinary Share Consideration with respect to all or any portion of such
holder's shares of Company Common Stock ("ORDINARY SHARE ELECTION"). As of
the Election Date (as hereinafter defined), any share of Company Common Stock
with respect to which there shall not have been effected such election by
submission to the Exchange Agent (as defined in SECTION 2.03) of an
effective, properly completed Ordinary Share Election Form shall be converted
in the Merger into the right to receive the ADS Consideration.
(a) Any election to receive the Ordinary Share Consideration shall
have been validly made only if the Exchange Agent shall have received by 5:00
p.m., New York City time, on or prior to the Election Date, an Ordinary Share
Election Form properly completed and executed (with the signature or
signatures thereon guaranteed if required by the Ordinary Share Election
Form) by such holder of shares of Company Common Stock. As used herein,
"ELECTION DATE" means a date announced by HoldCo, in a news release delivered
to the Dow Jones News Service, as the last day on which an Ordinary Share
Election Form will be accepted; PROVIDED, HOWEVER, that such date shall be a
business day no earlier than five (5) business days prior to the date on
which the Effective Time occurs and shall be at least five (5), and not more
than 20, business days following the date of such news release; PROVIDED
FURTHER, that, subsequent to such announcement, HoldCo shall have the right
to change such Election Date to a later date so long as such later date is
(i) at least five (5) business days following the date of notice of such
change and (ii) not later than the date on which the Effective Time occurs.
HoldCo shall have the right to make reasonable determinations and to
establish reasonable procedures (not inconsistent with the terms of this
Agreement) in guiding the Exchange Agent in its determination as to the
validity of Ordinary Share Election Forms and of any revision, revocation or
withdrawal thereof.
(b) Two or more holders of shares of Company Common Stock who are
determined to constructively own such shares owned by each other by virtue of
Section 318(a) of the Code and who so certify to HoldCo's reasonable
satisfaction, and any single holder of shares of Company Common Stock who
holds such shares in two or more different names and who so certifies to
HoldCo's reasonable satisfaction, may submit a joint Ordinary Share Election
Form covering the aggregate shares of Company Common Stock owned by all such
holders or by such single holder, as the case may be. For all purposes of
this Agreement, each such group of holders which, and each such single holder
who, submits a joint Ordinary Share Election Form shall be treated as a
single holder of shares of Company Common Stock.
(c) Record holders of shares of Company Common Stock who are
nominees only may submit a separate Ordinary Share Election Form for each
beneficial owner for whom such record holder is a nominee; PROVIDED, HOWEVER,
that, at the request of HoldCo, such record
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holder shall certify to the reasonable satisfaction of HoldCo that such
record holder holds such shares as nominee for the beneficial owner thereof.
For purposes of this Agreement, each beneficial owner for which an Ordinary
Share Election Form is submitted will be treated as a separate holder of
shares of Company Common Stock subject, however, to SECTION 2.02(b).
(d) Any holder of shares of Company Common Stock may at any time
prior to 5:00 p.m. New York City time, on the Election Date revoke such
holder's election by written notice to the Exchange Agent received at any
time prior to 5:00 p.m., New York City time, on the Election Date.
2.03 EXCHANGE OF CERTIFICATES. (a) EXCHANGE AGENT. Promptly
following the Effective Time, (i) HoldCo shall issue to and deposit with the
ADR Depositary, for the benefit of the holders of shares of Company Common
Stock converted into the ADS Consideration in accordance with Section
2.01(c), HoldCo Ordinary Shares in an amount sufficient to permit the ADR
Depositary to issue HoldCo ADRs representing the number of HoldCo ADSs
issuable pursuant to Section 2.01(c) and (ii) HoldCo shall, for the benefit
of the holders of the shares of Company Common Stock converted into Merger
Ordinary Shares in the Merger, make available to the Surviving Corporation
for deposit with a bank or trust company designated before the Closing Date
by HoldCo and reasonably acceptable to the Company (the "EXCHANGE AGENT"),
(A) certificates representing the number of duly authorized whole Merger
Ordinary Shares issuable in accordance with SECTION 2.01(c), and (B) an
amount of cash equal to the aggregate amount payable in lieu of fractional
HoldCo ADSs and Merger Ordinary Shares in accordance with SECTION 2.03(e)
(such cash, certificates representing Merger Ordinary Shares and HoldCo ADRs
representing HoldCo ADSs, together with any dividends or distributions with
respect thereto being hereinafter referred to as the "EXCHANGE FUND"), to be
held for the benefit of and distributed to the holders of Converted Shares in
accordance with this Section. The Exchange Agent shall agree to hold such
Merger Ordinary Shares and funds for delivery as contemplated by this Section
and upon such additional terms as may be agreed upon by the Exchange Agent,
the Company and HoldCo. HoldCo shall cause the ADR Depositary to issue
through and upon the instructions of the Exchange Agent, for the benefit of
the holders of shares of the Company Common Stock converted into the ADS
Consideration in accordance with SECTION 2.01(c), HoldCo ADRs representing
the number of HoldCo ADSs issuable pursuant to SECTION 2.01(c). Neither
HoldCo, ScottishPower, their respective affiliates nor holders of Converted
Shares shall be responsible for any stamp duty reserve tax payable in
connection with the ADS Consideration. The Exchange Agent shall invest any
cash included in the Exchange Fund as directed by the Surviving Corporation
on a daily basis. Any interest and other income resulting from such
investments shall promptly be paid to the Surviving Corporation.
(b) EXCHANGE PROCEDURES. As soon as reasonably practicable after
the Effective Time, the Surviving Corporation shall cause the Exchange Agent
to mail to each holder of record of a certificate or certificates which
immediately prior to the Effective Time represented outstanding shares of
Company Common Stock (the "CERTIFICATES") whose shares are converted pursuant
to this ARTICLE II into the right to receive HoldCo ADSs or Merger Ordinary
Shares (i) a letter of transmittal (which shall specify that delivery shall
be effected, and risk of loss and title to the Certificates shall pass, only
upon delivery of the Certificates to the Exchange Agent and shall be in such
form and have such other provisions as the Surviving Corporation or
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HoldCo may reasonably specify) and (ii) instructions for use in effecting the
surrender of the Certificates in exchange for certificates representing
HoldCo ADRs which represent HoldCo ADSs, and Merger Ordinary Shares and cash
in lieu of fractional HoldCo ADSs or Merger Ordinary Shares. Upon surrender
of a Certificate for cancellation to the Exchange Agent, together with such
letter of transmittal duly executed and completed in accordance with its
terms, the holder of such Certificate shall be entitled to receive in
exchange therefor (i) one or more HoldCo ADRs representing, in the aggregate,
that whole number of HoldCo ADSs and/or a certificate or certificates
representing that whole number of Merger Ordinary Shares elected to be
received in accordance with SECTION 2.02, (ii) the amount of dividends or
other distributions, if any, with a record date on or after the Effective
Time which theretofore became payable with respect to such HoldCo ADSs and
Merger Ordinary Shares, and (iii) the cash amount payable in lieu of
fractional HoldCo ADSs and Merger Ordinary Shares in accordance with SECTION
2.03(e), in each case which such holder has the right to receive pursuant to
the provisions of this ARTICLE II, and the Certificate so surrendered shall
forthwith be canceled. In no event shall the holder of any Certificate be
entitled to receive interest on any funds to be received in the Merger. In
the event of a transfer of ownership of Company Common Stock which is not
registered in the transfer records of the Company, one or more HoldCo ADRs
representing, in the aggregate, that whole number of HoldCo ADSs and/or a
certificate or certificates representing that whole number of Merger Ordinary
Shares elected to be received in accordance with SECTION 2.02, plus the cash
amount payable in lieu of fractional HoldCo ADSs and Merger Ordinary Shares
in accordance with SECTION 2.03(e), may be issued to a transferee if the
Certificate representing such Company Common Stock is presented to the
Exchange Agent accompanied by all documents required to evidence and effect
such transfer and by evidence that any applicable stock transfer taxes have
been paid. Until surrendered as contemplated by this SECTION 2.03(b), each
Certificate shall be deemed at any time after the Effective Time for all
corporate purposes of HoldCo, except as limited by SECTION 2.03(c) below and
subject to applicable law, to represent ownership of the whole number of
HoldCo ADSs and/or Merger Ordinary Shares into which the number of shares of
Company Common Stock shown thereon have been converted as contemplated by
this ARTICLE II. Notwithstanding the foregoing, Certificates representing
Company Common Stock surrendered for exchange by any person constituting an
"AFFILIATE" of the Company for purposes of SECTION 6.04 shall not be
exchanged until HoldCo has received an Affiliate Agreement (as defined in
SECTION 6.04) as provided in SECTION 6.04.
(c) DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED SHARES. No
dividends or other distributions declared, made or paid after the Effective
Time with respect to HoldCo Ordinary Shares with a record date on or after
the Effective Time shall be paid to the holder of any unsurrendered
Certificate with respect to the HoldCo ADSs and Merger Ordinary Shares
represented thereby and no cash payment in lieu of fractional HoldCo ADSs and
Merger Ordinary Shares shall be paid to any such holder pursuant to SECTION
2.03(e) until the holder of record of such Certificate shall surrender such
Certificate in accordance with this Section. Subject to the effect of
applicable laws, following surrender of any such Certificate, there shall be
paid to the record holder of the certificates representing the HoldCo ADRs
which represent HoldCo ADSs and Merger Ordinary Shares issued in exchange
therefor, without interest, (i) at the time of such surrender, the amount of
dividends or other distributions, if any, with a record date on or after the
Effective Time which theretofore became payable, but which were not paid by
reason of the immediately preceding sentence, with respect to such HoldCo
ADSs and Merger
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Ordinary Shares and (ii) at the appropriate payment date, the amount of
dividends or other distributions with a record date on or after the Effective
Time but prior to surrender and a payment date subsequent to surrender
payable with respect to such HoldCo ADSs and Merger Ordinary Shares.
(d) NO FURTHER OWNERSHIP RIGHTS IN COMPANY COMMON STOCK. All
HoldCo ADSs and Merger Ordinary Shares issued upon the surrender for exchange
of Certificates in accordance with the terms hereof (including any cash paid
pursuant to SECTION 2.03(e)) shall be deemed to have been issued at the
Effective Time in full satisfaction of all rights pertaining to the Converted
Shares represented thereby, subject, however, to the Surviving Corporation's
obligation to pay any dividends which may have been declared by the Company
on the shares of Company Common Stock in accordance with the terms of this
Agreement and which remained unpaid at the Effective Time. From and after
the Effective Time, the stock transfer books of the Company shall be closed
and there shall be no further registration of transfers thereon of the shares
of Company Common Stock which were outstanding immediately prior to the
Effective Time. If, after the Effective Time, Certificates are presented to
the Surviving Corporation for any reason, they shall be canceled and
exchanged as provided in this Section.
(e) NO FRACTIONAL SHARES. No certificate or scrip representing
fractional HoldCo ADSs or Merger Ordinary Shares will be issued in the Merger
upon the surrender for exchange of Certificates, and such fractional HoldCo
ADS or Merger Ordinary Share interests will not entitle the owner thereof to
vote or to any rights of a holder of HoldCo ADSs or Merger Ordinary Shares.
In lieu of any such fractional HoldCo ADS or Merger Ordinary Share, each
holder of Certificates who would otherwise have been entitled to a fraction
of HoldCo ADS or Merger Ordinary Share in exchange for such Certificates
pursuant to this Section shall receive from the Exchange Agent, as
applicable, (i) a cash payment in lieu of such fractional HoldCo ADS
determined by multiplying (A) the Sales Price (as defined below) of a HoldCo
ADS on the last Trading Day (as defined below) immediately preceding the
Closing Date by (B) the fractional HoldCo ADS interest to which such holder
would otherwise be entitled, and/or (ii) a cash payment in lieu of such
fractional Merger Ordinary Share determined by multiplying (A) the Sales
Price of a HoldCo ADS Ordinary Share on the last Trading Day immediately
preceding the Closing Date by (B) the fractional Merger Ordinary Share
interest to which such holder would otherwise be entitled. The term "SALES
PRICE" shall mean, on any Trading Day, with respect to HoldCo ADSs, the
closing sales price of HoldCo ADSs reported on the New York Stock Exchange,
Inc. ("NYSE") Composite Tape on such day and, with respect to Merger Ordinary
Shares, the closing middle market quotation of a HoldCo Ordinary Share as
reported in the Daily Official List of the London Stock Exchange ("LSE") for
such date. The term "TRADING DAY" shall mean any day on which securities are
traded, with respect to HoldCo ADSs, on the NYSE, and with respect to HoldCo
Ordinary Shares, on the LSE.
(f) TERMINATION OF EXCHANGE FUND. Any portion of the Exchange
Fund which remains undistributed to the stockholders of the Company for one
(1) year after the Effective Time shall be delivered to HoldCo, upon demand,
and any holders of Certificates who have not theretofore complied with this
Article II shall thereafter look only to HoldCo (subject to abandoned
property, escheat and other similar laws) as general creditors for payment of
their claim for HoldCo ADSs, Merger Ordinary Shares, any cash in lieu of
fractional HoldCo ADSs
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and Merger Ordinary Shares and any dividends or distributions with respect to
HoldCo ADSs and Merger Ordinary Shares. Neither HoldCo, ScottishPower nor the
Surviving Corporation shall be liable to any holder of any Certificate for
HoldCo ADSs or Merger Ordinary Shares (or dividends or distributions with
respect to either), or cash payable in respect of fractional HoldCo ADSs or
Merger Ordinary Shares, delivered to a public official pursuant to any
applicable abandoned property, escheat or similar law.
(g) LOST CERTIFICATES. If any Certificate shall have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the
person claiming such Certificate to be lost, stolen or destroyed and, if
required by HoldCo, the posting by such person of a bond in such reasonable
amount as HoldCo may direct as indemnity against any claim that may be made
against it with respect to such Certificate, the Exchange Agent will deliver
in exchange for such lost, stolen or destroyed Certificate the applicable
Merger Consideration with respect to the shares of Company Common Stock
formerly represented thereby, any cash in lieu of fractional HoldCo ADSs or
Merger Ordinary Shares, and unpaid dividends and distributions in respect of
or on HoldCo ADSs or Merger Ordinary Shares deliverable in respect thereof,
pursuant to this Agreement.
2.04 WITHHOLDING RIGHTS. Each of the Surviving Corporation and
HoldCo shall be entitled to deduct and withhold from the consideration
otherwise payable pursuant to this Agreement to any holder of shares of
Company Common Stock such amounts as it is required to deduct and withhold
with respect to the making of such payment under the Code, or any provision
of state, local or foreign tax law, including the tax laws of the United
Kingdom. To the extent that amounts are so withheld by the Surviving
Corporation or HoldCo, as the case may be, such withheld amounts shall be
treated for all purposes of this Agreement as having been paid to the holder
of the shares of Company Common Stock in respect of which such deduction and
withholding was made by the Surviving Corporation or HoldCo, as the case may
be.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to HoldCo, ScottishPower, the
Partnership and Merger Sub, as of December 6, 1998 (except for the
representations and warranties contained in SECTIONS 3.03 AND 3.04, which are
made as of the date hereof), as follows:
3.01 ORGANIZATION AND QUALIFICATION. (a) Each of the Company and
its Subsidiaries is duly organized, validly existing and in good standing
(with respect to jurisdictions which recognize the concept of good standing)
under the laws of its jurisdiction of organization and has full corporate or
partnership, as the case may be, power and authority to conduct its business
as and to the extent now conducted and to own, use and lease its assets and
properties, except for such failures to be so organized, existing and in good
standing (with respect to jurisdictions which recognize the concept of good
standing) or to have such power and authority which, individually or in the
aggregate, are not having and would not reasonably be expected to have a
material adverse effect (as defined in SECTION 9.12) on the Company and its
Subsidiaries
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taken as a whole. Each of the Company and its Subsidiaries is duly
qualified, licensed or admitted to do business and is in good standing (with
respect to jurisdictions which recognize the concept of good standing) in
each jurisdiction in which the ownership, use or leasing of its assets and
properties, or the conduct or nature of its business, makes such
qualification, licensing or admission necessary, except for such failures to
be so qualified, licensed or admitted and in good standing (with respect to
jurisdictions that recognize the concept of good standing) which,
individually or in the aggregate, are not having and would not reasonably be
expected to have a material adverse effect on the Company and its
Subsidiaries taken as a whole. SECTION 3.01 of the letter dated December 6,
1998 and delivered to ScottishPower, the Partnership and Merger Sub by the
Company on such date (the "COMPANY DISCLOSURE LETTER") sets forth (i) the
name and jurisdiction of organization of each Subsidiary of the Company and
(x) with respect to Subsidiaries that are corporations, (a) such Subsidiary's
authorized capital stock, (b) the number of issued and outstanding shares of
such Subsidiary's capital stock and (c) the record owners of such
Subsidiary's shares and, (y) with respect to Subsidiaries that are
partnerships, the names and ownership interests of the partners thereof. The
Company has previously delivered to ScottishPower correct and complete copies
of the certificate or articles of incorporation and bylaws (or other
comparable charter documents) of the Company and its Subsidiaries.
(b) SECTION 3.01 of the Company Disclosure Letter sets forth a
description as of December 6, 1998, of all Company Joint Ventures, including
(i) the name of each such entity and the Company's interest therein, and (ii)
a brief description of the principal line or lines of business conducted by
each such entity. For purposes of this Agreement:
(i) "JOINT VENTURE" of a person or entity shall mean any
corporation or other entity (including partnerships and other business
associations) that is not a Subsidiary of such person or entity, in which
such person or one or more of its Subsidiaries owns directly or indirectly
an equity interest, other than equity interests which are less than 5% of
each class of the outstanding voting securities or equity interests of any
such entity;
(ii) "COMPANY JOINT VENTURE" shall mean any Joint Venture of the
Company or any of its Subsidiaries; and
(iii) "SCOTTISH POWER JOINT VENTURE" shall mean any Joint Venture
of ScottishPower, HoldCo or any of their respective Subsidiaries.
(c) Except for interests in the Subsidiaries of the Company, the
Company Joint Ventures and as disclosed in the Company SEC Reports (as
defined in SECTION 3.05) filed prior to December 6, 1998 or SECTION 3.01 of
the Company Disclosure Letter, the Company does not directly or indirectly
own any equity or similar interest in, or any interest convertible into or
exchangeable or exercisable for any equity or similar interest in, any
material corporation, partnership, limited liability company, joint venture
or other business association or entity (other than non-controlling
investments in the ordinary course of business and corporate partnering,
development, cooperative marketing and similar undertakings and arrangements
entered into in the ordinary course of business).
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3.02 CAPITAL STOCK. (a) The authorized capital stock of the
Company consists of:
(i) 750 million shares of Company Common Stock, of which
297,335,056 shares were issued and outstanding as of November 30, 1998, and
(ii) 126,533 shares of 5% preferred stock, of which 126,533 were
issued and outstanding as of November 30, 1998, 3.5 million shares of
serial preferred stock, of which 288,499 were issued and outstanding as of
November 30, 1998 and of which 2,065 shares were designated the 4.52%
Series, 18,060 shares were designated the 7.00% Series, 5,932 shares were
designated the 6.00% Series, 42,000 were designated the 5.00% Series,
65,960 were designated the 5.40% Series, 69,890 were designated the 4.72%
Series, and 84,592 were designated the 4.56% Series, respectively; and 16
million shares of no par serial preferred stock, of which 2,744,438 were
issued and outstanding as of November 30, 1998 and of which 381,220 shares
were designated the $1.28 Series, 420,116 shares were designated the $1.18
Series, 193,102 shares were designated the $1.16 Series, 1,000,000 shares
were designated the $7.70 Series, and 750,000 shares were designated the
$7.48 Series, respectively (collectively, the "COMPANY PREFERRED STOCK").
As of November 30, 1998, 28,817,971 shares of Company Common Stock
were reserved or held for issuance under the PacifiCorp Stock Incentive Plan,
the PacifiCorp Long Term Incentive Plan, the PacifiCorp K-Plus Employee
Savings and Stock Ownership Plan and the PacifiCorp Dividend Reinvestment and
Stock Purchase Plan. All of the issued and outstanding shares of Company
Common Stock are, and all shares reserved for issuance will be, upon issuance
in accordance with the terms specified in the instruments or agreements
pursuant to which they are issuable, duly authorized, validly issued, fully
paid and nonassessable. Except pursuant to this Agreement and except as
described in SECTION 3.02 of the Company Disclosure Letter, as of December 6,
1998 there were no outstanding subscriptions, options, warrants, rights
(including stock appreciation rights), preemptive rights or other contracts,
commitments, understandings or arrangements, including any right of
conversion or exchange under any outstanding security, instrument or
agreement (together, "OPTIONS"), obligating the Company or any of its
Subsidiaries to issue or sell any shares of capital stock of the Company or
to grant, extend or enter into any Option with respect thereto.
(b) Except as disclosed in the Company SEC Reports filed prior to
December 6, 1998 or SECTION 3.02 of the Company Disclosure Letter, all of the
outstanding shares of capital stock of each Subsidiary of the Company are
duly authorized, validly issued, fully paid and nonassessable and are owned,
beneficially and of record, by the Company or a Subsidiary wholly owned,
directly or indirectly, by the Company, free and clear of any liens, claims,
mortgages, encumbrances, pledges, security interests, equities and charges of
any kind (each a "LIEN"), other than Liens or failures to so own which are
immaterial. Each outstanding share of Company Preferred Stock, other than
shares of the $1.28 Series, $1.18 Series and $1.16 Series of no par serial
preferred stock, is entitled to one vote per share, voting together with the
holders of Company Common Stock as a single class, on all matters generally
submitted to the stockholders of the Company for a vote. Except as disclosed
in the Company SEC Reports filed prior to December 6, 1998 or SECTION 3.02 of
the Company Disclosure Letter, there are no (i) outstanding
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Options obligating the Company or any of its Subsidiaries to issue or sell
any shares of capital stock of any Subsidiary of the Company or to grant,
extend or enter into any such Option or (ii) voting trusts, proxies or other
commitments, understandings, restrictions or arrangements in favor of any
person other than the Company or a Subsidiary wholly owned, directly or
indirectly, by the Company with respect to the voting of or the right to
participate in dividends or other earnings on any capital stock of any
Subsidiary of the Company.
(c) None of the Subsidiaries of the Company or the Company Joint
Ventures is a "PUBLIC UTILITY COMPANY," a "HOLDING COMPANY," a "SUBSIDIARY
COMPANY" or an "AFFILIATE" of any public utility company within the meaning
of SECTION 2(a)(5), 2(a)(7), 2(a)(8) or 2(a)(11) of the Public Utility
Holding Company Act of 1935, as amended (the "1935 ACT"), respectively.
(d) Except as disclosed in the Company SEC Reports filed prior to
December 6, 1998 or SECTION 3.02 of the Company Disclosure Letter, there are
no outstanding contractual obligations of the Company or any Subsidiary of
the Company to repurchase, redeem or otherwise acquire any shares of Company
Common Stock or any material capital stock of any Subsidiary of the Company
or to provide any material amount of funds to, or make any material
investment (in the form of a loan, capital contribution or otherwise) in, any
Subsidiary of the Company or any other person.
3.03 AUTHORITY RELATIVE TO THIS AGREEMENT. The Company has full
corporate power and authority to enter into this Agreement, and, subject to
obtaining the Company Stockholders' Approval (as defined in SECTION 6.03
(b)), to perform its obligations hereunder and to consummate the transactions
contemplated hereby. The execution, delivery and performance of this
Agreement by the Company and the consummation by the Company of the
transactions contemplated hereby have been duly and validly approved by the
Board of Directors of the Company, the Board of Directors of the Company has
recommended approval of this Agreement by the stockholders of the Company and
directed that this Agreement be submitted to the stockholders of the Company
for their consideration, and no other corporate proceedings on the part of
the Company or its stockholders are necessary to authorize the execution,
delivery and performance of this Agreement by the Company and the
consummation by the Company of the transactions contemplated hereby, other
than obtaining the Company Stockholders' Approval. This Agreement has been
duly and validly executed and delivered by the Company and constitutes a
legal, valid and binding obligation of the Company enforceable against the
Company in accordance with its terms, except as enforceability may be limited
by bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting the enforcement of creditors' rights generally and by general
equitable principles (regardless of whether such enforceability is considered
in a proceeding in equity or at law).
3.04 NON-CONTRAVENTION; APPROVALS AND CONSENTS. (a) The execution
and delivery of this Agreement by the Company do not, and the performance by
the Company of its obligations hereunder and the consummation of the
transactions contemplated hereby will not, conflict with, result in a
violation or breach of, constitute (with or without notice or lapse of time
or both) a default under, result in or give to any person any right of
payment or reimbursement, termination, cancellation, modification or
acceleration of, or result in the creation or imposition of any Lien upon any
of the assets or properties of the Company or any of its Subsidiaries or any
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of the Company Joint Ventures under, any of the terms, conditions or
provisions of (i) the certificates or articles of incorporation or bylaws (or
other comparable charter documents) of the Company or any of its
Subsidiaries, or (ii) subject to the obtaining of the Company Stockholders'
Approval and the taking of the actions described in SECTION 3.04(b), (x) any
statute, law, rule, regulation or ordinance (together, "LAWS"), or any
judgment, decree, order, writ, permit or license (together, "ORDERS"), of any
court, tribunal, arbitrator, authority, agency, commission, official or other
instrumentality of the United States, any foreign country or any domestic or
foreign state, county, city or other political subdivision (a "GOVERNMENTAL
OR REGULATORY AUTHORITY") applicable to the Company or any of its
Subsidiaries or any of the Company Joint Ventures or any of their respective
assets or properties, or (y) any note, bond, mortgage, security agreement,
indenture, license, franchise, permit, concession, contract, lease or other
instrument, obligation or agreement of any kind (together, "CONTRACTS") to
which the Company or any of its Subsidiaries or any of the Company Joint
Ventures is a party or by which the Company or any of its Subsidiaries or any
of the Company Joint Ventures or any of their respective assets or properties
is bound, excluding from the foregoing clauses (x) and (y) conflicts,
violations, breaches, defaults, rights of payment and reimbursement,
terminations, modifications, accelerations and creations and impositions of
Liens which, individually or in the aggregate, would not reasonably be
expected to have a material adverse effect on the Company and its
Subsidiaries taken as a whole or on the ability of the Company to consummate
the transactions contemplated by this Agreement.
(b) Except (i) for the filing of a premerger notification report
by the Company under the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended, and the rules and regulations thereunder (the "HSR ACT"),
(ii) for the filing of the Proxy Statement (as defined in SECTION 3.09) and
the Registration Statement (as defined in Section 4.09) with the Securities
and Exchange Commission (the "SEC") pursuant to the Securities Exchange Act
of 1934, as amended, and the rules and regulations thereunder (the "EXCHANGE
ACT"), and the Securities Act of 1933, as amended, and the rules and
regulations thereunder (the "SECURITIES ACT"), the declaration of the
effectiveness of the Registration Statement by the SEC and filings with
various state securities authorities that are required in connection with the
transactions contemplated by this Agreement, (iii) for the filing of an
application under Section 203 and any directly related Section of, or
regulation under, the Power Act (as defined in SECTION 3.05(b)) for the sale
or disposition of jurisdictional facilities of the Company; (iv) for the
filing of the Articles of Merger and other appropriate merger documents
required by the BCA with the Secretary of State and appropriate documents
with the relevant authorities of other states in which the Constituent
Corporations are qualified to do business; and (v) as disclosed in SECTION
3.04 of the Company Disclosure Letter, no consent, approval or action of,
filing with or notice to any Governmental or Regulatory Authority or other
public or private third party is necessary or required under any of the
terms, conditions or provisions of any law or order of any Governmental or
Regulatory Authority or any Contract to which the Company or any of its
Subsidiaries or any of the Company Joint Ventures is a party or by which the
Company or any of its Subsidiaries or any of the Company Joint Ventures or
any of their respective assets or properties is bound for the execution and
delivery of this Agreement by the Company, the performance by the Company of
its obligations hereunder or the consummation of the transactions
contemplated hereby, other than such consents, approvals, actions, filings
and notices which the failure to make or obtain, as the case may be,
individually or in the aggregate, would not reasonably be expected to have a
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material adverse effect on the Company and its Subsidiaries taken as a whole
or on the ability of the Company to consummate the transactions contemplated
by this Agreement.
3.05 SEC REPORTS, FINANCIAL STATEMENTS AND UTILITY REPORTS. (a)
The Company has delivered to ScottishPower a true and complete copy of each
form, report, schedule, registration statement, registration exemption, if
applicable, definitive proxy statement and other document (together with all
amendments thereof and supplements thereto) filed by the Company or any of
its Subsidiaries with the SEC since December 31, 1995 (as such documents have
since the time of their filing been amended or supplemented, the "COMPANY SEC
REPORTS"), which are all the documents (other than preliminary materials)
that the Company and its Subsidiaries were required to file with the SEC
since such date. As of their respective dates, the Company SEC Reports (i)
complied as to form in all material respects with the requirements of the
Securities Act or the Exchange Act, if applicable, as the case may be, and
(ii) did not contain any untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they were
made, not misleading. The audited consolidated financial statements and
unaudited interim consolidated financial statements (including, in each case,
the notes, if any, thereto) included in the Company SEC Reports (the "COMPANY
FINANCIAL STATEMENTS") complied as to form in all material respects with the
published rules and regulations of the SEC with respect thereto, were
prepared in accordance with U.S. generally accepted accounting principles
applied on a consistent basis during the periods involved (except as may be
indicated therein or in the notes thereto and except with respect to
unaudited statements as permitted by Form 10-Q of the SEC) and fairly present
(subject, in the case of the unaudited interim financial statements, to
normal, recurring year-end audit adjustments (which are not expected to be,
individually or in the aggregate, materially adverse to the Company and its
Subsidiaries taken as a whole)) the consolidated financial position of the
Company and its consolidated subsidiaries as at the respective dates thereof
and the consolidated results of their operations and cash flows for the
respective periods then ended. Except as set forth in SECTION 3.05 of the
Company Disclosure Letter, each Subsidiary of the Company is treated as a
consolidated subsidiary of the Company in the Company Financial Statements
for all periods covered thereby.
(b) All material filings required to be made by the Company or any
of its Subsidiaries since December 31, 1995, under the Federal Power Act (the
"POWER ACT") and applicable state laws and regulations, have been filed with
the Federal Energy Regulatory Commission (the "FERC"), the Department of
Energy (the "DOE") or any appropriate state public utilities commission
(including, without limitation, the state utility regulatory agencies of
California, Idaho, Montana, Oregon, Utah, Washington and Wyoming), as the
case may be, including all material written forms, statements, reports,
agreements and all material documents, exhibits, amendments and supplements
appertaining thereto, including but not limited to all material rates,
tariffs, franchises, service agreements and related documents, complied, as
of their respective dates, in all material respects with all applicable
requirements of the appropriate statute and the rules and regulations
thereunder.
3.06 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as disclosed in
the Company SEC Reports filed prior to December 6, 1998 or SECTION 3.06 of
the Company Disclosure Letter, (a) between December 31, 1997 and December 6,
1998, there has not been any
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change, event or development having, or that would reasonably be expected to
have, individually or in the aggregate, a material adverse effect on the
Company and its Subsidiaries taken as a whole (other than those changes,
events or developments occurring as a result of general economic or financial
conditions or which are not unique to the Company and its Subsidiaries but
also affect other entities who participate or are engaged in the lines of
business in which the Company and its Subsidiaries are engaged), and (b)
between December 31, 1997 and December 6, 1998 (i) the Company, its
Subsidiaries and the Company Joint Ventures have conducted their respective
businesses only in the ordinary course substantially consistent with past
practice and (ii) neither the Company nor any of its Subsidiaries nor any of
the Company Joint Ventures has (x) acquired or agreed to acquire (by merging
or consolidating with, or by purchasing a substantial equity interest in or a
substantial portion of the assets of, or by any other manner) any business or
any corporation, partnership, association or other business organization or
division thereof for a purchase price (including the amount of any
indebtedness assumed in connection therewith) of $25 million or more in any
one transaction or (y) sold, leased or otherwise disposed of any of its
assets or properties (or agreed to do so) other than dispositions in the
ordinary course of business consistent with past practice or having a net
book value of $25 million or less in any one transaction.
3.07 ABSENCE OF UNDISCLOSED LIABILITIES. Except for matters
reflected or reserved against in the balance sheet for the period ended
December 31, 1997 included in the Company Financial Statements or as
disclosed in the Company SEC Reports filed prior to December 6, 1998 or in
SECTION 3.07 of the Company Disclosure Letter, neither the Company nor any of
its Subsidiaries had at such date, or has incurred since such date, any
liabilities or obligations (whether absolute, accrued, contingent, fixed or
otherwise, or whether due or to become due) of any nature that would be
required by U.S. generally accepted accounting principles to be reflected on
a consolidated balance sheet of the Company and its consolidated subsidiaries
(including the notes thereto), except liabilities or obligations (i) which
were incurred in the ordinary course of business consistent with past
practice or (ii) which are not having, and would not reasonably be expected
to have, individually or in the aggregate, a material adverse effect on the
Company and its Subsidiaries taken as a whole.
3.08 LEGAL PROCEEDINGS. Except as disclosed in the Company SEC
Reports filed prior to December 6, 1998 or in SECTION 3.08 of the Company
Disclosure Letter and except for environmental matters which are governed by
SECTION 3.15, (i) there are no actions, suits, arbitrations or proceedings
pending or, to the knowledge of the Company, threatened against, nor to the
knowledge of the Company are there any Governmental or Regulatory Authority
investigations or audits pending or threatened against, the Company or any of
its Subsidiaries or any of the Company Joint Ventures or any of their
respective assets and properties which, individually or in the aggregate,
would reasonably be expected to have a material adverse effect on the Company
and its Subsidiaries taken as a whole or on the ability of the Company to
consummate the transactions contemplated by this Agreement, and (ii) neither
the Company nor any of its Subsidiaries is subject to any order of any
Governmental or Regulatory Authority which, individually or in the aggregate,
is having or would reasonably be expected to have a material adverse effect
on the Company and its Subsidiaries taken as a whole or on the ability of the
Company to consummate the transactions contemplated by this Agreement.
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3.09 INFORMATION SUPPLIED. (a) The proxy statement relating to
the Company Stockholders' Meeting (as defined in SECTION 6.03(b)), as amended
or supplemented from time to time (as so amended and supplemented, the "PROXY
STATEMENT"), and any other documents to be filed by the Company with the SEC
(including, without limitation, under the 1935 Act) in connection with the
Merger and the other transactions contemplated hereby will (in the case of
the Proxy Statement and any such other documents filed with the SEC under the
Exchange Act or the Securities Act), comply as to form in all material
respects with the requirements of the Exchange Act and the Securities Act,
respectively, and will not, on the date of its filing or, in the case of the
Proxy Statement, at the date it is mailed to stockholders of the Company and
at the time of the Company Stockholders' Meeting, contain any untrue
statement of a material fact or omit to state any material fact required to
be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they are made, not misleading, except
that no representation is made by the Company with respect to information
supplied in writing by or on behalf of HoldCo, ScottishPower, the Partnership
or Merger Sub expressly for inclusion therein and information incorporated by
reference therein from documents filed by HoldCo, ScottishPower or any of
their respective Subsidiaries with the SEC.
(b) The information supplied or to be supplied by the Company for
inclusion in any filing by HoldCo or ScottishPower with the LSE in respect of
the Merger (including, without limitation, the Class 1 circular to be issued
to shareholders of ScottishPower (the "CIRCULAR"), and the listing
particulars under Part IV of the Financial Services Act 1986 of the United
Kingdom (the "FSA") relating to HoldCo Ordinary Shares (the "LISTING
PARTICULARS") and the Scheme Document (together with any amendments or
supplements thereto, the "SCOTTISHPOWER DISCLOSURE DOCUMENTS") will, at all
relevant times, include all information relating to the Company, and
information which is within the knowledge of each of the directors of the
Company (or which it would be reasonable for them to obtain by making
inquiries), which, in each case, is required to enable the ScottishPower
Disclosure Documents and the parties hereto to comply in all material
respects with all United Kingdom statutory and other legal and regulatory
provisions (including, without limitation, the Companies Act (as defined in
SECTION 4.02(a), the FSA and the rules and regulations made thereunder, and
the rules and requirements of the LSE) and all such information contained in
such documents will be substantially in accordance with the facts and will
not omit anything material likely to affect the import of such information.
(c) Notwithstanding the foregoing provisions of this Section 3.09,
no representation or warranty is made by the Company with respect to
statements made or incorporated by reference in the Registration Statement,
the Proxy Statement or the ScottishPower Disclosure Documents based on
information supplied by HoldCo, ScottishPower or the Partnership expressly
for inclusion or incorporation by reference therein or based on information
which is not incorporated by reference in such documents but should have been
disclosed pursuant to SECTION 4.09.
3.10 PERMITS; COMPLIANCE WITH LAWS AND ORDERS. The Company, its
Subsidiaries and the Company Joint Ventures hold all permits, licenses,
franchises, variances, exemptions, orders and approvals of all Governmental
and Regulatory Authorities (other than
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environmental permits which are governed by SECTION 3.15) necessary for the
lawful conduct of their respective businesses (the "COMPANY PERMITS"), except
for failures to hold such Company Permits which, individually or in the
aggregate, are not having and would not reasonably be expected to have a
material adverse effect on the Company and its Subsidiaries taken as a whole.
The Company, its Subsidiaries and the Company Joint Ventures are in
compliance with the terms of the Company Permits, except failures so to
comply which, individually or in the aggregate, are not having and would not
reasonably be expected to have a material adverse effect on the Company and
its Subsidiaries taken as a whole. Except as disclosed in the Company SEC
Reports filed prior to December 6, 1998 or Section 3.10 of the Company
Disclosure Letter, the Company, its Subsidiaries and the Company Joint
Ventures are not in violation of or default under any law or order of any
Governmental or Regulatory Authority, except for such violations or defaults
which, individually or in the aggregate, are not having and would not
reasonably be expected to have a material adverse effect on the Company and
its Subsidiaries taken as a whole.
3.11 COMPLIANCE WITH AGREEMENTS. Except as disclosed in the
Company SEC Reports filed prior to December 6, 1998 or SECTION 3.11 of the
Company Disclosure Letter, neither the Company nor any of its Subsidiaries
nor any of the Company Joint Ventures nor, to the knowledge of the Company,
any other party thereto is in breach or violation of, or in default in the
performance or observance of any term or provision of, and no event has
occurred which, with notice or lapse of time or both, would reasonably be
expected to result in a default under, (i) the certificates or articles of
incorporation or bylaws (or other comparable charter documents) of the
Company or any of its Subsidiaries or (ii) any Contract to which the Company
or any of its Subsidiaries or any of the Company Joint Ventures is a party
or by which the Company or any of its Subsidiaries, or any of the Company
Joint Ventures or any of their respective assets or properties is bound,
except in the case of clause (ii) for breaches, violations and defaults
which, individually or in the aggregate, are not having and would not
reasonably be expected to have a material adverse effect on the Company and
its Subsidiaries taken as a whole.
3.12 TAXES. Except as disclosed in the Company SEC Reports filed
prior to December 6, 1998 or SECTION 3.12 of the Company Disclosure Letter:
(a) Each of the Company and its Subsidiaries has filed all
material tax returns and reports required to be filed by it, or requests for
extensions to file such returns or reports have been timely filed or granted
and have not expired, and all tax returns and reports are complete and
accurate in all respects, except to the extent that such failures to either
file, to have extensions granted that remain in effect or to file returns
complete and accurate in all respects, as applicable, would not reasonably be
expected to have, individually or in the aggregate, a material adverse effect
on the Company and its Subsidiaries taken as a whole. The Company and each
of its Subsidiaries has paid (or the Company has paid on its behalf) all
taxes shown as due on such tax returns and reports. The most recent
financial statements contained in the Company SEC Reports reflect an adequate
reserve for all taxes payable by the Company and its Subsidiaries for all
taxable periods and portions thereof accrued through the date of such
financial statements, and no deficiencies for any taxes have been proposed,
asserted or assessed against the Company or any of its Subsidiaries that are
not adequately reserved for, except for inadequately reserved taxes and
inadequately reserved deficiencies that would not reasonably be expected to,
individually or in the aggregate, have a material adverse effect on the
Company and its
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Subsidiaries taken as a whole. No requests for waivers of the time to assess
any taxes against the Company or any of its Subsidiaries have been granted or
are pending, except for requests with respect to such taxes that have been
adequately reserved for in the most recent financial statements contained in
the Company SEC Reports, or, to the extent not adequately reserved, the
assessment of which would not reasonably be expected to have, individually or
in the aggregate, a material adverse effect on the Company and its
Subsidiaries taken as a whole.
(b) Neither the Company nor any of its Subsidiaries has taken any
action or has any knowledge of any fact or circumstance that is reasonably
likely to prevent the Merger from qualifying as a tax-free reorganization
within the meaning of Code Section 368(a).
(c) Neither the Company nor any of its Subsidiaries has filed a
consent under Code Section 341(f) concerning collapsible corporations,
neither the Company nor any of its Subsidiaries has made any payments, is
obligated to make any payment, or is a party to any agreement that under
certain circumstances could obligate it to make any payments that will not be
deductible under Code Section 280G.
(d) Each of the Company and its Subsidiaries has disclosed on its
federal income tax returns all positions taken therein that could give rise
to a substantial understatement of United States federal income tax within
the meaning of Code Section 6662.
(e) Neither the Company nor any of its Subsidiaries is a party to
any tax allocation or sharing agreement. Neither the Company nor any of its
Subsidiaries (i) has been a member of an affiliated group filing a
consolidated federal income tax return (other than a group the common parent
of which was the Company) or (ii) has any material liability for the taxes of
any person (other than any of the Company and its Subsidiaries) under United
States Treasury Regulation Section 1.1502-6 (or any similar provision or
state, local, or foreign law), as a transferee or successor, by contract, or
otherwise.
(f) As used in this SECTION 3.12 and in SECTION 4.12, "taxes"
shall include all federal, state, local and foreign income, franchise, gross
receipts, property, sales, use, excise, alternative-minimum, estimated and
other taxes and duties of any jurisdiction, including obligations for
withholding taxes from payments due or made to any other person and any
interest, penalties or additions to tax.
3.13 EMPLOYEE BENEFIT PLANS; ERISA. (a) Except as disclosed in
the Company SEC Reports filed prior to December 6, 1998 or SECTION 3.13 of
the Company Disclosure Letter or as would not reasonably be expected to have
a material adverse effect on the Company and its Subsidiaries taken as a
whole, (i) all Company Employee Benefit Plans (as defined below) are in
compliance with all applicable requirements of law, including without
limitation ERISA (as defined below) and the Code, and (ii) neither the
Company nor any of its Subsidiaries has any liabilities or obligations with
respect to any such Company Employee Benefit Plans, whether accrued,
contingent or otherwise, nor to the knowledge of the Company are any such
liabilities or obligations expected to be incurred. Except as specifically
set forth in SECTION 3.13 of the Company Disclosure Letter, the execution of,
and performance of the transactions contemplated in, this Agreement will not
(either alone or upon the occurrence of any
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additional or subsequent events) constitute an event under any Company
Employee Benefit Plan that will or would reasonably be expected to result in
any payment (whether of severance pay or otherwise), acceleration,
forgiveness of indebtedness, vesting, distribution, increase in benefits or
obligation to fund benefits with respect to any employee. The only severance
agreements or severance policies applicable to the Company or any of its
Subsidiaries are the agreements and policies specifically referred to in
SECTION 3.13 of the Company Disclosure Letter.
(b) As used herein:
(i) "COMPANY EMPLOYEE BENEFIT PLAN" means any Plan (other than any
"multiemployer plan," as that term is defined in Section 4001 of ERISA)
entered into, established, maintained, sponsored, contributed to or required
to be contributed to by the Company or any of its Subsidiaries for the
benefit of the current or former employees or directors of the Company or any
of its Subsidiaries and existing on December 6, 1998 or at any time
subsequent thereto and on or prior to the Effective Time and, in the case of
a Plan which is subject to Part 3 of Title I of the Employee Retirement
Income Security Act of 1974, as amended, and the rules and regulations
thereunder ("ERISA"), Section 412 of the Code or Title IV of ERISA, at any
time during the five-year period immediately preceding December 6, 1998; and
(ii) "PLAN" means any employment, bonus, incentive compensation,
deferred compensation, long term incentive, pension, profit sharing,
retirement, stock purchase, stock option, stock ownership, stock appreciation
rights, phantom stock, leave of absence, layoff, vacation, day or dependent
care, legal services, cafeteria, life, health, medical, accident, disability,
severance, separation, termination, change of control or other benefit plan,
agreement, practice, policy, program, scheme or arrangement, whether written
or oral, and whether applicable to only one individual or a group of
individuals, including, but not limited to any "employee benefit plan" within
the meaning of Section 3(3) of ERISA.
(iii) "ERISA AFFILIATE" means any person, who on or before the
Effective Time, is under common control with the Company within the meaning
of Section 414 of the Code.
(c) Complete and correct copies of the following documents have
been made available to ScottishPower, as of December 6, 1998: (i) all
material Company Employee Benefit Plans and any related trust agreements or
related insurance contracts and pro forma option agreements, (ii) the most
current summary plan descriptions of each Company Employee Benefit Plan
subject to the requirement to give a summary plan description under ERISA,
(iii) the most recent Form 5500 and Schedules thereto for each Company
Employee Benefit Plan subject to such reporting, (iv) the most recent
determination of the Internal Revenue Service with respect to the qualified
status of each Company Employee Benefit Plan that is intended to qualify
under Section 401(a) of the Code, (v) the most recent accountings with
respect to each Company Employee Benefit Plan funded through a trust, (vi)
the most recent actuarial report of the qualified actuary of each Company
Employee Benefit Plan with respect to which actuarial valuations are
conducted.
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(d) Except as disclosed in the Company SEC Reports filed prior to
December 6, 1998 or SECTION 3.13 of the Company Disclosure Letter, neither
the Company nor any Subsidiary maintains or is obligated to provide benefits
under any life, medical or health Plan (other than as an incidental benefit
under a Plan qualified under Section 401(a) of the Code) which provides
benefits to retirees or other terminated employees other than benefit
continuations rights under the Consolidated Omnibus Budget Reconciliation Act
of 1985, as amended.
(e) Except as set forth in SECTION 3.13 of the Company Disclosure
Letter, each Company Employee Benefit Plan covers only employees who are
employed by the Company or a Subsidiary (or former employees or beneficiaries
with respect to service with the Company or a Subsidiary), so that the
transactions contemplated by this Agreement will require no spin-off of
assets and liabilities or other division or transfer of rights with respect
to any such plan.
(f) Except as disclosed in the Company SEC Reports filed prior to
December 6, 1998 or SECTION 3.13 of the Company Disclosure Letter, neither
the Company, any Subsidiary, any ERISA Affiliate nor any other corporation or
organization controlled by or under common control with any of the foregoing
within the meaning of Section 4001 of ERISA has at any time during the five
(5) year period preceding December 6, 1998 contributed to any "multiemployer
plan", as that term is defined in Section 4001 of ERISA. With respect to
each "multiemployer plan", as defined above, in which the Company, any
Subsidiary or any ERISA Affiliate participates or has participated, (i)
neither the Company, any Subsidiary nor any ERISA Affiliate has incurred, any
material withdrawal liability, (ii) neither the Company, any Subsidiary nor
any ERISA Affiliate has received any notice that (A) any such plan is being
reorganized in a manner that will result, or would reasonably be expected to
result, in material liability, (B) increased contributions of a material
amount may be required to avoid a reduction in plan benefits or the
imposition of an excise tax, or (C) any such plan is, or would reasonably be
expected to become, insolvent, and (iii) to the knowledge of the Company,
there are no PBGC (as defined below) proceedings against any such plan.
(g) Except as disclosed in the Company SEC Reports filed prior to
December 6, 1998 or SECTION 3.13 of the Company Disclosure Letter, no event
has occurred, and there exists no condition or set of circumstances in
connection with any Company Employee Benefit Plan, under which the Company or
any Subsidiary, directly or indirectly (through any indemnification agreement
or otherwise), could reasonably be expected to be subject to any risk of
material liability under Section 409 of ERISA, Section 502(i) of ERISA, Title
IV of ERISA or Section 4975 of the Code.
(h) No transaction contemplated by this Agreement will result in
liability to the Pension Benefit Guaranty Corporation ("PBGC") under Section
302(c)(11), 4062, 4063, 4064 or 4069 of ERISA, or otherwise, with respect to
the Company, any Subsidiary, HoldCo, ScottishPower or any corporation or
organization controlled by or under common control with any of the foregoing
within the meaning of Section 4001 of ERISA, and, to the knowledge of the
Company, no event or condition exists or has existed which would reasonably
be expected to result in any material liability to the PBGC with respect to
HoldCo, ScottishPower, the Company, any Subsidiary or any such corporation or
organization. Except as set forth in SECTION
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3.13 of the Company Disclosure Schedule, no "reportable event" within the
meaning of Section 4043 of ERISA has occurred with respect to any Company
Employee Benefit Plan that is a defined benefit plan under Section 3(35) of
ERISA other than "reportable events" as to which the requirement of notice to
the PBGC within thirty days has been waived.
(i) Except as set forth in SECTION 3.13 of the Company Disclosure
Schedule, no employer securities, employer real property or other employer
property is included in the assets of any Company Employee Benefit Plan.
(j) No stock appreciation rights are outstanding under the Company
Stock Incentive Plan or any other plan or arrangement maintained by the
Company or any affiliate of the Company.
3.14 LABOR MATTERS. (a) Except as set forth in SECTION 3.14 of
the Company Disclosure Letter, neither the Company nor any of its
Subsidiaries is a party to any collective bargaining agreement or other labor
agreement with any union or labor organization. Except as disclosed in the
Company SEC Reports filed prior to December 6, 1998 or in SECTION 3.14 of the
Company Disclosure Letter, there are no disputes pending or, to the knowledge
of the Company, threatened between the Company or any of its Subsidiaries or
any of the Company Joint Ventures and any trade union or other
representatives of its employees, except as would not, individually or in the
aggregate, reasonably be expected to have a material adverse effect on the
Company and its Subsidiaries taken as a whole, and, to the knowledge of the
Company, except as set forth in SECTION 3.14 of the Company Disclosure
Letter, there are no material organizational efforts presently being made
involving any of the now unorganized employees of the Company or any of its
Subsidiaries or any of the Company Joint Ventures. Since December 31, 1995,
there has been no work stoppage, or strike by employees of the Company or any
of its Subsidiaries or any of the Company Joint Ventures except as would not,
individually or in the aggregate, reasonably be expected to have a material
adverse effect on the Company and its Subsidiaries taken as a whole.
(b) To the knowledge of the Company, neither the Company nor any
of its Subsidiaries nor any of the Company Joint Ventures is in material
violation of any labor laws in any country (or political subdivision thereof)
in which they transact business except for such violations as would not,
individually or in the aggregate, reasonably be expected to have a material
adverse effect on the Company and its Subsidiaries taken as a whole.
3.15 ENVIRONMENTAL MATTERS. Except as disclosed in the Company SEC
Reports filed prior to December 6, 1998 or in SECTION 3.15 of the Company
Disclosure Letter and except as would not, individually or in the aggregate,
reasonably be expected to have a material adverse effect on the Company and
its Subsidiaries taken as a whole:
(a) (i) Each of the Company, its Subsidiaries and the Company
Joint Ventures is in compliance with all applicable Environmental Laws
(as hereinafter defined); and
(ii) Neither the Company nor any of its Subsidiaries nor any of
the Company Joint Ventures has received any written communication from any
person or
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Governmental or Regulatory Authority that alleges that the Company or any
of its Subsidiaries or any of the Company Joint Ventures is not in such
compliance with applicable Environmental Laws.
(b) Each of the Company, its Subsidiaries and the Company Joint
Ventures has obtained all environmental, health and safety permits and
governmental authorizations (collectively, the "ENVIRONMENTAL PERMITS")
necessary for the construction of its facilities and the conduct of its
operations, as applicable, and all such Environmental Permits are in good
standing or, where applicable, a renewal application has been timely filed
and is pending agency approval, and the Company, its Subsidiaries and the
Company Joint Ventures are in compliance with all terms and conditions of the
Environmental Permits.
(c) There is no Environmental Claim (as hereinafter defined)
pending
(i) against the Company or any of its Subsidiaries or any of the
Company Joint Ventures;
(ii) to the knowledge of the Company, against any person or entity
whose liability for any such Environmental Claim the Company or any of its
Subsidiaries or any of the Company Joint Ventures has or may have retained or
assumed either contractually or by operation of law; or
(iii) against any real or personal property or operations which the
Company or any of its Subsidiaries or any of the Company Joint Ventures owns,
leases or manages, in whole or in part.
(d) To the knowledge of the Company, there have not been any
Releases (as hereinafter defined) of any Hazardous Material (as hereinafter
defined) that would be reasonably likely to form the basis of any material
Environmental Claim against the Company or any of its Subsidiaries or any of
the Company Joint Ventures, or against any person or entity whose liability
for any Environmental Claim the Company or any of its Subsidiaries or any of
the Company Joint Ventures has or may have been retained or assumed either
contractually or by operation of law.
(e) To the knowledge of the Company, with respect to any
predecessor of the Company or any of its Subsidiaries, there is no
Environmental Claim pending or threatened in writing, and there has been no
Release of Hazardous Materials that would be reasonably likely to form the
basis of any Environmental Claim.
(f) There are no material facts specific to the Company that have
not been disclosed to ScottishPower which the Company reasonably believes are
likely to form the basis of a Environmental Claim against the Company or any
of its Subsidiaries or any of the Company Joint Ventures arising from (x)
current environmental remediation or mining reclamation costs of the Company,
its Subsidiaries and the Company Joint Ventures or such remediation or
reclamation costs known to be required in the future, or (y) any other
environmental matter affecting the Company or its Subsidiaries or any of the
Company Joint Ventures.
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(g) As used in this Section 3.15:
(i) "ENVIRONMENTAL CLAIMS" means any and all administrative,
regulatory or judicial actions, suits, demands, demand letters, directives,
claims, liens, investigations, proceedings or written notices of
noncompliance, liability or violation by any person or entity (including any
Governmental or Regulatory Authority) alleging potential liability
(including, without limitation, potential responsibility or liability for
enforcement, investigatory costs, cleanup costs, governmental response costs,
removal costs, remedial costs, natural resources damages, property damages,
personal injuries or penalties) arising out of, based on or resulting from
(A) the presence, or Release or threatened Release
into the environment, of any Hazardous Materials at any
location, whether or not owned, operated, leased or managed by
the Company or any of its Subsidiaries or any of the Company
Joint Ventures; or
(B) circumstances forming the basis of any violation,
or alleged violation, of any Environmental Law; or
(C) any and all claims by any third party seeking
damages, contribution, indemnification, cost recovery,
compensation or injunctive relief resulting from the presence or
Release of any Hazardous Materials;
(ii) "ENVIRONMENTAL LAWS" means all Federal, state and local laws,
rules and regulations relating to pollution, the environment (including,
without limitation, ambient air, surface water, groundwater, land surface or
subsurface strata) or protection of human health as it relates to the
environment including, without limitation, laws and regulations relating to
Releases or threatened Releases of Hazardous Materials, or otherwise relating
to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of Hazardous Materials;
(iii) "HAZARDOUS MATERIALS" means (a) any petroleum or petroleum
products, radioactive materials, asbestos in any form that is or could become
friable, urea formaldehyde foam insulation, and transformers or other
equipment that contain dielectric fluid containing polychlorinated biphenyls;
and (b) any chemicals, materials or substances which are now defined as or
included in the definition of "HAZARDOUS SUBSTANCES", "HAZARDOUS WASTES",
"HAZARDOUS MATERIALS", "EXTREMELY HAZARDOUS WASTES", "RESTRICTED HAZARDOUS
WASTES", "TOXIC SUBSTANCES", "TOXIC POLLUTANTS", or words of similar import,
under any Environmental Law; and (c) any other chemical, material, substance
or waste, exposure to which is now prohibited, limited or regulated under any
Environmental Law in a jurisdiction in which the Company or any of its
Subsidiaries or any of the Company Joint Ventures operates or any
jurisdiction which has received such chemical, material, substance or waste
from the Company or its Subsidiaries; and
(iv) "RELEASE" means any release, spill, emission, leaking,
injection, deposit, disposal, discharge, dispersal, leaching or migration
into the atmosphere, soil, surface water, groundwater or property.
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3.16 INTELLECTUAL PROPERTY RIGHTS. The Company and its
Subsidiaries have all right, title and interest in, or a valid and binding
license to use, all Intellectual Property (as defined below) individually or
in the aggregate material to the conduct of the businesses of the Company and
its Subsidiaries taken as a whole. Neither the Company nor any Subsidiary of
the Company is in default (or with the giving of notice or lapse of time or
both, would be in default) under any license to use such Intellectual
Property and, to the knowledge of the Company, such Intellectual Property is
not being infringed by any third party, and neither the Company nor any
Subsidiary of the Company is infringing any Intellectual Property of any
third party, except for such defaults and infringements which, individually
or in the aggregate, are not having and would not reasonably be expected to
have a material adverse effect on the Company and its Subsidiaries taken as a
whole. For purposes of this Agreement, "INTELLECTUAL PROPERTY" means patents
and patent rights, trademarks and trademark rights, trade names and trade
name rights, service marks and service mark rights, service names and service
name rights, copyrights and copyright rights and other proprietary
intellectual property rights and all pending applications for and
registrations of any of the foregoing.
3.17 REGULATION AS A UTILITY. (a) The Company is not regulated as
a public utility by any state other than the States of California, Idaho,
Montana, Oregon, Utah, Washington and Wyoming. SECTION 3.17 of the Company
Disclosure Letter lists each Subsidiary of the Company which is a public
utility or is otherwise engaged in the regulated supply (including
generation, transmission or distribution) of electricity, natural gas and/or
telecommunications. Except as set forth in SECTION 3.17 of the Company
Disclosure Letter, neither the Company nor any "SUBSIDIARY COMPANY" or
"AFFILIATE" of the Company is subject to regulation as a public utility or
public service company (or similar designation) by any state in the United
States or any foreign country. The Company is not a public utility holding
company under the 1935 Act.
(b) As used in this Section 3.17, the terms "SUBSIDIARY COMPANY"
and "AFFILIATE" shall have the respective meanings ascribed to them in the
1935 Act.
3.18 INSURANCE. Except as set forth in SECTION 3.18 of the Company
Disclosure Letter, each of the Company and its Subsidiaries is, and has been
continuously since January 1, 1994, insured with financially responsible
insurers in such amounts and against such risks and losses as are customary
in all material respects for companies conducting the business conducted by
the Company and its Subsidiaries during such time period. Except as set forth
in SECTION 3.18 of the Company Disclosure Letter, neither the Company nor any
of its Subsidiaries has received any notice of cancellation or termination
with respect to any material insurance policy of the Company or any of its
Subsidiaries. The material insurance policies of the Company and each of its
Subsidiaries are valid and enforceable policies.
3.19 VOTE REQUIRED. Assuming the accuracy of the representation
and warranty contained in SECTION 4.19, the affirmative vote of the holders
of record of at least (i) a majority of voting power of the outstanding
shares of Company Common Stock and Company Preferred Stock voting together
and (ii) a majority of the voting power of the Company Preferred Stock voting
separately from the Company Common Stock as a single class with respect to
the approval of this Agreement are the only votes of the holders of any class
or series of the capital
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stock of the Company or its Subsidiaries required to approve this Agreement
and approve the Merger and the other transactions contemplated hereby.
3.20 [Intentionally Omitted]
3.21 OWNERSHIP OF HOLDCO OR SCOTTISHPOWER STOCK. Neither the
Company nor any of its Subsidiaries beneficially owns any ScottishPower
Ordinary Shares, ScottishPower ADSs, HoldCo Ordinary Shares or HoldCo ADSs.
3.22 ARTICLE VII OF THE COMPANY'S ARTICLES OF INCORPORATION AND
SECTIONS 60.825-60.845 OF THE BCA NOT APPLICABLE. The Company has taken all
necessary actions so that neither the provisions of Article VII of the
Company's Articles of Incorporation nor the provisions of Sections
60.825-60.845 of the BCA (i.e., affiliated transactions and fair price
provisions) will, before the termination of this Agreement, apply to this
Agreement or the Merger or the other transactions contemplated hereby.
3.23 CERTAIN CONTRACTS. Except as set forth in Section 3.23 of the
Company Disclosure Letter, neither the Company nor any of its Subsidiaries or
Joint Ventures is a party to, or bound by, any Contract containing any
provision or covenant prohibiting or materially limiting the ability of the
Company or any Company Subsidiary to engage in any business activity or
compete with any person.
3.24 YEAR 2000. The Company and its Subsidiaries have put into
effect practices and programs which the Company reasonably believes will
enable all material software, hardware and equipment (including
microprocessors) that is owned or utilized by the Company or any of its
Subsidiaries in the operations of its or their respective business to be
capable, by December 31, 1999, of accounting for all calculations using a
century and date sensitive algorithm for the year 2000 and the fact that the
year 2000 is a leap year and to otherwise continue to function without any
material interruption caused by the occurrence of the year 2000.
3.25 JOINT VENTURE REPRESENTATIONS. Each representation or
warranty made by the Company in this Article III relating to a Company Joint
Venture that is neither operated nor managed by the Company or a Subsidiary
of the Company shall be deemed to be made only to the Company's knowledge.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF HOLDCO, SCOTTISHPOWER AND THE PARTNERSHIP
ScottishPower and HoldCo (each on behalf of itself and on behalf of
Merger Sub) and the Partnership represent and warrant to the Company as
follows (which representations and warranties (i) in respect of ScottishPower
and its Subsidiaries are made as of December 6, 1998 (except for the
representations and warranties contained in SECTIONS 4.03 AND 4.04, which are
made as of the date hereof), (ii) in respect of HoldCo and its Subsidiaries
are made as of the date of this Agreement and (iii) of ScottishPower and
HoldCo on behalf of Merger Sub shall only be
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true and correct as of the Closing Date), it being agreed that HoldCo and
ScottishPower shall not be in breach or deemed to be in breach of any
representation or warranty contained in this Article IV by virtue of the fact
that any Scheme Consent (as defined in Section 9.13(k)) has not been obtained
by the date of this Agreement:
4.01 ORGANIZATION AND QUALIFICATION. (a) Each of HoldCo,
ScottishPower and their respective Subsidiaries (other than the Partnership)
is a corporation duly incorporated, validly existing and in good standing
(with respect to jurisdictions which recognize the concept of good standing)
under the laws of its jurisdiction of incorporation and has full corporate
power and authority to conduct its business as and to the extent now
conducted and to own, use and lease its assets and properties, except for
such failures to be so incorporated, existing and in good standing (with
respect to jurisdictions which recognize the concept of good standing) or to
have such power and authority which, individually or in the aggregate, are
not having and would not reasonably be expected to have a material adverse
effect on HoldCo, ScottishPower and their respective Subsidiaries taken as a
whole. The Partnership is a general partnership validly existing under the
laws of the State of Nevada. Each of the Partnership and Merger Sub was
formed solely for the purpose of engaging in the transactions contemplated by
this Agreement (other than, with respect to the Partnership, in connection
with the investment of the initial partnership capital pursuant to or in
accordance with the Partnership Agreement, dated December 3, 1998, by and
between UKSub 1 and UKSub 2 (the "PARTNERSHIP AGREEMENT")), has engaged in no
other business activities and has conducted its operations only as
contemplated hereby (or, with respect to the Partnership, as contemplated by
the Partnership Agreement). HoldCo was formed solely for the purpose
contemplated by the Scheme of Arrangement and this Agreement and has
conducted its operations only as contemplated by the Scheme of Arrangement
and this Agreement. Except as disclosed in SECTION 4.01 of the ScottishPower
Disclosure Letter (as defined below), each of UKSub 1 and UKSub 2 was formed
solely for the purpose of engaging in the transactions contemplated by this
Agreement, has engaged in no other business activities and has conducted its
operations only as contemplated hereby. Each of ScottishPower, HoldCo and
their respective Subsidiaries is duly qualified, licensed or admitted to do
business and is in good standing (with respect to jurisdictions which
recognize the concept of good standing) in each jurisdiction in which the
ownership, use or leasing of its assets and properties, or the conduct or
nature of its business, makes such qualification, licensing, admission or
good standing necessary, except for such failures to be so qualified,
licensed or admitted and in good standing (with respect to jurisdictions
which recognize the concept of good standing) which, individually or in the
aggregate, are not having and would not reasonably be expected to have a
material adverse effect on HoldCo, ScottishPower and their respective
Subsidiaries taken as a whole. SECTION 4.01 of the letter dated December 6,
1998 and delivered by ScottishPower and Merger Sub to the Company on such
date (the "SCOTTISHPOWER DISCLOSURE LETTER") sets forth (i) the name and
jurisdiction of incorporation of each Subsidiary of ScottishPower, (ii) its
authorized capital stock, (iii) the number of issued and outstanding shares
of its capital stock and (iv) the record owners of such shares.
ScottishPower has previously delivered to the Company correct and complete
copies of the memorandum and articles of association and bylaws (or other
comparable charter documents) of ScottishPower and each of its Subsidiaries,
and the Partnership Agreement. As of the Scheme Date, the articles of
association and bylaws (or other comparable charter documents) of HoldCo
shall substantially reflect the principles set out in Schedule II, subject to
amendments required to comply with applicable law
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or the rules of the LSE and subject to such other amendments as ScottishPower
may reasonably deem necessary or desirable, PROVIDED, that to the extent such
other amendments deemed necessary or desirable by ScottishPower would
materially adversely affect the benefits of the Merger for the holders of
Company Common Stock, ScottishPower shall have received the prior written
consent of the Company.
(b) SECTION 4.01 of the ScottishPower Disclosure Letter sets forth
a description as of December 6, 1998, of all ScottishPower Joint Ventures,
including (i) the name of each such party and ScottishPower's interest
therein, and (ii) a brief description of the principal line or lines of
business conducted by each such entity.
(c) Except for interests in the Subsidiaries of ScottishPower and
HoldCo and as disclosed in SECTION 4.01 of the ScottishPower Disclosure
Letter, neither HoldCo nor ScottishPower directly or indirectly owns any
equity or similar interest in, or any interest convertible into or
exchangeable or exercisable for any equity or similar interest in, (i) any
material corporation, partnership, joint venture or other business
association or entity (other than non-controlling investments in the ordinary
course of business and corporate partnering, development, cooperative
marketing and similar undertakings and arrangements entered into in the
ordinary course of business) or (ii) any other business association or entity
the effect of which is having or could reasonably be expected to have a
material adverse effect on HoldCo, ScottishPower and their respective
Subsidiaries taken as a whole.
4.02 CAPITAL STOCK. (a) The authorized share capital of
ScottishPower consists solely of (i) 1,700,000,000 ScottishPower Ordinary
Shares, of which 1,198,629,102 shares were issued as of November 30, 1998,
and (ii) one Special Rights Non-Voting Redeemable Preference Share of L1 (the
"SPECIAL SHARE") which was issued as of such date. The authorized share
capital of HoldCo consists solely of (i) 50,000 HoldCo ordinary shares of L1
each (to be subdivided into HoldCo Ordinary Shares of 50p each prior to the
Scheme Date), of which 2 were issued as of the date of this Agreement, and
(ii) 49,998 non-voting redeemable ordinary shares of L1 each, all of which
were issued as of the date of this Agreement, are held by ScottishPower and
shall be redeemed by HoldCo prior to the Effective Time. Since November 30,
1998, except as disclosed in the ScottishPower SEC Reports filed prior to
December 6, 1998, SECTION 4.02 of the ScottishPower Disclosure Letter or
pursuant to the Scheme of Arrangement, there has been no change in the number
of issued ScottishPower Ordinary Shares other than the issuance of
ScottishPower Ordinary Shares pursuant to options or rights outstanding as of
such date to subscribe or purchase ScottishPower Ordinary Shares, which
options or rights are described in SECTION 4.02 of the ScottishPower
Disclosure Letter. All of the issued ScottishPower Ordinary Shares and
HoldCo Ordinary Shares are, and all Merger Ordinary Shares and all HoldCo
Ordinary Shares to be issued to the ADR Depositary pursuant to Section 2.01
will be, upon issuance, duly authorized, validly issued and fully paid and
voting, and no class of shares is entitled to preemptive rights, except as
provided in Section 89 of the Companies Act of 1985 of the United Kingdom
(the "COMPANIES ACT"). Except pursuant to this Agreement, the ScottishPower
employee share schemes listed in SECTION 4.02 of the ScottishPower Disclosure
Letter (the "SCOTTISHPOWER SHARE SCHEMES"), the HoldCo employee share schemes
established in connection with the Scheme of Arrangement to replace the
ScottishPower Share Schemes and which are in all material respects similar to
the ScottishPower
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Share Schemes (the "HOLDCO SHARE SCHEMES"), and except as disclosed in the
ScottishPower SEC Reports filed prior to December 6, 1998 or SECTION 4.02 of
the ScottishPower Disclosure Letter, as of December 6, 1998 there were no
outstanding Options obligating HoldCo, ScottishPower or any of their
respective Subsidiaries to issue or sell any capital or other shares of
ScottishPower or HoldCo or to grant, extend or enter into any Option with
respect thereto.
(b) Except as disclosed in the ScottishPower SEC Reports filed
prior to December 6, 1998 or SECTION 4.02 of the ScottishPower Disclosure
Letter, all of the outstanding shares of each Subsidiary of HoldCo and
ScottishPower are duly authorized, validly issued, fully paid and
nonassessable and are owned, beneficially and of record, by HoldCo or
ScottishPower or a Subsidiary wholly owned, directly or indirectly, by HoldCo
or ScottishPower, free and clear of any Liens. Immediately following the
Scheme Date, all of the outstanding shares of ScottishPower will be duly
authorized, validly issued, fully paid and nonassessable and owned,
beneficially and of record, by HoldCo or its nominees. Except as disclosed
in the ScottishPower SEC Reports filed prior to December 6, 1998 or SECTION
4.02 of the ScottishPower Disclosure Letter, and except for the Share
Transfer, there are no (i) outstanding Options obligating HoldCo,
ScottishPower or any of their respective Subsidiaries to issue or sell any
shares of any Subsidiary of HoldCo or ScottishPower or to grant, extend or
enter into any such Option or (ii) voting trusts, proxies or other
commitments, understandings, restrictions or arrangements in favor of any
person other than HoldCo or ScottishPower or a Subsidiary wholly owned,
directly or indirectly, by HoldCo or ScottishPower with respect to the voting
of or the right to participate in dividends or other earnings in respect of
any shares of any Subsidiary of HoldCo or ScottishPower.
(c) Other than (i) as disclosed in the ScottishPower SEC Reports
filed prior to December 6, 1998 or SECTION 4.02 of the ScottishPower
Disclosure Letter, (ii) the right of Holdco to redeem the 49,998 non-voting
redeemable shares held by ScottishPower and referred to in SECTION 4.02(a),
(iii) the right of the holder of the ScottishPower Special Share to require
ScottishPower to redeem the ScottishPower Special Share pursuant to the
Articles of Association of ScottishPower or, following the Scheme Date, the
right of the holder of the HoldCo Special Share (as defined in Schedule II)
to require HoldCo to redeem the HoldCo Special Share pursuant to the Articles
of Association of HoldCo, and (iv) pursuant to the Scheme of Arrangement or
pursuant to a proposed amendment to ScottishPower's Articles of Association
which will provide for shares in ScottishPower to be issued to an
optionholder under the ScottishPower Share Schemes to be transferred to
HoldCo in consideration for HoldCo issuing to the optionholder the same
number of HoldCo Ordinary Shares as the number of ScottishPower shares so
issued under the ScottishPower Schemes, there are no outstanding contractual
obligations of HoldCo or ScottishPower or any Subsidiary of HoldCo or
ScottishPower to repurchase, redeem or otherwise acquire any HoldCo Ordinary
Shares or ScottishPower Ordinary Shares or any shares of any Subsidiary of
HoldCo or ScottishPower or to provide funds to, or make any investment (in
the form of a loan, capital contribution or otherwise) in, any Subsidiary of
HoldCo or ScottishPower or any other person.
(d) As of December 6, 1998, no bonds, debentures, notes or other
indebtedness of HoldCo or ScottishPower having the right to vote on any
matters on which shareholders may vote are issued or outstanding.
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4.03 AUTHORITY RELATIVE TO THIS AGREEMENT. Each of HoldCo,
ScottishPower, the Partnership and Merger Sub (and, with respect to SECTION
2.01 only, UKSub 1 and UKSub 2) has full power and authority to enter into
this Agreement, and, subject (in the case of this Agreement) to obtaining the
ScottishPower Shareholders' Approval (as defined in SECTION 6.03(a)) and the
Scheme Consents, to perform its obligations hereunder, and to consummate the
transactions contemplated hereby. The execution, delivery and performance of
this Agreement by each of HoldCo, ScottishPower, the Partnership and Merger
Sub (and, with respect to SECTION 2.01 only, UKSub 1 and UKSub 2) and the
consummation by each of HoldCo, ScottishPower, the Partnership and Merger Sub
(and, with respect to SECTION 2.01 only, UKSub 1 and UKSub 2) of the
transactions contemplated hereby have been duly and validly approved by the
Board of Directors of HoldCo, ScottishPower and Merger Sub (and, with respect
to SECTION 2.01 only, UKSub 1 and UKSub 2) and the general partners of the
Partnership, and by the Partnership in its capacity as sole stockholder of
Merger Sub. The Board of Directors of ScottishPower has passed a resolution
declaring the advisability of the Merger and resolving that the Merger be
submitted for consideration by the shareholders of ScottishPower. The Board
of Directors of HoldCo has passed a resolution approving the Merger. No
other corporate proceedings on the part of HoldCo, ScottishPower or Merger
Sub or their shareholders, or the Partnership or its general partners are
necessary to authorize the execution, delivery and performance of this
Agreement by HoldCo, ScottishPower, the Partnership or Merger Sub (and, with
respect to SECTION 2.01 only, UKSub 1 and UKSub 2) and the consummation by
HoldCo, ScottishPower, the Partnership and Merger Sub (and, with respect to
SECTION 2.01 only, UKSub 1 and UKSub 2) of the transactions contemplated
hereby, other than obtaining the ScottishPower Shareholders' Approval and the
Scheme Consents, and to the Scheme of Arrangement becoming effective. This
Agreement has been duly and validly executed and delivered by each of HoldCo,
ScottishPower, the Partnership and Merger Sub (and, with respect to SECTION
2.01 only, UKSub 1 and UKSub 2) and constitutes a legal, valid and binding
obligation of each of HoldCo, ScottishPower, the Partnership and Merger Sub
(and, with respect to SECTION 2.01 only, UKSub 1 and UKSub 2) enforceable
against each of HoldCo, ScottishPower, the Partnership and Merger Sub (and,
with respect to SECTION 2.01 only, UKSub 1 and UKSub 2) in accordance with
its terms, except as enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the enforcement of
creditors' rights generally and by general equitable principles (regardless
of whether such enforceability is considered in a proceeding in equity or at
law).
4.04 NON-CONTRAVENTION; APPROVALS AND CONSENTS. (a) Subject to the
requirement to obtain the Scheme Consents, the execution and delivery of this
Agreement by each of HoldCo, ScottishPower, the Partnership and Merger Sub
(and, with respect to SECTION 2.01 only, UKSub 1 and UKSub 2) do not, and the
performance by each of HoldCo, ScottishPower, the Partnership and Merger Sub
(and, with respect to SECTION 2.01 only, UKSub 1 and UKSub 2) of its
obligations hereunder and the consummation of the transactions contemplated
hereby will not, conflict with, result in a violation or breach of,
constitute (with or without notice or lapse of time or both) a default under,
result in or give to any person any right of payment or reimbursement,
termination, cancellation, modification or acceleration of, or result in the
creation or imposition of any Lien upon any of the assets or properties of
HoldCo, ScottishPower or any of their respective Subsidiaries or any of the
ScottishPower Joint Ventures under, any of the terms, conditions or
provisions of (i) the memorandum or articles of association or bylaws (or
other comparable charter documents) of HoldCo, ScottishPower or any of their
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respective Subsidiaries or any of the ScottishPower Joint Ventures, (ii) the
Partnership Agreement, or (iii) subject to the obtaining of the ScottishPower
Shareholders' Approval and the taking of the actions described in paragraph
(b) of this SECTION, (x) any laws or orders of any Governmental or Regulatory
Authority applicable to HoldCo, ScottishPower or any of their respective
Subsidiaries or any of the ScottishPower Joint Ventures or any of their
respective assets or properties, or (y) any Contracts to which HoldCo,
ScottishPower or any of their respective Subsidiaries or any of the
ScottishPower Joint Ventures is a party or by which HoldCo, ScottishPower or
any of their respective Subsidiaries or any of the ScottishPower Joint
Ventures or any of their respective assets or properties is bound, excluding
from the foregoing clauses (x) and (y) conflicts, violations, breaches,
defaults, rights of payment or reimbursement, terminations, modifications,
accelerations and creations and impositions of Liens which, individually or
in the aggregate, would not reasonably be expected to have a material adverse
effect on HoldCo, ScottishPower and their respective Subsidiaries taken as a
whole or on the ability of HoldCo, ScottishPower, the Partnership and Merger
Sub to consummate the transactions contemplated by this Agreement.
(b) Except (i) for the filing of a premerger notification report
by ScottishPower under the HSR Act, (ii) for the filing of the Registration
Statement with the SEC pursuant to the Securities Act, the declaration of the
effectiveness of the Registration Statement by the SEC and filings with
various state securities authorities that are required in connection with the
transactions contemplated by this Agreement, (iii) for the filing of the
Articles of Merger and other appropriate merger documents required by the BCA
with the Secretary of State and appropriate documents with the relevant
authorities of other states in which the Constituent Corporations are
qualified to do business, (iv) for the filings with, notices to, and
approvals of, the LSE and NYSE, (v) the filing of a notice pursuant to
Section 721 of the Defense Production Act of 1950, or any successor thereto
("EXON-FLORIO"), (vi) the approval of the FERC pursuant to the Power Act,
(vii) the approval of any jurisdictional state regulating agencies, (viii)
the giving of indications by the OFT, SOS, OFFER and OFWAT as described in
SECTIONS 7.01(k) and (l), (ix) as disclosed in SECTION 4.04 of the
ScottishPower Disclosure Letter and (x) for the Scheme Consents, no consent,
approval or action of, filing with or notice to any Governmental or
Regulatory Authority or other public or private third party is necessary or
required under any of the terms, conditions or provisions of any law or order
of any Governmental or Regulatory Authority or any Contract to which HoldCo,
ScottishPower or any of their respective Subsidiaries or any of the
ScottishPower Joint Ventures is a party or by which HoldCo, ScottishPower or
any of their respective Subsidiaries or any of the ScottishPower Joint
Ventures or any of their respective assets or properties is bound for the
execution and delivery of this Agreement by each of HoldCo, ScottishPower,
the Partnership and Merger Sub, the performance by each of HoldCo,
ScottishPower, the Partnership and Merger Sub of its obligations hereunder or
the consummation of the transactions contemplated hereby other than such
consents, approvals, actions, filings and notices which the failure to make
or obtain, as the case may be, individually or in the aggregate, would not
reasonably be expected to have a material adverse effect on HoldCo,
ScottishPower and their respective Subsidiaries taken as a whole or on the
ability of HoldCo, ScottishPower, the Partnership and Merger Sub to
consummate the transactions contemplated by this Agreement.
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4.05 SEC REPORTS AND FINANCIAL STATEMENTS. (a) ScottishPower has
delivered to the Company a true and complete copy of each form, report,
schedule, registration statement, definitive proxy statement and other
document (together with all amendments thereof and supplements thereto) filed
by HoldCo, ScottishPower or any of their respective Subsidiaries with the SEC
since December 31, 1995 (as such documents have since the time of their
filing been amended or supplemented, the "SCOTTISHPOWER SEC REPORTS"), which
are all the documents (other than preliminary materials) that HoldCo,
ScottishPower and their respective Subsidiaries were required to file with
the SEC since such date. As of their respective dates, the ScottishPower SEC
Reports (i) complied as to form in all material respects with the
requirements of the Securities Act or the Exchange Act, as the case may be,
and (ii) did not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they
were made, not misleading. The audited consolidated financial statements and
unaudited interim consolidated financial statements (including, in each case,
the notes, if any, thereto) included in the ScottishPower SEC Reports (the
"SCOTTISHPOWER FINANCIAL STATEMENTS") complied as to form in all material
respects with the published rules and regulations of the SEC with respect
thereto, were prepared in accordance with generally accepted accounting
principles in the United Kingdom applied on a consistent basis during the
periods involved (except as may be indicated therein or in the notes thereto
and except with respect to unaudited statements) and fairly present (subject,
in the case of the unaudited interim financial statements, to normal,
recurring year-end audit adjustments (which are not expected to be,
individually or in the aggregate, materially adverse to HoldCo, ScottishPower
and their respective Subsidiaries taken as a whole)) the consolidated
financial position of ScottishPower and, in respect of periods ending after
the Scheme Date, HoldCo and their respective consolidated subsidiaries as at
the respective dates thereof and the consolidated results of their operations
and cash flows for the respective periods then ended. Except as set forth in
SECTION 4.05 of the ScottishPower Disclosure Letter, each Subsidiary of
ScottishPower and, after the Scheme Date, of Holdco is treated as a
consolidated subsidiary of ScottishPower or HoldCo, as the case may be, in
the ScottishPower Financial Statements for all periods covered thereby.
(b) All material filings required to be made by ScottishPower or
any of its Subsidiaries since December 31, 1995 in the United Kingdom under
the Electricity Act 1989, the Water Industry Act 1991, the Water Resources
Act 1991 and the Telecommunications Act 1984 have been filed with OFFER,
OFWAT and the Office of Telecommunications Services or any other appropriate
Governmental or Regulatory Authority, as the case may be, including all
material forms, statements, reports, agreements and all material documents,
exhibits, amendments and supplements appertaining thereto, including but not
limited to all material rates, tariffs, franchises, service agreements and
related documents, complied, as of their respective dates, in all material
respects with all applicable requirements of the statute and the rules and
regulations thereunder.
4.06 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as disclosed in
the ScottishPower SEC Reports filed prior to December 6, 1998 or SECTION 4.06
of the ScottishPower Disclosure Letter, (a) since March 31, 1998 there has
not been any change, event or development having, or that would reasonably be
expected to have, individually or in the aggregate, a material adverse effect
on HoldCo, ScottishPower and their respective Subsidiaries
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taken as a whole (other than those changes, events, or developments occurring
as a result of general economic or financial conditions or which are not
unique to HoldCo, ScottishPower and their respective Subsidiaries but also
affect other entities who participate or are engaged in the lines of business
in which HoldCo, ScottishPower and their respective Subsidiaries are
engaged), and (b) between March 31, 1998 and December 6, 1998 ScottishPower,
its Subsidiaries and the ScottishPower Joint Ventures have conducted their
respective businesses only in the ordinary course substantially consistent
with past practice.
4.07 ABSENCE OF UNDISCLOSED LIABILITIES. Except for matters
reflected or reserved against in the balance sheet for the period ended March
31, 1998 included in the ScottishPower Financial Statements or as disclosed
in SECTION 4.07 of the ScottishPower Disclosure Letter, neither HoldCo,
ScottishPower nor any of their respective Subsidiaries had at such date, or
has incurred since that date, any liabilities or obligations (whether
absolute, accrued, contingent, fixed or otherwise, or whether due or to
become due) of any nature that would be required by generally accepted
accounting principles in the United Kingdom to be reflected on a consolidated
balance sheet of ScottishPower and, in respect of periods ending after the
Scheme Date, HoldCo and their respective consolidated subsidiaries (including
the notes thereto), except liabilities or obligations (i) which were incurred
in the ordinary course of business consistent with past practice or (ii)
which have not been, and would not reasonably be expected to be, individually
or in the aggregate, materially adverse to HoldCo, ScottishPower and their
respective Subsidiaries taken as a whole.
4.08 LEGAL PROCEEDINGS. Except as disclosed in the ScottishPower
SEC Reports filed prior to December 6, 1998 or in SECTION 4.08 of the
ScottishPower Disclosure Letter and except for environmental matters which
are governed by SECTION 4.15, (i) there are no actions, suits, arbitrations
or proceedings pending or, to the knowledge of HoldCo or ScottishPower,
threatened against, nor to the knowledge of HoldCo or ScottishPower are there
any Governmental or Regulatory Authority investigations or audits pending or
threatened against, HoldCo, ScottishPower or any of their respective
Subsidiaries or any of the ScottishPower Joint Ventures or any of their
respective assets and properties which, individually or in the aggregate,
would reasonably be expected to have a material adverse effect on HoldCo,
ScottishPower and their respective Subsidiaries taken as a whole or on the
ability of HoldCo, ScottishPower, the Partnership and Merger Sub to
consummate the transactions contemplated by this Agreement, and (ii) neither
HoldCo, ScottishPower nor any of their respective Subsidiaries nor any of the
ScottishPower Joint Ventures is subject to any order of any Governmental or
Regulatory Authority which, individually or in the aggregate, is having or
would reasonably be expected to have a material adverse effect on HoldCo,
ScottishPower and their respective Subsidiaries taken as a whole or on the
ability of HoldCo, ScottishPower, the Partnership and Merger Sub to
consummate the transactions contemplated by this Agreement.
4.09 INFORMATION SUPPLIED. (a) The registration statement on Form
F-4 to be filed with the SEC by HoldCo in connection with the issuance of
HoldCo ADSs in the Merger, as amended or supplemented from time to time (as
so amended and supplemented, the "REGISTRATION STATEMENT"), and any other
documents to be filed by HoldCo or ScottishPower with the SEC or any other
Governmental or Regulatory Authority in connection with the Merger and the
other transactions contemplated hereby will (in the case of the Registration
Statement and
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any such other documents filed with the SEC under the Securities Act or the
Exchange Act) comply as to form in all material respects with the
requirements of the Exchange Act and the Securities Act, respectively, and
will not, on the date of its filing or, in the case of the Registration
Statement, at the time it becomes effective under the Securities Act, or at
the date the Proxy Statement is mailed to stockholders of the Company and at
the time of the Company Stockholders' Meeting, contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading, except that no
representation is made by HoldCo, ScottishPower, the Partnership or Merger
Sub with respect to information supplied in writing by or on behalf of the
Company expressly for inclusion therein and information incorporated by
reference therein from documents filed by the Company or any of its
Subsidiaries with the SEC.
(b) The ScottishPower Disclosure Documents will, at all relevant
times, include all information relating to ScottishPower and HoldCo and their
respective Subsidiaries, and information which is within the knowledge of
each of the directors of ScottishPower and HoldCo (or which it would be
reasonable for them to obtain by making inquiries), which, in each case, is
required to enable the ScottishPower Disclosure Documents and the parties
hereto to comply in all material respects with all United Kingdom statutory
and other legal and regulatory provisions (including, without limitation, the
Companies Act, the FSA and the rules and regulations made thereunder, and the
rules and requirements of the LSE) and all such information contained in such
documents will be substantially in accordance with the facts and will not
omit anything material likely to affect the import of such information.
(c) Notwithstanding the foregoing provisions of this SECTION 4.09,
no representation or warranty is made by ScottishPower or HoldCo with respect
to statements made or incorporated by reference in the Registration
Statement, the Proxy Statement, the Listing Particulars, the Circular or the
Scheme Document based on information supplied by the Company expressly for
inclusion or incorporation by reference therein or based on information which
is not made in or incorporated by reference in such documents but which
should have been disclosed pursuant to SECTION 3.09.
4.10 PERMITS; COMPLIANCE WITH LAWS AND ORDERS. HoldCo,
ScottishPower, their respective Subsidiaries and the ScottishPower Joint
Ventures hold all permits, licenses, franchises variances, exemptions, orders
and approvals of all Governmental and Regulatory Authorities (other than
environmental permits which are governed by SECTION 4.15) necessary for the
lawful conduct of their respective businesses (the "SCOTTISHPOWER PERMITS"),
except for failures to hold such ScottishPower Permits which, individually or
in the aggregate, are not having and would not reasonably be expected to have
a material adverse effect on HoldCo, ScottishPower and their respective
Subsidiaries taken as a whole. HoldCo, ScottishPower, their respective
Subsidiaries and the ScottishPower Joint Ventures are in compliance with the
terms of the ScottishPower Permits, except failures so to comply which,
individually or in the aggregate, are not having and would not reasonably be
expected to have a material adverse effect on HoldCo, ScottishPower and their
respective Subsidiaries taken as a whole. Except as disclosed in the
ScottishPower SEC Reports filed prior to December 6, 1998, none of HoldCo,
ScottishPower, their respective Subsidiaries or the ScottishPower Joint
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Ventures are in violation of or default under any law or order of any
Governmental or Regulatory Authority, except for such violations or defaults
which, individually or in the aggregate, are not having and would not
reasonably be expected to have a material adverse effect on HoldCo,
ScottishPower and their respective Subsidiaries taken as a whole.
4.11 COMPLIANCE WITH AGREEMENTS. Except as disclosed in the
ScottishPower SEC Reports filed prior to December 6, 1998 or SECTION 4.11 of
the ScottishPower Disclosure Letter, none of HoldCo, ScottishPower or any of
their respective Subsidiaries or, to the knowledge of HoldCo or
ScottishPower, any other party thereto is in breach or violation of, or in
default in the performance or observance of any term or provision of, and no
event has occurred which, with notice or lapse of time or both, would
reasonably be expected to result in a default under, (i) the memorandum or
articles of association (or other comparable charter documents) of HoldCo,
ScottishPower or any of their material Subsidiaries or (ii) any Contract to
which HoldCo, ScottishPower or any of their respective Subsidiaries is a
party or by which HoldCo, ScottishPower or any of their respective
Subsidiaries or any of their respective assets or properties is bound, except
in the case of clause (ii) for breaches, violations and defaults which,
individually or in the aggregate, are not having and would not reasonably be
expected to have a material adverse effect on HoldCo, ScottishPower and their
respective Subsidiaries taken as a whole.
4.12 TAXES. (a) Each of HoldCo, ScottishPower and their
respective Subsidiaries has filed all material tax returns and reports
required to be filed by it, or requests for extensions to file such returns
or reports have been timely filed or granted and have not expired and all tax
returns and reports are complete and accurate in all material respects.
HoldCo (if applicable), ScottishPower and each of their respective
Subsidiaries has paid (or HoldCo or ScottishPower has paid on its behalf) all
taxes shown as due on such tax returns and reports. The most recent
financial statements contained in the ScottishPower SEC Reports reflect an
adequate reserve for all taxes payable by ScottishPower and its Subsidiaries
for all taxable periods and portions thereof accrued through the date of such
financial statements, and no deficiencies for any taxes have been proposed,
asserted or assessed against HoldCo, ScottishPower or any of their respective
Subsidiaries that are not adequately reserved for, except for inadequately
reserved taxes and inadequately reserved deficiencies that would not,
individually or in the aggregate, have a material adverse effect on HoldCo,
ScottishPower and their respective Subsidiaries taken as a whole. No
requests for waivers of the time to assess any taxes against HoldCo,
ScottishPower or any of their respective Subsidiaries have been granted or
are pending, except for requests with respect to such taxes that have been
adequately reserved for in the most recent financial statements contained in
the ScottishPower SEC Reports, or, to the extent not adequately reserved, the
assessment of which would not, individually or in the aggregate, have a
material adverse effect on HoldCo, ScottishPower and their respective
Subsidiaries taken as a whole.
(b) Neither HoldCo, ScottishPower nor any of their respective
Subsidiaries has taken any action or has any knowledge of any fact or
circumstance that is reasonably likely to prevent the Merger from qualifying
as a tax-free reorganization within the meaning of Code Section 368(a).
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(c) UKSub 1 and UKSub 2 are not public limited companies.
(d) From the date hereof through the Share Transfer, ScottishPower
will directly own the whole of the issued share capital of UKSub 1 and UKSub
2. Following the Share Transfer and through the Closing Date, HoldCo will
directly own the whole of the issued share capital of UKSub 1 and UKSub 2.
(e) UKSub 1 and UKSub 2 directly own all of the equity interests
in the Partnership.
(f) Prior to the Closing Date, ScottishPower or HoldCo will make
(i) the elections necessary pursuant to Section 301.7701-3 of the U.S.
Treasury regulations promulgated under the Code to treat UKSub 1 and UKSub 2
as entities disregarded as separate from ScottishPower and HoldCo and (ii) an
election under Section 301.7701-3 of the U.S. Treasury regulations to treat
the Partnership as an association taxable as a corporation. Neither
ScottishPower, HoldCo, nor any of their respective Subsidiaries has taken any
action that (or has failed to take any action if such failure) would
reasonably be likely to cause UKSub 1 or UKSub 2 to be characterized as an
association taxable as a corporation for U.S. federal income tax purposes.
(g) Following the Scheme Date, HoldCo will satisfy either directly
or indirectly, through the activities of one or more "qualified
subsidiaries", the active trade or business test specified in Section
1.367(a)-3(c)(3) of the U.S. Treasury regulations for a minimum period of
three years prior to the Closing Date.
(h) None of HoldCo, ScottishPower, UKSub 1, UKSub 2, the
Partnership, nor any other affiliate of HoldCo or ScottishPower has any
intention to redeem, acquire, or to cause the Company or any affiliate of the
Company to acquire, or to arrange for another person to acquire, any of the
ADS Consideration or the Ordinary Share Consideration.
(i) Neither HoldCo, ScottishPower nor any affiliate thereof,
directly or indirectly, has paid any expense incurred by the Company, any
Company affiliate or any Company stockholder in connection with the
transactions contemplated by this Agreement.
(j) Neither HoldCo, ScottishPower nor any affiliate thereof,
directly or indirectly, has loaned any funds to any escrow account, trust or
other fund established to pay any expenses incurred by the Company, any
Company affiliate or any Company stockholder in connection with the
transactions contemplated by this Agreement.
(k) Neither HoldCo, ScottishPower nor any affiliate thereof,
directly or indirectly, owns any stock issued by the Company unless acquired
directly from the Company.
4.13 SCOTTISHPOWER EMPLOYEE BENEFIT PLANS. (a) ScottishPower has
made available to the Company complete and correct copies, as of December 6,
1998, of: (i) the current trust deeds and rules of each of the material
employee benefit plans to which ScottishPower and its Subsidiaries make or
could become liable to make payments for providing retirement, death,
disability or life assurance benefits (the "SCOTTISHPOWER EMPLOYEE BENEFIT
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PLANS") (including any draft amendments); (ii) the most recently prepared
explanatory booklets and announcements relating to each of the ScottishPower
Employee Benefit Plans; (iii) a copy of the actuary's report on the latest
actuarial valuation of the ScottishPower Employee Benefit Plans, if
applicable; and (iv) the rules of the ScottishPower Share Schemes.
(b) The ScottishPower Employee Benefit Plans are the only
material schemes to which HoldCo, ScottishPower and their respective
Subsidiaries make or could become liable to make payments for providing
retirement, death, disability or life insurance benefits except for any
schemes for providing retirement, death or disability or life insurance
benefits ("HOLDCO EMPLOYEE BENEFIT PLANS") which HoldCo establishes in
connection with the Scheme of Arrangement which are in all material
respects similar to the ScottishPower Employee Benefit Plans.
(c) To the extent such exemption is intended by
ScottishPower, the ScottishPower Employee Benefit Plans are exempt
approved schemes within the meaning of Chapter 1 Part XIV of the Income
and Corporation Taxes Act 1988. Except as specifically set forth in
SECTION 4.13 of the ScottishPower Disclosure Letter, members of the
ScottishPower Employee Benefit Plans are contracted-out of the State
Earnings Related Pension Scheme.
(d) To the knowledge of HoldCo or ScottishPower, there is no
amount which is treated by Section 144 of the Pension Schemes Act 1993
or Section 75 of the Pensions Act 1995 as a debt due to the trustees of
the ScottishPower Employee Benefit Plans or from ScottishPower or any of
its Subsidiaries to the trustees of any other benefit plan except for
such debts which would not reasonably be expected to have a material
adverse effect on HoldCo, ScottishPower and their respective
Subsidiaries taken as a whole. The ScottishPower Employee Benefit Plans
have not ceased to admit new members.
(e) Except as set forth in SECTION 4.13 of the ScottishPower
Disclosure Letter and except for disputes which would not reasonably be
expected to have a material adverse effect on HoldCo, ScottishPower and
their respective Subsidiaries taken as a whole, there is no dispute
about the benefits payable under the ScottishPower Employee Benefit
Plans and, to the knowledge of HoldCo or ScottishPower, there are no
circumstances which might give rise to any such dispute.
(f) To the knowledge of HoldCo or ScottishPower, the
actuary's report on the latest actuarial valuation accurately describes
the financial position of each ScottishPower Employee Benefit Plan for
which an actuarial valuation is required by law at its effective date
and in accordance with the assumptions employed for that valuation.
Except as set forth in SECTION 4.13 of the ScottishPower Disclosure
Letter, nothing has happened since that date which would, to a material
extent, affect the level of funding of any ScottishPower Employee
Benefit Plan and, since that date, contributions have been paid to each
ScottishPower Employee Benefit Plan at the rate recommended by the
actuary. Except as set forth in SECTION 4.13 of the ScottishPower
Disclosure Letter, no assets have been withdrawn by HoldCo,
ScottishPower or any of their respective Subsidiaries from any
ScottishPower Employee Benefit Plan (except to pay benefits or by way of
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reimbursement of expenses) since the effective date of the latest
actuarial valuation of that plan.
(g) Except as set forth in SECTION 4.13 of the ScottishPower
Disclosure Letter or as would not reasonably be expected to have a
material adverse effect on HoldCo, ScottishPower and their respective
Subsidiaries taken as a whole, the ScottishPower Employee Benefit Plans
comply with and have been administered in accordance with all applicable
laws, regulations and requirements. All amounts due to the
ScottishPower Employee Benefit Plans at any time prior to the month in
which this Agreement is signed have been paid.
4.14 LABOR MATTERS. (a) Except as set forth in SECTION 4.14 of
the ScottishPower Disclosure Letter, neither HoldCo, ScottishPower nor any of
their respective Subsidiaries is a party to any collective bargaining
agreement, recognition agreement, European Works Council or other labor
agreement with any union, labor organization or other responsible body.
Except as disclosed in the ScottishPower SEC Reports filed prior to December
6, 1998 or in SECTION 4.14 of the ScottishPower Disclosure Letter, there are
no disputes pending or, to the knowledge of HoldCo or ScottishPower,
threatened between HoldCo, ScottishPower or any of their respective
Subsidiaries or any of the ScottishPower Joint Ventures and any trade union
or other representatives of its employees, except as would not, individually
or in the aggregate, reasonably be expected to have a material adverse effect
on HoldCo, ScottishPower and their respective Subsidiaries taken as a whole,
and, to the knowledge of HoldCo or ScottishPower, there are no material
organization efforts presently being made involving any of the now
unorganized employees of HoldCo, ScottishPower or any of their respective
Subsidiaries or any of the ScottishPower Joint Ventures. Since December 31,
1995, there has been no work stoppage, strike or other concerted action by
employees of HoldCo, ScottishPower or any of their respective Subsidiaries
except as would not, individually or in the aggregate, reasonably be expected
to have a material adverse effect on HoldCo, ScottishPower and their
respective Subsidiaries taken as a whole.
(b) To the knowledge of HoldCo or ScottishPower, neither HoldCo,
ScottishPower nor any of their respective Subsidiaries nor any of the
ScottishPower Joint Ventures is in violation of any labor laws in any country
(or political subdivision thereof) in which they transact business, except
for such violations as would not, individually or in the aggregate,
reasonably be expected to have a material adverse effect on HoldCo,
ScottishPower and their respective Subsidiaries taken as a whole.
4.15 ENVIRONMENTAL MATTERS. Except as disclosed in the
ScottishPower SEC Reports filed prior to December 6, 1998 or in SECTION 4.15
of the ScottishPower Disclosure Letter and except as would not, individually
or in the aggregate, reasonably be expected to have a material adverse effect
on HoldCo, ScottishPower and their respective Subsidiaries taken as a whole:
(a) (i) Each of HoldCo, ScottishPower and their respective
Subsidiaries and the ScottishPower Joint Ventures is in compliance with all
applicable Environmental Laws (as hereinafter defined); and
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(ii) Neither HoldCo, ScottishPower nor any of their respective
Subsidiaries nor any of the ScottishPower Joint Ventures has received
any written communication from any person or Governmental or Regulatory
Authority that alleges that HoldCo, ScottishPower or any of their
respective Subsidiaries or Joint Ventures is not in such compliance with
applicable Environmental Laws.
(b) Each of HoldCo, ScottishPower, their respective Subsidiaries
and the ScottishPower Joint Ventures has obtained all environmental, health
and safety permits and governmental authorizations (collectively, the
"Environmental Permits") necessary for the construction of its facilities and
the conduct of its operations, as applicable, and all such Environmental
Permits are in full force and effect or, where applicable, a renewal
application has been timely filed and is pending agency approval, and HoldCo,
ScottishPower, their respective Subsidiaries and the ScottishPower Joint
Venture are in compliance with all terms and conditions of the Environmental
Permits.
(c) There is no Environmental Claim (as hereinafter defined)
pending
(i) against HoldCo, ScottishPower or any of their respective
Subsidiaries or any of the ScottishPower Joint Ventures;
(ii) to the knowledge of HoldCo or ScottishPower, against any
person or entity whose liability for any Environmental Claim HoldCo,
ScottishPower or any of their respective Subsidiaries or any of the
ScottishPower Joint Ventures has or may have retained or assumed either
contractually or by operation of law; or
(iii) against any real or personal property or operations
which HoldCo, ScottishPower or any of their respective Subsidiaries or any of
the ScottishPower Joint Ventures owns, leases or manages in whole or in part.
(d) To HoldCo's or ScottishPower's knowledge, there have not been
any Releases (as hereinafter defined) of any Hazardous Material (as
hereinafter defined) that would be reasonably likely to form the basis of any
Environmental Claim against HoldCo, ScottishPower or any of their respective
Subsidiaries or any of the ScottishPower Joint Ventures, or against any
person or entity whose liability for any Environmental Claim HoldCo,
ScottishPower or any of their respective Subsidiaries or any of the
ScottishPower Joint Ventures has or may have retained or assumed either
contractually or by operation of law.
(e) As used in this SECTION 4.15:
(i) "ENVIRONMENTAL CLAIMS" means any and all administrative,
regulatory or judicial actions, suits, demands, demand letters, directives,
claims, liens, investigations, proceedings or notices of noncompliance,
liability or violation (written or oral) by any person or entity (including
any Governmental or Regulatory Authority) alleging potential liability
(including, without limitation, potential responsibility or liability for
enforcement, investigatory costs, cleanup costs, governmental response costs,
removal costs, remedial costs, natural resources damages, property damages,
personal injuries or penalties) arising out of, based on or resulting from
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(A) the presence, or Release or threatened Release into the
environment, of any Hazardous Materials at any location,
whether or not owned, operated, leased or managed by
HoldCo, ScottishPower or any of their respective
Subsidiaries or any of the ScottishPower Joint Ventures; or
(B) circumstances forming the basis of any violation, or
alleged violation, of any Environmental Law; or
(C) any and all claims by any third party seeking damages,
contribution, indemnification, cost recovery, compensation
or injunctive relief resulting from the presence or
Release of any Hazardous Materials;
(ii) "ENVIRONMENTAL LAWS" means all European Union, national,
regional, or local laws, rules and regulations relating to pollution, the
environment (including, without limitation, ambient air, surface water,
groundwater, land surface or subsurface strata) or protection of human health
as its relates to the environmental including, without limitation, laws and
regulations relating to Releases or threatened Releases of Hazardous
Materials, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
Hazardous Materials including, without limitation, Part II and paragraphs 161
and 162 of Schedule 22 of the Environment Act 1995 and the Department of the
Environment Transport and the Regions Consultation Draft Guidance on
Contaminated Land dated October 1998 but not to the extent that any
modification thereof introduced in the final form of this guidance imposes
materially more onerous or stringent requirements in respect of contaminated
land or pollution.
(iii) "HAZARDOUS MATERIALS" means (a) any petroleum or petroleum
products, radioactive materials, asbestos in any form that is or could become
friable, urea formaldehyde foam insulation, and transformers or other
equipment that contain dielectric fluid containing polychlorinated biphenyls;
and (b) any chemicals, materials or substances which are now defined as or
included in the definition of "HAZARDOUS SUBSTANCES", "HAZARDOUS WASTES",
"HAZARDOUS MATERIALS", "EXTREMELY HAZARDOUS WASTES", "RESTRICTED HAZARDOUS
WASTES", "TOXIC SUBSTANCES", "TOXIC POLLUTANTS", or words of similar import,
under any Environmental Law; and (c) any other chemical, material, substance
or waste, exposure to which is now prohibited, limited or regulated under any
Environmental Law in a jurisdiction in which HoldCo, ScottishPower or any of
their respective Subsidiaries or any of the ScottishPower Joint Ventures
operates or any jurisdiction which has received such chemical, material,
substance or waste from HoldCo, ScottishPower or their respective
Subsidiaries; and
(iv) "RELEASE" means any release, spill, emission, leaking,
injection, deposit, disposal, discharge, dispersal, leaching or migration
into the atmosphere, soil, surface water, groundwater or property.
4.16 INTELLECTUAL PROPERTY RIGHTS. HoldCo, ScottishPower and their
respective Subsidiaries have all right, title and interest in, or a valid and
binding license to use,
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all Intellectual Property individually or in the aggregate material to the
conduct of the businesses of HoldCo, ScottishPower and their respective
Subsidiaries taken as a whole. Neither HoldCo, ScottishPower nor any of
their respective Subsidiaries is in default (or with the giving of notice or
lapse of time or both, would be in default) under any license to use such
Intellectual Property, to the knowledge of HoldCo or ScottishPower, such
Intellectual Property is not being infringed by any third party, and neither
HoldCo, ScottishPower nor any of their respective Subsidiaries is infringing
any Intellectual Property of any third party, except for such defaults and
infringements which, individually or in the aggregate, are not having and
would not reasonably be expected to have a material adverse effect on HoldCo,
ScottishPower and their respective Subsidiaries taken as a whole.
4.17 VOTE REQUIRED. The only votes of the holders of any class of
shares of ScottishPower or, after the Scheme Date, Holdco required to approve
the Merger and the other transactions contemplated hereby (other than those
set forth in paragraphs 1 through 3 of Schedule II and any vote which may be
required in order to give effect to the conversion of the Company Stock
Options in accordance with SECTION 6.10 or to give effect to the amendments
to HoldCo's Articles of Association in accordance with SECTION 6.03(c)) are
the affirmative vote of a majority of such ordinary shareholders of
ScottishPower as (being entitled to do so) are present and vote (or, in the
case of a vote taken on a poll, the affirmative vote by shareholders or their
proxies representing a majority of the ScottishPower Ordinary Shares in
respect of which votes were validly exercised) at the ScottishPower
Shareholders Meeting in relation to the approval of the Merger and the Scheme
of Arrangement.
4.18 [Intentionally Omitted]
4.19 OWNERSHIP OF COMPANY COMMON STOCK. Neither HoldCo,
ScottishPower nor any of their respective Subsidiaries or other affiliates
beneficially owns any shares of Company Common Stock.
4.20 INSURANCE. Except as set forth in SECTION 4.20 of the
ScottishPower Disclosure Letter, each of ScottishPower and its Subsidiaries
is, and has been continuously since January 1, 1994 (and at all times
following the Scheme Date, HoldCo and its Subsidiaries will be), insured with
financially responsible insurers in such amounts and against such risks and
losses as are customary in all material respects for companies conducting the
business conducted by HoldCo, ScottishPower and their respective
Subsidiaries during such time period. Except as set forth in SECTION 4.20 of
the ScottishPower Disclosure Letter, neither HoldCo, ScottishPower nor any of
their respective Subsidiaries has received any notice of cancellation or
termination with respect to any material insurance policy of HoldCo,
ScottishPower or any of their respective Subsidiaries. The insurance
policies of Holdco, ScottishPower and each of their respective Subsidiaries
are valid and enforceable policies.
4.21 YEAR 2000. ScottishPower and its Subsidiaries have (and at
all times following the Scheme Date, to the extent (if at all) then
necessary, HoldCo will have) put into effect practices and programs which
ScottishPower (or HoldCo) reasonably believes will enable all material
software, hardware and equipment (including microprocessors) that are owned
or utilized by ScottishPower (or HoldCo) or any of their respective
Subsidiaries in the
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operations of its or their respective business to be capable, by December 31,
1999 of accounting for all calculations using a century and date sensitive
algorithm for the year 2000, and the fact that the year 2000 is a leap year
and to otherwise continue to function without material interruption caused by
the occurrence of the year 2000.
4.22 JOINT VENTURE REPRESENTATIONS. Each representation and
warranty made by HoldCo or ScottishPower in this Article IV relating to a
ScottishPower Joint Venture that is neither operated nor managed by HoldCo or
ScottishPower or a Subsidiary thereof shall be deemed to be made only to
HoldCo's and ScottishPower's knowledge.
ARTICLE V
COVENANTS
5.01 COVENANTS OF THE COMPANY. At all times from and after
December 6, 1998 until the Effective Time, the Company covenants and agrees
as to itself and its Subsidiaries that (except as expressly contemplated or
permitted by this Agreement, or to the extent that HoldCo or ScottishPower
shall otherwise previously consent in writing, which consent shall not be
unreasonably withheld or delayed):
(a) ORDINARY COURSE. The Company and each of its Subsidiaries
shall conduct their businesses only in, and the Company and each of its
Subsidiaries shall not take any action except in, the ordinary course
substantially consistent with past business practice. Without limiting the
generality of the foregoing, the Company and its Subsidiaries shall use all
commercially reasonable efforts to preserve intact in all material respects
their present business organizations, to maintain in effect all existing
material permits, to keep available the services of their key officers and
employees, to maintain their assets and properties in good working order and
condition, ordinary wear and tear excepted, to maintain insurance on their
tangible assets and businesses in substantially the same amounts and against
substantially the same risks and losses as are currently in effect, to
preserve their relationships with customers and suppliers and others having
significant business dealings with them and to comply in all material
respects with all laws and orders of all Governmental or Regulatory
Authorities applicable to them.
(b) CHARTER DOCUMENTS. The Company shall not, nor shall it permit
any of its Subsidiaries to, amend or propose to amend its certificate or
articles of incorporation or bylaws or its memorandum and articles of
association (or other comparable corporate charter documents).
(c) DIVIDENDS. The Company shall not, nor shall it permit any of
its Subsidiaries to, (i) declare, set aside or pay any dividends on or make
other distributions in respect of any of its capital stock or share capital,
except:
(A) that the Company may continue the declaration and payment
of regular cash dividends (including increases consistent
with past practice) on Company Common Stock and the
Company Preferred Stock, with usual record and payment
dates for such dividends in accordance with past dividend
practice; provided, that no such
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dividend on the Company Common Stock shall exceed the
amount budgeted therefor in the Company Budget (as
hereinafter defined), and
(B) for the declaration and payment of dividends by (x) a
wholly-owned Subsidiary solely to its parent corporation,
(y) Bridger Coal Company in accordance with past practice
and (z) Subsidiaries of regular cash dividends with usual
record and payment dates (including increases consistent
with past practice) in accordance with past dividend
practice, and
(ii) split, combine, reclassify or take similar action with respect to any of
its capital stock or share capital or issue or authorize or propose the
issuance of any other securities in respect of, in lieu of or in substitution
for shares of its capital stock or comprised in its share capital, (iii)
except as disclosed in SECTION 5.01(c) of the Company Disclosure Letter,
adopt a plan of complete or partial liquidation or resolutions providing for
or authorizing such liquidation or a dissolution, merger, consolidation,
restructuring, recapitalization or other reorganization or (iv) except as
disclosed in SECTION 5.01(c) of the Company Disclosure Letter, directly or
indirectly redeem, repurchase or otherwise acquire any shares of its capital
stock or comprised in its share capital or any Option with respect thereto
except:
(A) in connection with intercompany purchases of capital
stock or share capital,
(B) for the purpose of funding employee stock ownership or
dividend reinvestment, stock purchase plans and other
incentive plans disclosed in SECTION 5.01(d) of the
Company Disclosure Letter in accordance with past
practice, and
(C) Prior to the Closing Date, the Company shall redeem all
outstanding shares of its $1.28 Series, $1.18 Series and
$1.16 Series of no par serial preferred stock.
(d) SHARE ISSUANCES. The Company shall not, nor shall it permit
any of its Subsidiaries to, issue, deliver or sell, or authorize or propose
the issuance, delivery or sale of, any shares of its capital stock or
comprised in its share capital or any Option with respect thereto (other than
(i) the issuance of Company Common Stock upon the exercise of Options issued
pursuant to the Company's Stock Incentive Plan outstanding on December 6,
1998 and in accordance with their present terms, (ii) except as specifically
set forth under the heading "Long-Term Incentive Awards" on the Schedule of
Ongoing Compensation Obligations attached to SECTION 5.01(d) of the Company
Disclosure Letter, the issuance of options or awards pursuant to the
Company's Stock Incentive Plan in accordance with its present terms and only
in connection with the hiring of new employees, and the issuance of shares of
Company Common Stock upon exercise of such options or awards, (iii) the
issuance by a wholly-owned Subsidiary of its capital stock to its parent
corporation, or modify or amend any right of any holder of outstanding shares
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of capital stock or Options with respect thereto and (iv) shares of Company
Preferred Stock with a stated value of up to an aggregate of $250 million).
(e) ACQUISITIONS. Except as set forth in SECTION 5.01(e) of the
Company Disclosure Letter and other than as provided in the 1999 operating
budget of the Company, a copy of which has been disclosed to and discussed
with ScottishPower, or any other budget of the Company thereafter approved by
HoldCo or ScottishPower, which approval shall not be unreasonably withheld
(collectively, the "COMPANY BUDGET"), the Company shall not, nor shall it
permit any of its Subsidiaries to, acquire (by merging or consolidating with,
or by purchasing a substantial equity interest in or a substantial portion of
the assets of, or by any other manner) any business or any corporation,
partnership, association or other business organization or division thereof
or otherwise acquire or agree to acquire any assets in excess of $25 million
in any one transaction; PROVIDED, that this SECTION 5.01(e) shall not
prohibit any capital expenditures made in accordance with SECTION 5.01(j).
(f) DISPOSITIONS. Other than as set forth in SECTION 5.01(f) of
the Company Disclosure Letter, the Company shall not, nor shall it permit any
of its Subsidiaries to, sell, lease, grant any security interest in or
otherwise dispose of or encumber any of its assets or properties, other than
dispositions in the ordinary course of its business consistent with past
practice or having an aggregate net book value of $25 million or less in any
one transaction.
(g) INDEBTEDNESS. Other than as expressly provided in the Company
Budget, the Company shall not, nor shall it permit any of its Subsidiaries
to, incur or guarantee any indebtedness (including any debt borrowed or
guaranteed or otherwise assumed, including, without limitation, the issuance
of debt securities or warrants or rights to acquire debt) or enter into any
"keep well" or other agreement to maintain any financial condition of another
person or enter into any arrangement having the economic effect of any of the
foregoing other than (i) short-term indebtedness in the ordinary course of
business consistent with past practice (such as the issuance of commercial
paper or the use of existing credit facilities) in an aggregate amount not
exceeding $500 million; (ii) long-term indebtedness not aggregating more than
$200 million and (iii) indebtedness entered into in connection with the
refinancing of indebtedness outstanding on December 6, 1998 or incurred in
compliance with this SECTION 5.01(g).
(h) EMPLOYEE BENEFITS. Except as set forth on SECTION 5.01(h) of
the Company Disclosure Letter, the Company shall not, nor shall it permit any
of its Subsidiaries to, enter into, adopt, amend (except as may be required
by applicable law) or terminate any Company Employee Benefit Plan, or
increase in any manner the compensation or fringe benefits of any director or
executive officer, or, except for normal increases in the ordinary course of
business consistent with past practice that, in the aggregate, do not result
in a material increase in benefits or compensation expense to the Company and
its Subsidiaries taken as a whole, increase in any manner the compensation or
fringe benefits of any employee, or pay any benefit not required by any plan
or arrangement in effect as of December 6, 1998 and, in no event shall the
Company or its Subsidiaries be permitted to grant to any employee any rights
that are not in effect on December 6, 1998 to any payment (whether of
severance pay or otherwise), acceleration, forgiveness of indebtedness,
vesting, distribution, increase in benefits or increase in
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obligations to fund benefits with respect to that employee resulting from a
change in control or change in ownership of the Company or any of its
Subsidiaries.
(i) AFFILIATE CONTRACTS. Except as disclosed in SECTION 5.01(i)
of the Company Disclosure Letter, the Company shall not, nor shall it permit
any of its Subsidiaries or, within the exercise of its reasonable commercial
efforts, its Joint Ventures to, except as otherwise expressly provided for in
this Agreement, enter into any Contract or amend or modify any existing
Contract, or engage in any new transaction outside the ordinary course of
business consistent with past practice or not on an arm's length basis, with
any affiliate of such party or any of its Subsidiaries.
(j) CAPITAL EXPENDITURES. The Company shall not, nor shall it
permit any of its Subsidiaries to, make any capital expenditures or
commitments other than (i) as required by applicable law, (ii) capital
expenditures incurred in connection with the repair or replacement of
facilities destroyed or damaged due to casualty or accident (whether or not
covered by insurance), and (iii) other capital expenditures in excess of 110%
of the aggregate amount provided for such purposes in the Company Budget.
(k) 1935 ACT. The Company shall not, nor shall it permit any of
its Subsidiaries to, engage in any activities which would cause a change in
its status, or that of its Subsidiaries, under the 1935 Act, including any
action or inaction that would cause the prior approval of the SEC under the
1935 Act to be required for the consummation of the transactions contemplated
hereby.
(l) REGULATORY STATUS. The Company shall not, nor shall it permit
any of its Subsidiaries to, agree or consent to any material agreements or
modifications of material existing agreements with any Government or
Regulatory Authority in respect of the operations of their businesses except
where following discussion with the relevant authority such agreements or
modifications are imposed upon the Company.
(m) TRANSMISSION, GENERATION. Except as required pursuant to
tariffs on file with the FERC as of December 6, 1998, or as set forth in
SECTION 5.02(m) of the Company Disclosure Letter, the Company shall not, nor
shall it permit its Subsidiaries to:
(i) commence construction of any additional generating,
transmission or delivery capacity in excess of 500 megawatts, or
(ii) obligate itself to purchase or otherwise acquire, or to
sell or otherwise dispose of, or to share, any additional generating,
transmission or delivery plants or facilities, in an amount in excess of
$25 million in any one transaction, except as set forth in the Company
Budget. Any regulatory order potentially imposing any such obligation
shall be immediately forwarded to HoldCo or ScottishPower.
(n) ACCOUNTING. The Company shall not, nor shall it permit any of
its Subsidiaries to, make any material changes in their accounting methods,
except as required by law, rule, regulation or applicable generally accepted
accounting principles.
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(o) TAX MATTERS. The Company shall not take any action which (or
fail to take any action if such failure) would cause the Merger to fail to
qualify as a reorganization described in Code Section 368(a).
(p) NO BREACH. The Company shall not, nor shall it permit any of
its Subsidiaries to willfully take or fail to take any action that would or
is reasonably likely to result (i) in a material breach of any provision of
this Agreement, or (ii) in any of its representations and warranties set
forth in this Agreement being untrue on and as of the Closing Date.
(q) NO LITIGATION. The Company shall not, nor shall it permits
any of its Subsidiaries to, initiate any material actions, suits,
arbitrations or proceedings.
(r) TAX-EXEMPT STATUS. The Company shall not, nor shall it permit
any of its Subsidiaries to, except as otherwise expressly provided for in
this Agreement, take any action that would be reasonably likely to jeopardize
the qualification of any material amount of outstanding revenue bonds which
qualify on December 6, 1998 under Section 142(a) of the Code as "exempt
facility bonds" or as tax-exempt industrial development bonds under Section
103(b)(4) of the Internal Revenue Code of 1954, as amended, prior to the
enactment of the Tax Reform Act of 1986.
(s) ADVICE OF CHANGES. The Company shall confer with HoldCo or
ScottishPower on a regular and frequent basis with respect to the Company's
business and operations and other matters relevant to the Merger, and shall
promptly advise HoldCo or ScottishPower, orally and in writing, of any
material change or event, including, without limitation, any complaint,
investigation or hearing by any Governmental or Regulatory Authority (or
communication indicating the same may be contemplated) or the institution or
threat of material litigation; provided that the Company shall not be
required to make any disclosure to the extent such disclosure would
constitute a violation of any applicable law or regulation.
(t) NOTICE AND CURE. The Company will notify HoldCo or
ScottishPower in writing of, and will use all commercially reasonable efforts
to cure before the Closing, any event, transaction or circumstance, as soon
as practical after it becomes known to the Company, that causes or will cause
any covenant or agreement of the Company under this Agreement to be breached
or that renders or will render untrue in any material respect any
representation or warranty of the Company contained in this Agreement. The
Company also will notify HoldCo or ScottishPower in writing of, and will use
all commercially reasonable efforts to cure, before the Closing, any
violation or breach, as soon as practical after it becomes known to the
Company, of any representation, warranty, covenant or agreement made by the
Company. No notice given pursuant to this paragraph shall have any effect on
the representations, warranties, covenants or agreements contained in this
Agreement for purposes of determining satisfaction of any condition contained
herein.
(u) FULFILLMENT OF CONDITIONS. Subject to the terms and
conditions of this Agreement, the Company will take or cause to be taken all
commercially reasonable steps necessary or desirable and will proceed
diligently and in good faith to satisfy each condition to its obligations
contained in this Agreement and to consummate and make effective the
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transactions contemplated by this Agreement, and the Company will not, nor
will it permit any of its Subsidiaries to, take or fail to take any action
that would reasonably be expected to result in the nonfulfillment of any such
condition.
5.02 COVENANTS OF HOLDCO AND SCOTTISHPOWER. Each of HoldCo, at all
times from and after the date hereof until the Effective Time, and
ScottishPower, at all times from December 6, 1998 until the Effective Time,
covenants and agrees as to itself and its Subsidiaries that (except for the
transactions contemplated or permitted by this Agreement or to the extent
that the Company shall otherwise previously consent in writing, which consent
shall not be unreasonably withheld or delayed):
(a) ORDINARY COURSE. Except pursuant to the Scheme of Arrangement
and the establishment of HoldCo Share Schemes and HoldCo Employee Benefit
Plans, HoldCo, ScottishPower and each of their respective Subsidiaries shall
conduct their businesses only in, and HoldCo, ScottishPower and each of their
respective Subsidiaries shall not take any action except in, the ordinary
course consistent with past practice. Without limiting the generality of the
foregoing, HoldCo, ScottishPower and their respective Subsidiaries shall use
all commercially reasonable efforts to preserve intact in all material
respects their present business organizations and reputation, to maintain in
effect all existing permits, to keep available the services of their key
officers and employees, to maintain their assets and properties in good
working order and condition, ordinary wear and tear excepted, to maintain
insurance on their tangible assets and businesses in such amounts and against
such risks and losses as are currently in effect, to preserve their
relationships with customers and suppliers and others having significant
business dealings with them and to comply in all material respects with all
laws and orders of all Governmental or Regulatory Authorities applicable to
them.
(b) CHARTER DOCUMENTS. Other than as contemplated by SECTION
6.03(c) and except to the extent required to comply with applicable law or
the rules of the LSE, HoldCo (after the Scheme Date) and ScottishPower shall
not, nor shall they permit any of their respective Subsidiaries to, amend or
propose to amend their respective certificates or articles of incorporation
or bylaws or their respective memoranda and articles of association (or other
comparable corporate charter documents).
(c) DIVIDENDS. Other than as set forth in the ScottishPower
Budget (as defined in SECTION 5.02(e)), HoldCo and, prior to the Scheme Date,
ScottishPower shall not, nor shall they permit any of their respective
Subsidiaries to,
(i) declare, set aside or pay any dividends on or make other
distributions in respect of any of its capital stock or share capital,
except:
(A) that, ScottishPower may, (I) as regards record dates for
the payment of dividends occurring prior to the Scheme
Date, continue the declaration and payment of regular
cash dividends (including increases consistent with past
practice) on ScottishPower Ordinary Shares, with usual
record and payment dates for such dividends in accordance
with past dividend practice; provided, that no such
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dividend shall exceed by more than 12% the dividend
payable during the prior fiscal year in respect of the
comparable time period and (II) before, on or after the
Scheme Date, effect the Share Transfer, and
(B) that, as regards record dates for the payment of
dividends occurring after the Scheme Date, HoldCo may
declare and pay regular cash dividends (including
increases consistent with ScottishPower's past practice)
on HoldCo Ordinary Shares, with usual record and payment
dates for such dividends in accordance with
ScottishPower's past dividend practice; provided, that no
such dividend shall, when taken together with any
dividend paid pursuant to clause (A)(I) of this paragraph
(c), exceed more than 12% of the dividend payable by
ScottishPower during the prior fiscal year in respect of
the comparable time period, and
(C) for the declaration and payment of dividends by a
wholly-owned Subsidiary solely to its parent corporation
(including for the avoidance of doubt dividends by
ScottishPower to HoldCo following the Scheme Date), and
(ii) other than pursuant to the Scheme of Arrangement or in connection
with the restructuring of the transactions contemplated hereby pursuant
to SECTION 6.07, split, combine, reclassify or take similar action with
respect to any of its capital stock or share capital or issue or
authorize or propose the issuance of any other securities in respect of,
in lieu of or in substitution for shares of its capital stock or
comprised in its share capital (except that HoldCo may subdivide its
ordinary shares as referred to in SECTION 4.02(a)), (iii) other than
pursuant to the Scheme of Arrangement, adopt a plan of complete or
partial liquidation or resolutions providing for or authorizing such
liquidation or a dissolution, merger, consolidation, restructuring,
recapitalization or other reorganization or (iv) other than pursuant to
the Scheme of Arrangement or as described in SECTION 5.02(c) of the
ScottishPower Disclosure Letter, directly or indirectly redeem,
repurchase or otherwise acquire any shares of its capital stock or
comprised in its share capital or any Option with respect thereto except:
(A) in connection with intercompany purchases of capital
stock or share capital,
(B) for the purpose of funding employee share ownership,
dividend reinvestment, stock purchase and other incentive
plans disclosed in SECTION 5.02 (c) of the ScottishPower
Disclosure Letter in accordance with past practice,
(C) the redemption of the ScottishPower Special Share or the
HoldCo Special Share in accordance with its terms or
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(D) the redemption of the 49,998 HoldCo non-voting redeemable
shares referred to in SECTION 4.02.
(d) SHARE ISSUANCES. Other than pursuant to the Scheme of
Arrangement, (i) ScottishPower shall not, nor shall it permit any of its
Subsidiaries to, issue, deliver or sell, or authorize or propose the
issuance, delivery or sale of, any shares of its capital stock or comprised
in its share capital or any Option with respect thereto (other than (A) up to
125 million shares of ScottishPower Ordinary Shares for general corporate
purposes, (B) the issuance of ScottishPower Ordinary Shares or stock
appreciation, share awards or similar rights, as the case may be, pursuant to
the ScottishPower Share Schemes, in each case outstanding on December 6, 1998
and in accordance with their present terms, subject to any amendments made in
the ordinary course consistent with past practice or pursuant to any share
scheme of ScottishPower to be adopted in the ordinary course consistent with
past practice, (C) the issuance of options or awards pursuant to
ScottishPower Share Schemes in accordance with their present terms, subject
to any amendments made in the ordinary course of business consistent with
past practice or as reasonably necessary to reflect the Scheme of Arrangement
and, except as set forth in SECTION 5.02(d) of the ScottishPower Disclosure
Letter, only in connection with the hiring of new employees and the issuance
of shares of ScottishPower Ordinary Shares upon exercise of such options or
awards, and (D) the issuance by a wholly-owned Subsidiary of its capital
stock to its parent corporation, or modify or amend any right of any holder
of outstanding shares of capital stock or Options with respect thereto).
(ii) HoldCo shall not, nor shall it permit any of its
Subsidiaries to, issue, deliver or sell, or authorize or propose the
issuance, delivery or sale of, any shares of its capital stock other
than in the amounts and for the purposes set forth in clause (i) of this
paragraph (d) and other than pursuant to the HoldCo Share Schemes or
pursuant to the arrangement referred to in SECTION 4.02(c)(iv) or
pursuant to the ScottishPower Share Schemes as amended as reasonably
necessary to reflect the Scheme of Arrangement.
(e) ACQUISITIONS. Other than as provided in the 1999 operating
budget of ScottishPower, a copy of which has been disclosed to and discussed
with the Company, or any subsequently-adopted budget of ScottishPower
disclosed to the Company (collectively, the "SCOTTISHPOWER BUDGET") or
pursuant to the Scheme of Arrangement, neither HoldCo nor ScottishPower
shall, nor shall they permit any of their respective Subsidiaries to, acquire
(by merging or consolidating with, or by purchasing a substantial equity
interest in or a substantial portion of the assets of, or by any other
manner) any business or any corporation, partnership, association or other
business organization or division thereof (i) in excess of 750 million
British pound sterling or (ii) if such acquisition would have a material
adverse affect on HoldCo, ScottishPower and their respective Subsidiaries
taken as a whole, without the prior written consent of the Company.
(f) DISPOSITIONS. Other than as provided in the ScottishPower
Budget, and other than the transfer of all of the outstanding shares of UKSub
1 and UKSub 2 from ScottishPower to HoldCo, neither HoldCo nor ScottishPower
shall, nor shall they permit any of their respective Subsidiaries to, sell,
lease, grant any security interest in or otherwise dispose of or encumber any
of its assets or properties, other than dispositions in the ordinary course
of its business consistent with past practice and having an aggregate value
of less than L750 million.
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(g) INDEBTEDNESS . Neither HoldCo nor ScottishPower shall, nor
shall they permit any of their respective Subsidiaries to, incur or guarantee
any indebtedness (including any debt borrowed or guaranteed or otherwise
assumed, including, without limitation, the issuance of debt securities or
warrants or rights to acquire debt) or enter into any "keep well" or other
agreement to maintain any financial condition of another Person or enter into
any arrangement having the economic effect of any of the foregoing, other
than indebtedness in an aggregate amount not exceeding 110% of the amount of
indebtedness provided for in the ScottishPower Budget. For purposes of this
paragraph (g), any indebtedness up to L500 million incurred in connection
with the planned buyback of ScottishPower Ordinary Shares and/or HoldCo
Ordinary Shares shall be disregarded.
(h) AFFILIATE CONTRACTS. Neither HoldCo nor ScottishPower shall,
nor shall they permit any of their respective Subsidiaries or, within the
exercise of its reasonable commercial efforts, the ScottishPower Joint
Ventures to, enter into any Contract or amend or modify any existing
Contract, or engage in any new transaction (other than pursuant to the Scheme
of Arrangement) outside the ordinary course of business consistent with past
practice or not on an arm's length basis, with any affiliate of such party or
any of its Subsidiaries.
(i) CAPITAL EXPENDITURES. Except for any payments by HoldCo to
ScottishPower in connection with the acquisition by HoldCo of UKSub 1 and
UKSub 2 or any investment by HoldCo in UKSub 1 and UKSub 2, neither HoldCo
nor ScottishPower shall, nor shall they permit any of their respective
Subsidiaries to, make any capital expenditures or commitments (except as
required by law or regulation) in excess of 110% of the aggregate amount
provided for such purposes in the ScottishPower Budget.
(j) 1935 ACT. Except for the acquisition of ScottishPower by
HoldCo and the filing of Forms U-57 by ScottishPower and HoldCo's other
utility subsidiaries after the acquisition of ScottishPower by HoldCo,
neither HoldCo nor ScottishPower shall, nor shall they permit any of their
respective Subsidiaries to, engage in any activities which would cause a
change in its status, or that of its Subsidiaries, under the 1935 Act,
including any action or inaction that would cause the prior approval of the
SEC under the 1935 Act to be required for the consummation of the
transactions contemplated hereby.
(k) UK LICENSING REGIME. Except pursuant to the Scheme of
Arrangement, neither HoldCo nor ScottishPower shall, nor shall they permit
any of their respective Subsidiaries to, engage in any activities or omit to
do anything which would entitle any Governmental or Regulatory Authority to
revoke in whole or in material part any material license, authorization or
appointment or which would otherwise materially change the status of HoldCo,
ScottishPower or any of their respective Subsidiaries (HoldCo, ScottishPower
and their respective Subsidiaries being referred to as the "HoldCo Group")
thereunder.
(l) TRANSMISSION, GENERATION. Except as set forth in SECTION
5.02(l) of the ScottishPower Disclosure Letter, neither HoldCo nor
ScottishPower shall, nor shall they permit any of their respective
Subsidiaries to:
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(i) commence construction of any additional generating,
transmission or delivery capacity in excess of 500 megawatts, or
(ii) obligate itself to purchase or otherwise acquire, or to
sell or otherwise dispose of, or to share, any additional generating,
transmission or delivery plants or facilities, in an amount in excess of
$200 million in any one transaction.
(m) ACCOUNTING. Neither HoldCo nor ScottishPower shall nor shall
they permit any of their respective Subsidiaries to, make any changes in
their accounting methods, except as required by law, rule, regulation or
applicable generally accepted accounting principles or, in the case of
HoldCo, adopting accounting methods substantially the same as those of
ScottishPower.
(n) TAX MATTERS. Neither HoldCo nor ScottishPower shall, nor
shall they permit any of their respective Subsidiaries to, take any action
which (or fail to take any action if such failure) would cause the Merger to
fail to qualify as a reorganization described in Section 368(a) of the Code.
(o) NO BREACH. Neither HoldCo nor ScottishPower shall, nor shall
they permit any of their respective Subsidiaries to, willfully take or fail
to take any action that would or is reasonably likely to result (i) in a
material breach of any provision of this Agreement, or (ii) in any of its
representations and warranties set forth in this Agreement being untrue on
and as of the Closing Date.
(p) ADVICE OF CHANGES. HoldCo and ScottishPower shall confer with
the Company on a regular and frequent basis with respect to HoldCo's and
ScottishPower's business and operations and other matters relevant to the
Merger, and shall promptly advise the Company, orally and in writing, of any
material change or event, including, without limitation, any complaint,
investigation or hearing by any Governmental or Regulatory Authority (or
communication indicating the same may be contemplated) or the institution or
threat of litigation, having, or which, insofar as can be reasonably
foreseen, could have, a material adverse effect on HoldCo, ScottishPower and
their respective Subsidiaries taken as a whole or on the ability of HoldCo
and ScottishPower to consummate the transactions contemplated hereby;
provided that HoldCo and ScottishPower shall not be required to make any
disclosure to the extent such disclosure would constitute a violation of any
applicable law or regulation.
(q) NOTICE AND CURE. HoldCo or ScottishPower will notify the
Company in writing of, and will use all commercially reasonable efforts to
cure before the Closing, any event, transaction or circumstance, as soon as
practical after it becomes known to HoldCo or ScottishPower, that causes or
will cause any covenant or agreement of HoldCo or ScottishPower under this
Agreement to be breached or that renders or will render untrue any
representation or warranty of HoldCo or ScottishPower contained in this
Agreement. HoldCo or ScottishPower will also notify the Company in writing
of, and will use all commercially reasonable efforts to cure, before the
Closing, any violation or breach, as soon as practical after it becomes known
to HoldCo or ScottishPower, of any representation, warranty, covenant or
agreement made by HoldCo or ScottishPower. No notice given pursuant to this
paragraph shall have any effect on
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the representations, warranties, covenants or agreements contained in this
Agreement for purposes of determining the satisfaction of any condition
contained herein.
(r) FULFILLMENT OF CONDITIONS. Subject to the terms and
conditions of this Agreement, HoldCo and ScottishPower will take or cause to
be taken all commercially reasonable steps necessary or desirable and proceed
diligently and in good faith to satisfy each condition to the Company's
obligations contained in this Agreement and to consummate and make effective
the transactions contemplated by this Agreement, and neither HoldCo nor
ScottishPower will, nor will they permit any of their respective Subsidiaries
to, take or fail to take any action that would reasonably be expected to
result in the nonfulfillment of any such condition.
5.03 JOINT EXECUTIVE COMMITTEE. As soon as practicable after the
date hereof, ScottishPower and the Company shall establish a joint executive
committee (the "JOINT EXECUTIVE COMMITTEE") which shall be comprised of three
nominees of ScottishPower (one of whom, in the first instance, shall be Ian
Robinson) and three nominees of the Company (one of whom, in the first
instance, shall be Keith McKennon). The Joint Executive Committee shall be
jointly chaired by Ian Robinson and Keith McKennon and shall have the
objective of facilitating and achieving the Merger contemplated in this
Agreement, integration planning, strategic development, developing
recommendations concerning the future structure and the general operation of
the Company after the Effective Time subject to applicable law. The Joint
Executive Committee shall meet monthly in the United States or upon such
other date or dates, and in such other places, as ScottishPower and the
Company may agree from time to time and may be convened by telephone, video
conference or similar means.
5.04 TAX MATTERS. Except as set forth in their respective
Disclosure Letters, neither HoldCo, ScottishPower nor the Company shall, nor
shall any party permit its Subsidiaries to, make or rescind any material
express or deemed election relating to taxes, or change any of its methods of
reporting income or deductions for tax purposes from those employed in the
preparation of its tax return(s) for the prior taxable year, except as may be
required by applicable law, as agreed to by the other party or, subject to
SECTION 6.18, to the extent reasonably necessary to comply with or implement
the Scheme of Arrangement. The Company shall inform ScottishPower regarding
the progress of any material claim, action, suit, litigation, proceeding,
arbitration, investigation, audit or controversy relating to taxes and shall
consult with ScottishPower before entering into any settlements or
compromises with regard to such matters.
5.05 DISCHARGE OF LIABILITIES. Neither HoldCo, ScottishPower nor
the Company shall, nor shall any party permit its Subsidiaries to, pay,
discharge or satisfy any material claims, liabilities or obligations
(absolute accrued, asserted or unasserted, contingent or otherwise), other
than the entry into of the New Facilities in place of, and/or amending, the
RCF, or other than as contemplated by paragraph 11 of Schedule I or other
than the payment, discharge or satisfaction, in the ordinary course of
business consistent with past practice (which includes the payment of final
and unappealable judgments) or in accordance with their terms, of liabilities
reflected or reserved against in, or contemplated by, the most recent
consolidated financial statements (or the notes thereto) of such party
included in such party's reports filed with
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the SEC or the Registrar of Companies in Edinburgh, or incurred in the
ordinary course of business consistent with past practice.
5.06 CONTRACTS. Neither HoldCo, ScottishPower nor the Company
shall, nor shall any party permit its Subsidiaries or, within the exercise of
its reasonable business efforts, its Joint Ventures to, except the entry into
of the New Facilities in place of, and/or amending, the RCF, or other than as
contemplated by paragraph 11 of Schedule I or as contemplated by this
Agreement or in the ordinary course of business consistent with past
practice, modify, amend, terminate, renew or fail to use reasonable business
efforts to renew any material contract or agreement to which such party or
any Subsidiary of such party is a party or waive, release or assign any
material rights or claims.
5.07 NO SOLICITATIONS. (a) Except as disclosed in SECTION 5.07
of the Company Disclosure Letter, prior to the Effective Time, the Company
agrees (i) that neither it nor any of its Subsidiaries or other affiliates
shall, and it shall use its best efforts to cause their respective
Representatives (as defined in SECTION 9.12) not to, initiate, solicit or
encourage, directly or indirectly, any inquiries or the making or
implementation of any proposal or offer (including, without limitation, any
proposal or offer to its stockholders) with respect to a merger,
consolidation or other business combination including the Company or any of
its Subsidiaries or any acquisition or similar transaction (including,
without limitation, a tender or exchange offer) involving the purchase of (A)
all or any significant portion of the assets of the Company and its
Subsidiaries taken as a whole, (B) 5% or more of the outstanding shares of
Company Common Stock or (C) 5% of the outstanding shares of the capital stock
of any Subsidiary of the Company (any such proposal or offer being
hereinafter referred to as an "ALTERNATIVE PROPOSAL"), or engage in any
negotiations concerning, or provide any confidential information or data to,
or have any discussions with, any person or group relating to an Alternative
Proposal (excluding the transactions contemplated by this Agreement), or
otherwise facilitate any effort or attempt to make or implement an
Alternative Proposal; (ii) that it will immediately cease and cause to be
terminated any existing activities, discussions or negotiations with any
parties with respect to any of the foregoing, and it will take the necessary
steps to inform such parties of its obligations under this Section; and (iii)
that it will notify ScottishPower or HoldCo promptly if any such inquiries,
proposals or offers are received by, any such information is requested from,
or any such negotiations or discussions are sought to be initiated or
continued with, it or any of such persons; provided, however, that nothing
contained in this SECTION 5.07(a) shall prohibit the Board of Directors of
the Company from (i) furnishing information to (but only pursuant to a
confidentiality agreement in customary form and having terms and conditions
no less favorable to the Company than the Confidentiality Agreement (as
defined in SECTION 6.01)) or entering into discussions or negotiations with
any person or group that makes an unsolicited BONA FIDE Alternative Proposal,
if, and only to the extent that, prior to receipt of the Company
Stockholders' Approval, (A) the Board of Directors of the Company, based upon
the advice of outside counsel, determines in good faith that a failure to
perform such action could reasonably be expected to result in a breach of its
fiduciary duties to stockholders imposed by law, (B) the Board of Directors
has reasonably concluded in good faith (after consultation with its financial
advisors) that the person or group making such Alternative Proposal will have
adequate sources of financing to consummate such Alternative Proposal, (C)
the Board of Directors has reasonably concluded in good faith that such
Alternative Proposal is more favorable to the Company's
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stockholders than the Merger, (D) prior to furnishing such information to, or
entering into discussions or negotiations with, such person or group, the
Company provides written notice to ScottishPower or HoldCo to the effect that
it is furnishing information to, or entering into discussions or negotiations
with, such person or group, which notice shall identify such person or group
in reasonable detail, and (E) the Company keeps ScottishPower or HoldCo
appropriately informed of the status of any such discussions or negotiations;
and (ii) to the extent required, complying with Rule 14e-2 promulgated under
the Exchange Act with regard to an Alternative Proposal. Nothing in this
SECTION 5.07 shall (x) permit the Company to terminate this Agreement (except
as specifically provided in ARTICLE VIII), (y) permit the Company to enter
into any agreement with respect to an Alternative Proposal for so long as
this Agreement remains in effect (it being agreed that for so long as this
Agreement remains in effect, the Company shall not enter into any agreement
with any person or group that provides for, or in any way facilitates, an
Alternative Proposal (other than a confidentiality agreement under the
circumstances described above)), or (z) affect any other obligation of the
Company under this Agreement.
(b) Each of HoldCo and ScottishPower agrees that (i) neither it
nor any of its Subsidiaries or other affiliates shall, and it shall use its
best efforts to cause their respective Representatives (as defined in SECTION
9.12) not to, initiate, solicit or encourage, directly or indirectly, any
inquiries or the making of any proposal or offer (including, without
limitation, any proposal or offer to its shareholders) with respect to any
transaction that would constitute a Change of Control (as defined in SECTION
8.01(e)), (ii) it will notify the Company promptly if any such inquiries,
proposals or offers are received by HoldCo or ScottishPower and (iii) will
keep the Company appropriately informed of the status of any such inquiries,
proposals or offers.
5.08 CONDUCT OF BUSINESS OF MERGER SUB. (a) Merger Sub shall not
be formed until immediately prior to the Closing Date.
(b) Prior to the Effective Time, HoldCo shall cause Merger Sub to
(i) perform its obligations under this Agreement in accordance with its
terms, (ii) not incur directly or indirectly any liabilities or obligations
other than those incurred in connection with the Merger, (iii) not engage
directly or indirectly in any business or activities of any type or kind and
not enter into any agreements or arrangements with any person, or be subject
to or bound by any obligation or undertaking, which is not contemplated by
this Agreement and (iv) not create, grant or suffer to exist any Lien upon
its properties or assets which would attach to any properties or assets of
the Surviving Corporation after the Effective Time.
5.09 THIRD PARTY STANDSTILL AGREEMENTS. During the period from
December 6, 1998 through the Effective Time, neither the Company nor any of
its Subsidiaries shall terminate, amend, modify or waive any provision of any
confidentiality or standstill agreement to which it is a party. During such
period, the Company shall enforce, to the fullest extent permitted under
applicable law, the provisions of any such agreement, including, but not
limited to, by obtaining injunctions to prevent any breaches of such
agreements and to enforce specifically the terms and provisions thereof in
any court having jurisdiction.
5.10 CONTROL OF OTHER PARTY'S BUSINESS. Nothing contained in this
Agreement shall give the Company, directly or indirectly, the right to
control or direct HoldCo's
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or ScottishPower's operations prior to the Effective Time. Nothing contained
in this Agreement shall give HoldCo or ScottishPower, directly or indirectly,
the right to control or direct the Company's operations prior to the
Effective Time. Prior to the Effective Time, each of the Company, HoldCo and
ScottishPower shall exercise, consistent with the terms and conditions of
this Agreement, complete control and supervision over its respective
operations.
ARTICLE VI
ADDITIONAL AGREEMENTS
6.01 ACCESS TO INFORMATION. Each of the Company, HoldCo and
ScottishPower shall, and shall cause each of its Subsidiaries and, so long as
consistent with its confidentiality obligations under its Joint Venture
agreements, shall use commercially reasonable efforts to cause its Joint
Ventures to, throughout the period from the date hereof to the Effective
Time, (i) provide the other parties and their respective Representatives with
full access, upon reasonable prior notice and during normal business hours,
to all officers, employees, agents and accountants of the Company, HoldCo and
ScottishPower, as the case may be, and their respective Subsidiaries and
Joint Ventures and their respective assets, properties, books and records,
but only to the extent that such access does not unreasonably interfere with
the business and operations of the Company, HoldCo and ScottishPower, as the
case may be, and its Subsidiaries and Joint Ventures, and (ii) furnish
promptly to such persons (x) a copy of each report, statement, schedule and
other document filed or received by the Company, HoldCo and ScottishPower, as
the case may be, or any of their respective Subsidiaries and Joint Ventures
pursuant to the requirements of federal or state securities laws and each
material report, statement, schedule and other document filed with any other
Governmental or Regulatory Authority, and (y) all other information and data
(including, without limitation, copies of Contracts, Company Employee Benefit
Plans, and other books and records) concerning the business and operations of
the Company, HoldCo and ScottishPower, as the case may be, and its
Subsidiaries and Joint Ventures as any such party or any of such other
persons reasonably may request. No investigation pursuant to this paragraph
or otherwise shall affect any representation or warranty contained in this
Agreement or any condition to the obligations of the parties hereto. Any
such information or material obtained pursuant to this SECTION 6.01 that
constitutes "REVIEW MATERIAL" (as such term is defined in the letter
agreement dated as of October 12, 1998 between the Company and ScottishPower
(the "CONFIDENTIALITY AGREEMENT")) shall be governed by the terms of the
Confidentiality Agreement.
6.02 PREPARATION OF REGISTRATION STATEMENT AND PROXY STATEMENT. As
soon as practicable after the date of this Agreement, the Company shall, in
cooperation with HoldCo and ScottishPower, prepare the Proxy Statement and
HoldCo and ScottishPower shall, in cooperation with the Company, prepare the
Registration Statement, in which the Proxy Statement will be included as the
prospectus. The Company shall, in cooperation with ScottishPower, file the
Proxy Statement with the SEC as its preliminary Proxy Statement and HoldCo
shall, in cooperation with the Company, prepare and file with the SEC the
Registration Statement in which the Proxy Statement will be included as the
prospectus. HoldCo and the Company shall use commercially reasonable efforts
to have the Registration Statement declared effective by the SEC as promptly
as practicable after such filing. HoldCo and the Company shall
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also take any action (other than qualifying as a foreign corporation or
taking any action which would subject it to service of process in any
jurisdiction where ScottishPower is not now so qualified or subject) required
to be taken under applicable state blue sky or securities laws in connection
with the issuance of HoldCo ADRs or Merger Ordinary Shares in connection with
the Merger. If at any time prior to the Effective Time any event shall occur
that should be set forth in an amendment of or a supplement to the
Registration Statement, HoldCo shall prepare and file with the SEC such
amendment or supplement as soon thereafter as is reasonably practicable.
HoldCo, ScottishPower and the Company shall cooperate with the other parties
in the preparation of the Registration Statement and the Proxy Statement and
any amendment or supplement thereto, and each shall notify the other parties
of the receipt of any comments of the SEC with respect to the Registration
Statement or the Proxy Statement and of any requests by the SEC for any
amendment or supplement thereto or for additional information, and shall
provide to the other parties promptly copies of all correspondence between
HoldCo, ScottishPower or he Company, as the case may be, or any of their
respective Representatives with respect to the Registration Statement or the
Proxy Statement. HoldCo, ScottishPower and the Company shall give the other
parties and their respective counsel the opportunity to review the
Registration Statement and the Proxy Statement and all responses to requests
for additional information by and replies to comments of the SEC before their
being filed with, or sent to, the SEC. Each of the Company and HoldCo agrees
to use commercially reasonable efforts, after consultation with each other,
to respond promptly to all such comments of and requests by the SEC and to
cause (x) the Registration Statement to be declared effective by the SEC at
the earliest practicable time and to be kept effective as long as is
necessary to consummate the Merger, and (y) the Proxy Statement to be mailed
to the holders of Company Common Stock and Company Preferred Stock entitled
to vote at the meeting of the stockholders of the Company at the earliest
practicable time.
6.03 APPROVAL OF SHAREHOLDERS. (a) ScottishPower shall, through
its Board of Directors, duly call, give notice of, convene and hold a general
meeting of its shareholders (the "SCOTTISHPOWER SHAREHOLDERS' MEETING"), for
the purpose of voting on the Merger in accordance with this Agreement (the
"SCOTTISHPOWER SHAREHOLDERS' APPROVAL"). Unless the Board of Directors of
ScottishPower, based upon the advice of outside counsel, determines in good
faith that making such recommendation, or failing to amend, modify or
withdraw any previously made recommendation, could reasonably be expected to
result in a breach of its fiduciary duties to shareholders imposed by law,
ScottishPower shall, through its Board of Directors, include in the Circular
the recommendation of the Board of Directors of ScottishPower that the
shareholders of ScottishPower approve such matters, and shall use its
reasonable best efforts to obtain such approval. In connection with the
ScottishPower Shareholders' Meeting, subject to applicable law, (i)
ScottishPower shall, as soon as practicable after the date of this Agreement
and in accordance with the listing rules of the LSE, prepare and submit to
the LSE for approval the Circular and the Listing Particulars, and shall use
all reasonable efforts to have such documents formally approved by the LSE
and shall thereafter publish the Circular and the Listing Particulars and
dispatch the Circular to its shareholders in compliance with all legal
requirements applicable to the ScottishPower Shareholders' Meeting and the
listing rules of the LSE and (ii) if necessary, after the Circular has been
so dispatched, promptly publish or circulate amended, supplemental or
supplemented materials and, if required in connection therewith, resolicit
votes. In the event that the ScottishPower Shareholders'
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Approval is not obtained without the vote having been taken on the date on
which the ScottishPower Shareholders' Meeting is initially convened, the
Board of Directors of ScottishPower agrees to use its reasonable best efforts
to adjourn such ScottishPower Shareholders' Meeting for the purpose of
obtaining the ScottishPower Shareholders' Approval and to use commercially
reasonable efforts during any such adjournments to obtain the ScottishPower
Shareholders' Approval.
(b) The Company shall, through its Board of Directors, duly call,
give notice of, convene and hold a meeting of its stockholders (the "COMPANY
STOCKHOLDERS' MEETING") for the purpose of voting on the approval of this
Agreement (the "COMPANY STOCKHOLDERS' APPROVAL") as soon as reasonably
practicable after the date hereof. Unless the Board of Directors of the
Company, based on the advice of outside counsel, determines in good faith
that making such recommendation, or failing to amend, modify or withdraw any
previously made recommendation, could reasonably be expected to result in a
breach of its fiduciary duties to stockholders imposed by law, the Company
shall, through its Board of Directors, include in the Proxy Statement the
recommendation of the Board of Directors of the Company that the stockholders
of the Company approve this Agreement, and shall use its reasonable best
efforts to obtain such approval. The Company shall consult and discuss in
good faith with ScottishPower regarding the alternatives available for
obtaining the Company Stockholders' Approval. In the event that the Company
Stockholders' Approval is not obtained without the vote having been taken on
the date on which the Company Stockholders' Meeting is initially convened,
the Board of Directors of the Company will use its reasonable best efforts to
adjourn such Company Stockholders' Meeting for the purpose of obtaining the
Company Stockholders' Approval and to use commercially reasonable efforts
during any such adjournments to obtain the Company Stockholders' Approval.
(c) HoldCo shall, through its Board of Directors, at the Annual
General Meeting of HoldCo next following the Scheme Date (or earlier, if
agreed), include for consideration by its shareholders and, subject to its
fiduciary duties, recommend the approval of a resolution to approve
amendments to the HoldCo Articles of Association in order to provide, to the
extent reasonably possible, for the holders of HoldCo ADRs substantially the
same rights as holders of HoldCo Ordinary Shares to receive notice of,
attend, speak and vote at general meetings of holders of HoldCo Ordinary
Shares (the "ADR HOLDER PROPOSAL"). In the event the ADR Holder Proposal is
not adopted by HoldCo's shareholders at such Annual General Meeting, HoldCo
shall, through its Board of Directors, include for consideration by its
shareholders and, subject to its fiduciary duties, recommend approval of the
ADR Holder Proposal at HoldCo's next Annual General Meeting. With effect
from and/or following the Scheme Date, ScottishPower's Articles of
Association shall be amended to reflect its status as a subsidiary, PROVIDED,
HOWEVER, that if the effect of such amendments would have a material adverse
effect on the benefits of the Merger for the holders of Company Common Stock,
such amendments may only be effected with the prior written consent of the
Company.
6.04 COMPANY AFFILIATES. At least thirty (30) days prior to the
Closing Date the Company shall deliver a letter to HoldCo identifying all
persons who, at the time of the Company Stockholders' Meeting, may, in the
Company's reasonable judgment, be deemed to be "AFFILIATES" (as such term is
used in Rule 145 under the Securities Act) of the Company
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("COMPANY AFFILIATES"). The Company shall use its best efforts to cause each
Company Affiliate to deliver to HoldCo on or prior to the Closing Date a
written agreement substantially in the form and to the effect of EXHIBIT C
hereto (an "AFFILIATE AGREEMENT"). HoldCo shall be entitled to place legends
as specified in such Affiliate Agreements on the certificates evidencing any
HoldCo ADSs to be received by such Company Affiliates pursuant to the terms
of this Agreement, and to issue appropriate stop transfer instructions to the
transfer agent for the HoldCo ADSs, consistent with the terms of such
Affiliate Agreements.
6.05 AUDITORS' LETTERS. Each of the Company, HoldCo and
ScottishPower shall use all reasonable efforts to cause to be delivered to
the other parties and such other parties' Boards of Directors a letter of its
independent auditors, dated the date on which the Registration Statement
shall become effective, and addressed to the other parties and such other
parties' Boards of Directors, in form and substance customary for "comfort"
letters delivered by independent public accountants in connection with
registration statements on Form F-4 and Form S-4.
6.06 STOCK EXCHANGE LISTING; DEPOSIT AGREEMENT. (a) HoldCo shall
use its commercially reasonable efforts, and the Company shall cooperate in
respect thereto, to cause (a) the HoldCo ADSs to be issued in the Merger and
under the Company Stock Plans after the Merger in accordance with this
Agreement to be approved for listing on the NYSE, subject to official notice
of issuance, prior to the Closing Date; and (b) each of (i) the HoldCo
Ordinary Shares to be represented by the HoldCo ADSs to be issued in the
Merger to be admitted to the Official List of the London Stock Exchange and
(ii) the Merger Ordinary Shares to be issued in the Merger to be admitted to
the Official List of the London Stock Exchange.
(b) Following the execution of this Agreement, HoldCo shall
promptly prepare and shall use its commercially reasonable efforts to have
executed a deposit agreement, all on terms and conditions reasonably
satisfactory to the Company, that will provide holders of HoldCo ADRs with
the right to (i) participate in rights offerings, (ii) attend HoldCo
shareholder meetings, (iii) speak at HoldCo shareholder meetings, (iv) call
for a poll at HoldCo shareholder meetings, (v) examine documents made
available at HoldCo shareholder meetings, (vi) instruct the Depository to
vote its HoldCo ADSs in a particular fashion, (vii) generally be counted
individually as present and/or voting with respect to resolutions adopted at
HoldCo shareholder meetings, and (viii) decide at HoldCo shareholder meetings
how to vote on particular resolutions, in each case on the same basis as the
holders of HoldCo Ordinary Shares.
6.07 RESTRUCTURING OF MERGER. The parties expressly acknowledge
and agree that, although it is their current intention to effect a business
combination among themselves in the form contemplated by this Agreement, it
may be preferable to effectuate such a business combination by means of an
alternative structure in light of the conditions set forth in SECTIONS
7.01(i), 7.02(d) and 7.03(d). Accordingly, if the only conditions to the
parties' obligations to consummate the Merger which are not satisfied or
waived are receipt of any one or more of those set forth in SECTIONS 7.01(i),
7.02(d) and 7.03(d), and the adoption of an alternative structure (that
otherwise substantially preserves for the parties the economic and other
material benefits of the Merger) would result in such conditions being
satisfied or waived, then the parties shall use their respective reasonable
best efforts to effect a business combination among
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themselves by means of a mutually agreed upon structure other than the Merger
that so preserves such benefits; PROVIDED THAT, prior to closing any such
restructured transaction, all material third party and Governmental and
Regulatory Authority declarations, filings, registrations, notices,
authorizations, consents or approvals necessary to effect such alternative
business combination shall have been obtained and all other conditions to the
parties' obligations to consummate the Merger, as applied to such alternative
business combination, shall have been satisfied or waived.
6.08 REGULATORY AND OTHER APPROVALS. Subject to the terms and
conditions of this Agreement and without limiting the provisions of SECTIONS
6.02, 6.03 and 6.06, each of the Company, HoldCo and ScottishPower shall
jointly develop a regulatory approval plan and proceed cooperatively and in
good faith to, as promptly as practicable, (i) obtain all consents, approvals
or actions of, make all filings with and give all notices to Governmental or
Regulatory Authorities or any other public or private third parties required
of HoldCo, ScottishPower, the Company or any of their Subsidiaries or Joint
Ventures to consummate the Merger and the other matters contemplated hereby
(including without limitation those set forth on SECTION 3.04 of the Company
Disclosure Letter and SECTION 4.04 of the ScottishPower Disclosure Letter),
and (ii) provide such other information and communications to such
Governmental or Regulatory Authorities or other public or private third
parties as the other parties or such Governmental or Regulatory Authorities
or other public or private third parties may reasonably request in connection
therewith. In addition to and not in limitation of the foregoing, each of
the parties will (w) take promptly all actions necessary to make the filings
required of HoldCo, ScottishPower and the Company or their affiliates under
the HSR Act and to comply with filing and approval requirements of the FERC
and each state Governmental or Regulatory Authority, (x) comply at the
earliest practicable date with any request for additional information
received by any such party or its affiliates from the Federal Trade
Commission (the "FTC") or the Antitrust Division of the Department of Justice
(the "ANTITRUST DIVISION") pursuant to the HSR Act, (y) cooperate with the
other parties in connection with any such party's filings under the HSR Act
and in connection with resolving any investigation or other inquiry
concerning the Merger or the other matters contemplated by this Agreement
commenced by either the FTC or the Antitrust Division or state attorneys
general or by the FERC or any State Governmental or Regulatory Authority
having jurisdiction with respect to the Merger or another transaction
contemplated by this Agreement, and (z) provide to the other parties promptly
copies of all correspondence between any such party and the applicable
Governmental or Regulatory Authority with respect to any filings referred to
in this SECTION 6.08, and shall give the other parties the opportunity to
review such filings and all responses to requests for additional information
by such Governmental or Regulatory Authority prior to their being filed
therewith.
6.09 EMPLOYEE BENEFIT PLANS. HoldCo shall use its reasonable best
efforts to cause the Company Employee Benefit Plans in effect at December 6,
1998 that had been disclosed to ScottishPower prior to such date to remain in
effect until the second anniversary of the Effective Time or, to the extent
such Company Employee Benefit Plans are not continued, HoldCo will maintain
until such date benefit plans which are no less favorable, in the aggregate,
to the employees covered by such Company Employee Benefit Plans PROVIDED,
HOWEVER, that nothing contained herein shall be construed as requiring HoldCo
or the Surviving Corporation to continue any specific plan or as preventing
HoldCo or the Surviving Corporation from (a) establishing and, if necessary,
seeking shareholder approval to establish, any other
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benefit plans in respect of all or any of the employees covered by such
Company Employee Benefit Plans or any other employees, or (b) amending such
Company Employee Benefit Plans (or any replacement benefit plans therefor)
where required by applicable law or where such amendment is with the consent
of the affected employees. From and after the Effective Time, HoldCo shall
honor, and shall cause its Subsidiaries to honor, in accordance with its
express terms, each existing employment, change of control, severance and
termination agreement between the Company or any of its Subsidiaries, and any
officer, director or employee of such company, including without limitation
all legal and contractual obligations pursuant to outstanding restoration
plans, severance plans, bonus deferral plans, vested and accrued benefits and
similar employment and benefit arrangements, policies and agreements that had
been disclosed to ScottishPower prior to December 6, 1998 and other
obligations entered into in accordance with SECTIONS 5.01(d) and (h).
6.10 COMPANY STOCK PLAN. (a) At the Effective Time, each
outstanding option to purchase shares of Company Common Stock (a "COMPANY
STOCK OPTION") under the Company Option Plan, whether vested or unvested,
shall be converted into an option to acquire, on the same terms and
conditions as were applicable under such Company Stock Option, except as
amended by this SECTION 6.10, a number of HoldCo ADSs equal to the product
(rounded down to the nearest whole number) of (i) the number of shares of
Company Common Stock subject to the option immediately prior to the Effective
Time and (ii) the ADS Consideration and the option exercise price per HoldCo
ADS at which such option is exercisable shall be the amount (rounded up to
the nearest whole cent) obtained by dividing (iii) the option exercise price
per share of Company Common Stock at which such option is exercisable
immediately prior to the Effective Time by (iv) the ADS Consideration;
PROVIDED, HOWEVER, that, in the case of any Company Stock Option to which
Section 421 of the Code applies by reason of its qualification under any of
Sections 422-424 of the Code ("QUALIFIED STOCK OPTIONS"), the option exercise
price, the number of shares which may be acquired pursuant to such option and
the terms and conditions of exercise of such option shall be determined in
order to comply with Section 424(a) of the Code; PROVIDED, further, that,
under no circumstances shall the option exercise price per HoldCo ADS be less
than the aggregate par value of the HoldCo Ordinary Shares represented by a
HoldCo ADS.
(b) As soon as practicable after the Effective Time, HoldCo shall
deliver to the participants in the Company Option Plan appropriate notices
setting forth such participants' rights pursuant thereto and the grants
pursuant to the Company Option Plan shall continue in effect on the same
terms and conditions (subject to the adjustments required by this Section
after giving effect to the Merger).
(c) HoldCo shall take all corporate action necessary to have a
sufficient number of shares of HoldCo ADSs available for delivery under the
Company Option Plan as adjusted in accordance with this Section. As soon as
practicable after the Effective Time, HoldCo shall file a registration
statement on Form F-8 promulgated by the SEC under the Securities Act (or any
successor or other appropriate form) with respect to the HoldCo ADSs subject
to such options and shall use its reasonable best efforts to maintain the
effectiveness of such registration statement or registration statements (and
maintain the current status of the prospectus or prospectuses contained
therein) for so long as such options remain outstanding.
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(d) For purposes of SECTION 2.01(c), Company Common Stock shall
include shares of restricted Company Common Stock issued under the Company's
Non-Employee Director's Stock Compensation Plan, Stock Incentive Plan and
Long Term Incentive Plan (collectively, the "COMPANY RESTRICTED STOCK
PLANS"). The Company shall take all corporate action necessary and obtain
all relevant consents to ensure that the consideration received under such
SECTION 2.01(c) upon the conversion of each outstanding share of restricted
Company Common Stock will continue to be subject to the same restrictions
that such shares were subject to under the Company Restricted Stock Plans and
the applicable award agreements thereunder, including, without limitation,
any forfeiture restrictions, subject to amendment or modification of such
plans or award agreements to reflect action of the Board of Directors of the
Company taken prior to December 6, 1998 and disclosed to ScottishPower prior
to such date.
6.11 DIRECTORS' AND OFFICERS' INDEMNIFICATION AND INSURANCE. (a)
Except to the extent required by law, until the sixth anniversary of the
Effective Time, HoldCo will not take any action so as to amend, modify or
repeal the provisions for indemnification of directors or officers contained
in the certificate or articles of incorporation or bylaws (or other
comparable charter documents) of the Surviving Corporation and its
Subsidiaries (which after the Effective Time shall be substantially identical
to those of the Company in effect on December 6, 1998) in such a manner as
would adversely affect the rights of any individual who shall have served as
a director or officer of the Company or any of its Subsidiaries prior to the
Effective Time to be indemnified by such corporations in respect of their
serving in such capacities prior to the Effective Time.
(b) HoldCo and the Surviving Corporation shall, until the sixth
anniversary of the Effective Time, cause to be maintained in effect, to the
extent available, the policies of directors' and officers' liability
insurance maintained by the Company and its Subsidiaries as of December 6,
1998 (or policies of at least the same coverage and amounts containing terms
that are no less advantageous to the insured parties) with respect to claims
arising from facts or events that occurred on or prior to the Effective Time;
PROVIDED that in no event shall HoldCo or the Surviving Corporation be
obligated to expend in order to maintain or procure insurance coverage
pursuant to this paragraph any amount per annum in excess of two hundred
percent (200%) of the aggregate premiums payable by the Company and its
Subsidiaries in 1998 (on an annualized basis) for such purpose.
6.12 HOLDCO GOVERNANCE; ADDITIONAL MATTERS. (a) Subject to the
exercise of fiduciary duties and to the extent permitted by applicable law,
HoldCo's Board of Directors shall take action to cause the full Board of
Directors of HoldCo at the Effective Time to include Keith McKennon, as
Deputy Chairman of HoldCo, and two additional non-executive members of the
Company's current Board of Directors to be designated by the Company at least
thirty (30) days prior to the Effective Time.
(b) HoldCo shall, promptly following the Effective Time, cause
certain of the non-executive members of the Company's Board of Directors
immediately prior to the Effective Time who do not become directors of HoldCo
pursuant to SECTION 6.12(a) hereof, and who are willing to so serve, to be
elected or appointed as members of an advisory board (the "ADVISORY BOARD")
established by the Company, the function of which shall be to meet no less
frequently
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than semi-annually in order to advise the Company's Board of Directors with
respect to general business as well as opportunities and activities in the
Company's market area and to maintain and develop customer relationships.
The Advisory Board shall be chaired by Ian Robinson, and shall also include
Duncan Whyte, Richard O'Brien, and such other representatives from the
communities served by the Company (including but not limited to non-executive
members of the Company's Board of Directors immediately prior to the
Effective Time) as shall be mutually agreed by Ian Robinson and Keith
McKennon. The members of the Advisory Board who are willing to so serve
initially shall be elected or appointed for a term of two years. HoldCo
agrees to cause the Company to re-elect or re-appoint each of the initial
members of the Advisory Board to one successive one-year term following the
initial term; PROVIDED, HOWEVER, that HoldCo shall have no obligation to
cause the Company to elect or appoint, or re-elect or re-appoint, and may
cause the Company to remove, any member if HoldCo reasonably determines that
such member has a conflict of interest that compromises such member's ability
to serve effectively as a member of the Advisory Board or any cause exists
that otherwise would allow for removal of such person as a director of the
Company if such person were a member of the Company's Board of Directors.
(c) Immediately following the Effective Time, the Company's United
States headquarters shall continue to be in Portland, Oregon. In recognition
of HoldCo's and ScottishPower's commitment to the communities served by the
Company, following the Effective Time HoldCo or ScottishPower will contribute
to The PacifiCorp Foundation the sum of $5 million.
6.13 EXPENSES. Except as set forth in SECTION 8.02, whether or
not the Merger is consummated, all costs and expenses incurred in connection
with this Agreement and the transactions contemplated hereby shall be paid by
the party incurring such cost or expense. The Company shall not be obligated
for any fees or expenses relating to HoldCo's obligation to demonstrate the
existence of adequate working capital in connection with the filing of the
Listing Particulars. Notwithstanding any provision of this Agreement, in no
event shall HoldCo, ScottishPower or any affiliate of HoldCo or ScottishPower
pay any expenses of the Company, any Company affiliate or any Company
stockholder in connection with the transactions contemplated by this
Agreement.
6.14 BROKERS OR FINDERS. Each of HoldCo, ScottishPower and the
Company represents, as to itself and its affiliates, that, except as set
forth on SECTION 6.14 of the Company Disclosure Letter and except for any
reasonable fees and expenses that may be paid by HoldCo or ScottishPower to
Morgan Stanley Dean Witter Discover, Inc. in connection with the Scheme of
Arrangement, no agent, broker, investment banker, financial advisor or other
firm or person is or will be entitled to any broker's or finder's fee or any
other commission or similar fee in connection with any of the transactions
contemplated by this Agreement except Salomon Smith Barney, whose fees and
expenses will be paid by the Company in accordance with the Company's
agreement with such firm (a true and complete copy of which has been
delivered by the Company to ScottishPower prior to December 6, 1998), and
Morgan Stanley Dean Witter Discover Inc. whose fees and expenses will be paid
by ScottishPower in accordance with ScottishPower's agreement with such firm
(a true and complete copy of which has been delivered by ScottishPower to the
Company prior to December 6, 1998), and each of HoldCo and
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ScottishPower, on the one hand, and the Company, on the other, shall
indemnify and hold the other harmless from and against any and all claims,
liabilities or obligations with respect to any other such fee or commission
or expenses related thereto asserted by any person on the basis of any act or
statement alleged to have been made by such party or its affiliate.
6.15 TAKEOVER STATUTES. If any "FAIR PRICE", "MORATORIUM",
"CONTROL SHARE ACQUISITION" or other form of antitakeover statute or
regulation shall become applicable to the transactions contemplated hereby,
the Company and the members of the Board of Directors of the Company shall
grant such approvals and take such actions as are reasonably necessary so
that the transactions contemplated hereby may be consummated as promptly as
practicable on the terms contemplated hereby and thereby and otherwise act to
eliminate or minimize the effects of such statute or regulation on the
transactions contemplated hereby and thereby.
6.16 CONVEYANCE TAXES. The Company, HoldCo and ScottishPower
shall cooperate in the preparation, execution and filing of all returns,
questionnaires, applications or other documents regarding any real property
transfer or gains, sales, use, transfer, value added, stock transfer and
stamp taxes and duties, any transfer, recording, registration and other fees,
and any similar taxes which become payable in connection with the
transactions contemplated by this Agreement that are required or permitted to
be filed on or before the Effective Time. The Company shall pay, without
deduction or withholding (except where such deduction or withholding is
required by applicable law) from any amount payable to the holders of Company
Common Stock, any such taxes which become payable in connection with the
transfer of Company Common Stock in exchange for the Ordinary Share
Consideration and the ADS Consideration. The Company shall also pay any
stamp duty or stamp duty reserve tax arising in connection with the issue of
the HoldCo ADSs and HoldCo ADRs.
6.17 RATE MATTERS. During the period commencing on December 6,
1998 and ending on the Effective Date, the Company shall, and shall cause its
Subsidiaries to, obtain HoldCo's and ScottishPower's approval, not to be
unreasonably withheld or delayed, prior to initiating any general rate case
and shall consult with HoldCo and ScottishPower prior to making any material
changes in its or its Subsidiaries' rates or charges, standards of service or
accounting from those in effect on December 6, 1998 and shall further consult
with HoldCo and ScottishPower prior to making any filing (or any amendment
thereto), or effecting any agreement, commitment, arrangement or consent,
whether written or oral, formal or informal, with respect thereto.
6.18 TAX MATTERS. Each of HoldCo and ScottishPower agrees that:
(a) Prior to the Closing Date, ScottishPower and HoldCo (i) will
make the elections necessary pursuant to Section 301.7701-3 of the U.S.
Treasury regulations promulgated under the Code to treat UKSub 1 and UKSub 2
as entities disregarded as separate from ScottishPower and HoldCo and (ii)
will not change such election during the period beginning on the date such
election is effective for U.S. federal income tax purposes and ending on the
date that is three years after the Closing Date.
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(b) Throughout the period beginning on the date the election
described in SECTION 6.18(a) of this Agreement is effective for U.S. federal
income tax purposes and ending on the date that is three years after the
Closing Date: (i) ScottishPower and HoldCo will not make an election under
Section 301.7701-3 of the U.S. Treasury regulations to treat UKSub 1 or UKSub
2 as an association taxable as a corporation; (ii) ScottishPower, before the
Share Transfer, will directly own the whole of the share capital of UKSub 1
and UKSub 2, and HoldCo, after the Share Transfer, will directly own the
whole of the share capital of UKSub 1 and UKSub 2; and (iii) ScottishPower
and HoldCo will cause UKSub 1 and UKSub 2 to directly own all of the equity
interests in the Partnership. Prior to the Closing Date, ScottishPower and
HoldCo shall cause the Share Transfer to occur.
(c) Throughout the period beginning at the Effective Time and
ending on the date that is three years after the Closing Date, the
Partnership will directly own all of the Common Stock of the Surviving
Corporation, except for contribution to a controlled subsidiary described in
Code Section 368(a)(2)(C) and the regulations promulgated thereunder.
(d) Throughout the period beginning at the Effective Time and
ending on the date that is three years after the Closing Date, none of
HoldCo, ScottishPower, UKSub 1, UKSub 2, the Partnership, nor any other
affiliate of HoldCo or ScottishPower will redeem, acquire, convert, exchange,
or cause the Company or any affiliate of the Company to acquire, convert or
exchange or arrange for another person to acquire, convert or exchange any of
the ADS Consideration or the Ordinary Share Consideration, unless HoldCo has
received a written opinion of counsel that such action will not cause those
persons who were stockholders of the Company at the time of the Merger to
recognize gain or loss for US federal income tax purposes either with respect
to the Merger or with respect to a subsequent exchange or conversion;
(e) Neither HoldCo, ScottishPower nor any affiliate of HoldCo or
ScottishPower will, directly or indirectly, pay any expense incurred by (i)
the Company, (ii) any affiliate of the Company or (iii) any Company
stockholder, in each case, in connection with the transactions contemplated
by this Agreement.
(f) For a period of three years following the Closing Date,
without the receipt of a written opinion of counsel that such action will not
affect the tax-free status of the transactions contemplated by this
Agreement, neither HoldCo nor any affiliate of HoldCo, will, directly or
indirectly, (i) make contributions (whether or not in exchange for shares) or
loan additional funds to (x) the Company, (y) any affiliate of the Company or
(z) any escrow account, trust or other fund established to pay any expenses
incurred by the Company, any affiliate of the Company or any Company
stockholder in connection with the transactions contemplated by this
Agreement or (ii) permit the Company or any Company affiliate to incur
additional indebtedness guaranteed by HoldCo or any HoldCo affiliate;
(g) Neither HoldCo nor any affiliate of HoldCo will, directly or
indirectly reimburse (or otherwise pay) any amounts paid to the holders of
$1.28 Series, $1.18 Series or $1.16 Series no par serial preferred stock of
the Company in connection with the redemption of their preferred stock prior
to the Closing Date.
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(h) Neither HoldCo, ScottishPower nor any affiliate of HoldCo or
ScottishPower will, directly or indirectly, acquire any Company stock except
for the Company stock acquired solely in exchange for the ADS Consideration
or the Ordinary Share Consideration unless acquired directly from the Company.
6.19 DIVIDENDS. HoldCo hereby acknowledges its intention,
following the Effective Time, to adopt a practice of paying, with respect to
HoldCo Ordinary Shares and HoldCo ADSs, quarterly dividends on regular
quarterly dividend dates in roughly equal amounts. After the date hereof,
each of HoldCo, ScottishPower and the Company shall coordinate with the other
with respect to the declaration of dividends in respect of HoldCo Ordinary
Shares and Company Common Stock and the record dates and payment dates with
respect thereto prior to the Effective Time, with the intention that the
holders of Company Common Stock receive dividends in respect of the Company
Common Stock for all periods prior to the Effective Time but do not receive
dividends on the ADS Consideration and the Ordinary Share Consideration after
the Effective Time in respect of periods prior to the Effective Time.
ARTICLE VII
CONDITIONS
7.01 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER.
The respective obligation of each party to effect the Merger is subject to
the fulfillment, at or prior to the Closing, of each of the following
conditions:
(a) STOCKHOLDER APPROVAL. This Agreement shall have been approved
by the requisite vote of the stockholders of the Company under the BCA and
the shareholders of ScottishPower shall have approved the Merger.
(b) REGISTRATION STATEMENT; STATE SECURITIES LAWS. The
Registration Statement shall have become effective in accordance with the
provisions of the Securities Act, and no stop order suspending such
effectiveness shall have been issued and remain in effect and no proceeding
seeking such an order shall be pending or threatened. HoldCo shall have
received all state securities or "Blue Sky" permits and other authorizations
necessary to issue the HoldCo ADSs pursuant to this Agreement and under the
Company Stock Plans after the Merger.
(c) EXCHANGE LISTING. The LSE shall have agreed to admit to the
Official List (subject to allotment) the new HoldCo Ordinary Shares to be
issued in connection with the Merger and such agreement shall not have been
withdrawn and the HoldCo ADSs issuable to the Company stockholders in the
Merger and under the Company Stock Plans after the Merger in accordance with
this Agreement shall have been authorized for listing on the NYSE, upon
official notice of issuance.
(d) HSR ACT. Any waiting period (and any extension thereof)
applicable to the consummation of the Merger under the HSR Act shall have
expired or been terminated.
(e) INJUNCTIONS OR RESTRAINTS. No court of competent jurisdiction
or other competent Governmental or Regulatory Authority shall have enacted,
issued, promulgated,
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enforced or entered any law or order (whether temporary, preliminary or
permanent) which is then in effect and has the effect of making illegal or
otherwise restricting, preventing or prohibiting consummation of the Merger
or the other transactions contemplated by this Agreement.
(f) EXON-FLORIO. The review and investigation under Exon-Florio
shall have been terminated and the President shall have taken no action
authorized thereunder.
(g) POWER ACT; ATOMIC ENERGY ACT. The final approval of (i) the
FERC and (ii) the Nuclear Regulatory Commission under the Atomic Energy Act,
with respect to the Merger and the transactions contemplated by this
Agreement shall have been obtained.
(h) H.M. TREASURY CONSENT. HoldCo or ScottishPower (as required)
shall have received consent from H.M. Treasury pursuant to SECTION 765 of the
U.K. Income and Corporation Taxes Act 1988 in respect of the Merger and any
other matter contemplated hereby, or confirmation that no consent is required.
(i) GOVERNMENTAL AND REGULATORY CONSENTS AND APPROVALS. Other
than the filings provided for by SECTION 1.03 and any filing required in
connection with the registration or exemption of HoldCo under the 1935 Act,
all consents, approvals and actions of, filings with and notices to any
Governmental or Regulatory Authority (including under the HSR Act and
Exon-Florio Act and the approvals by FERC pursuant to the Power Act) required
of HoldCo, ScottishPower, the Company or any of their Subsidiaries to
consummate the Merger and the other matters contemplated hereby shall have
been made or obtained (as the case may be) and become Final Orders (as
defined in this Section below), and such Final Orders shall not, individually
or in the aggregate, contain terms or conditions that would have, or would
reasonably be expected to have, a material adverse effect on the Surviving
Corporation and its Subsidiaries, taken as a whole. A "Final Order" means an
action by the relevant Governmental or Regulatory Authority that has not been
reversed, stayed, enjoined, set aside, annulled or suspended, with respect to
which any waiting period prescribed by applicable law before the transactions
contemplated hereby may be consummated has expired, and as to which all
conditions to the consummation of such transactions prescribed by applicable
law, regulation or order have been satisfied.
(j) OTHER CONSENTS AND APPROVALS. hTe consent or approval of each
person (other than a Governmental or Regulatory Authority) whose consent or
approval is required of HoldCo, ScottishPower, the Company or any of their
Subsidiaries under any Contract in order to consummate the Merger and the
other transactions contemplated hereby shall have been obtained, except for
those consents and approvals which, if not obtained, would not have, or would
not reasonably be expected to have, a material adverse effect on the Company
and its Subsidiaries taken as a whole or on the ability of HoldCo,
ScottishPower or the Company to consummate the transactions contemplated
hereby.
(k) UK FAIR TRADING ACT. Any of:
(i) the Office of Fair Trading (the "OFT") shall have
indicated in writing that the Secretary of State for Trade and
Industry (the "SOS") in the
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exercise of his powers under the Fair Trading Act 1973 (the "FTA")
does not intend to refer the Merger or any matter relating thereto
to the Monopolies and Mergers Commission ("MMC"); or
(ii) in the event of an MMC reference, the MMC shall have
concluded that the Merger does not or may not be expected to
operate against the public interest; or
(iii) if on a reference the MMC shall have concluded that the
Merger does or may be expected to operate against the public
interest, the SOS shall have indicated in writing that it is his
intention to approve the Merger,
PROVIDED that if any indication by the SOS referred to in (i) or (iii) above
is subject to undertakings, assurances or any other terms or conditions, such
undertakings, assurances, terms or conditions would not have, or would
reasonably be expected not to have, individually or in the aggregate, a
material adverse effect on the HoldCo Group taken as a whole.
(l) UK REGULATORS. Each of the Office of Electricity Regulation
("OFFER") and the Office of Water Services ("OFWAT") shall have indicated:
(i) that it is not its intention to seek any modifications to
any conditions of the licenses or appointments held by any member
of the HoldCo Group under any applicable statute, law, regulation,
order or determination which would have, or would reasonably be
expected to have, individually or in the aggregate, a material
adverse effect on the HoldCo Group taken as a whole; and
(ii) that it will give such consents and/or directions (if
any) as are necessary or appropriate with respect to such licenses
or appointments in connection with the Merger on terms which would
not have, or would reasonably be expected not to have, individually
or in the aggregate, a material adverse effect on the HoldCo Group
taken as a whole.
(m) UK UNDERTAKINGS/ASSURANCES. Neither OFFER nor OFWAT shall
have sought undertakings or assurances from any member of the HoldCo Group
which would have, or would reasonably be expected to have, individually or in
the aggregate, a material adverse effect on the HoldCo Group taken as a whole.
7.02 CONDITIONS TO OBLIGATION OF HOLDCO, SCOTTISHPOWER AND MERGER
SUB TO EFFECT THE MERGER. The obligation of HoldCo, ScottishPower and Merger
Sub to effect the Merger is further subject to the fulfillment, at or prior
to the Closing, of each of the following additional conditions (all or any of
which may be waived in whole or in part by HoldCo, ScottishPower and Merger
Sub in their sole discretion):
(a) REPRESENTATIONS AND WARRANTIES. The representations and
warranties made by the Company in this Agreement shall be true and correct,
in all material respects, taken as a whole, as of the Closing Date as though
made on and as of the Closing Date or, in the case of representations and
warranties made as of a specified date earlier than the Closing Date on and
as
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of such earlier date (provided, however, that for purposes of this paragraph
(a), no effect shall be given to the reference to the date December 6, 1998
in the first paragraph of Article III), except as affected by the
transactions contemplated by this Agreement, and the Company shall have
delivered to HoldCo a certificate, dated the Closing Date and executed in the
name and on behalf of the Company by its Chairman of the Board, President or
any Executive or Senior Vice President, to such effect.
(b) PERFORMANCE OF OBLIGATIONS. The Company shall have performed
and complied with, in all material respects, the agreements, covenants and
obligations, taken as a whole, which are required by this Agreement to be so
performed or complied with by the Company at or prior to the Closing, and the
Company shall have delivered to HoldCo a certificate, dated the Closing Date
and executed in the name and on behalf of the Company by its Chairman of the
Board, President or any Executive or Senior Vice President, to such effect.
(c) MATERIAL ADVERSE EFFECT. Since December 6, 1998, no material
adverse effect shall have occurred with respect to the Company and its
Subsidiaries taken as a whole and there shall exist no facts or circumstances
arising after December 6, 1998, which in the aggregate would, or insofar as
reasonably can be foreseen, could, when taken together with any breaches or
violations of any representations, warranties, covenants and agreements of
the Company contained herein, have a material adverse effect on the Company
and its Subsidiaries taken as a whole. For purposes of this SECTION 7.02(c),
(i) any tax benefits relating directly to the structure of the transactions
contemplated by this Agreement as of the date hereof which are not realized
by HoldCo or ScottishPower, and (ii) any adverse effects on the Company and
its Subsidiaries resulting from general economic or financial conditions,
shall not be taken into account in determining whether a material adverse
effect has occurred under this SECTION 7.02(c).
(d) TAX OPINION. HoldCo, ScottishPower and the Partnership shall
have received the opinion, based on appropriate representations of the
Company, HoldCo and ScottishPower, of Milbank, Tweed, Hadley & McCloy LLP,
special counsel to HoldCo and ScottishPower, dated on or about the date on
which the Registration Statement (or the last amendment thereto) shall have
become effective, which opinion shall have been confirmed in writing on and
as of the Closing Date, to the effect that the Merger will constitute a
"reorganization" within the meaning of Code Section 368(a) and that no gain
or loss will be recognized for US federal income tax purposes by the
stockholders of the Company who exchange Company Common Stock for HoldCo ADSs
or Merger Ordinary Shares pursuant to the Merger (except with respect to cash
received in lieu of fractional HoldCo ADSs or Merger Ordinary Shares).
(e) PROCEEDINGS. All proceedings to be taken on the part of the
Company in connection with the transactions contemplated by this Agreement
and all documents incident thereto shall be reasonably satisfactory in form
and substance to HoldCo, and HoldCo shall have received copies of all such
documents and other evidences as HoldCo may reasonably request in order to
establish the consummation of such transactions and the taking of all
proceedings in connection therewith.
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7.03 CONDITIONS TO OBLIGATION OF THE COMPANY TO EFFECT THE MERGER.
The obligation of the Company to effect the Merger is further subject to the
fulfillment, at or prior to the Closing, of each of the following additional
conditions (all or any of which may be waived in whole or in part by the
Company in its sole discretion):
(a) REPRESENTATIONS AND WARRANTIES. The representations and
warranties made by HoldCo, ScottishPower and the Partnership in this
Agreement shall be true and correct, in all material respects, taken as a
whole, as of the Closing Date as though made on and as of the Closing Date
or, in the case of representations and warranties made as of a specified date
earlier than the Closing Date, on and as of such earlier date (provided,
however, that for purposes of this paragraph (a), no effect shall be given to
the reference to the date December 6, 1998 and the date of this Agreement in
the first paragraph of Article IV hereof), except as affected by the
transactions contemplated by this Agreement, and HoldCo, ScottishPower and
Merger Sub shall each have delivered to the Company a certificate, dated the
Closing Date and executed in the name and on behalf of HoldCo by its Chairman
of the Board, President or any Executive or Senior Vice President or any
Executive Director, in the name and on behalf of ScottishPower by its
Chairman of the Board, President or any Executive or Senior Vice President
and in the name and on behalf of Merger Sub by its Chairman of the Board,
President or any Vice President, to such effect.
(b) PERFORMANCE OF OBLIGATIONS. HoldCo, ScottishPower and Merger
Sub shall have performed and complied with, in all material respects, each
agreement, covenant and obligation required by this Agreement to be so
performed or complied with by HoldCo, ScottishPower or Merger Sub at or prior
to the Closing, and HoldCo, ScottishPower and Merger Sub shall each have
delivered to the Company a certificate, dated the Closing Date and executed
in the name and on behalf of HoldCo by its Chairman of the Board, President
or any Executive or Senior Vice President or any Executive Director, in the
name and on behalf of ScottishPower by its Chairman of the Board, President
or any Executive or Senior Vice President and in the name and on behalf of
Merger Sub by its Chairman of the Board, President or any Vice President, to
such effect.
(c) MATERIAL ADVERSE EFFECT. Since December 6, 1998, no material
adverse effect shall have occurred with respect to HoldCo, ScottishPower and
their respective Subsidiaries taken as a whole and there shall exist no facts
or circumstances arising after December 6, 1998 which in the aggregate would,
or insofar as reasonably can be foreseen, could, when taken together with any
breaches or violations of any representations, warranties, covenants and
agreements of HoldCo and ScottishPower contained herein, have a material
adverse effect on HoldCo, ScottishPower and their respective Subsidiaries
taken as a whole. For purposes of this SECTION 7.03(c), any adverse effects
on HoldCo, ScottishPower and their respective Subsidiaries resulting from
general economic or financial conditions shall not be taken into account in
determining whether a material adverse effect has occurred under this SECTION
7.03(c).
(d) TAX OPINION. The Company shall have received the opinion,
based on appropriate representations of the Company, HoldCo and
ScottishPower, of Stoel Rives LLP, counsel to the Company, and LeBoeuf, Lamb,
Greene & MacRae, LLP, special counsel to the
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Company, dated on or about the date on which the Registration Statement (or
the last amendment thereto) shall have become effective, which opinion shall
have been confirmed in writing on and as of the Closing Date to the effect
that the Merger will constitute a "reorganization" within the meaning of Code
Section 368(a) and that no gain or loss will be recognized for US federal
income tax purposes by the stockholders of the Company who exchange Company
Common Stock for HoldCo ADSs or Merger Ordinary Shares pursuant to the Merger
(except with respect to cash received in lieu of fractional HoldCo ADSs or
Merger Ordinary Shares).
(e) PROCEEDINGS. All proceedings to be taken on the part of
HoldCo, ScottishPower and Merger Sub in connection with the transactions
contemplated by this Agreement and all documents incident thereto (other than
documentation relating to the Scheme of Arrangement) shall be reasonably
satisfactory in form and substance to the Company, and the Company shall have
received copies of all such documents and the documentation relating to the
Scheme of Arrangement and other evidences as the Company may reasonably
request in order to establish the consummation of such transactions and the
taking of all proceedings in connection therewith.
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
8.01 TERMINATION. This Agreement may be terminated, and the
transactions contemplated hereby may be abandoned, at any time prior to the
Effective Time, whether prior to or after the Company Stockholders' Approval
or the ScottishPower Shareholders' Approval:
(a) By mutual written agreement of the parties hereto duly
authorized by action taken by or on behalf of their respective Boards of
Directors;
(b) By either the Company or HoldCo upon notification to the
non-terminating party by the terminating party:
(i) at any time after the date which is nine (9) months
following December 6, 1998 if the Merger shall not have been consummated
on or prior to such date and such failure to consummate the Merger is not
caused by a breach of this Agreement by the terminating party; PROVIDED,
HOWEVER, that if on such date HoldCo, ScottishPower and the Company and
their respective Subsidiaries have not received all of the approvals
required in order to satisfy the conditions set forth in SECTION 7.01(i)
but all other conditions to effect the Merger shall be fulfilled or shall
be capable of being fulfilled, then, at the option of either HoldCo or the
Company (which shall be exercised by written notice), the term of this
Agreement shall be extended until the expiration of such date which is
eighteen (18) months after December 6, 1998;
(ii) if the Company Stockholders' Approval or the
ScottishPower Shareholders' Approval shall not be obtained by reason of the
failure to obtain the requisite vote upon a vote actually held at a meeting
of such stockholders or shareholders, or any adjournment thereof, called
therefor;
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(iii) if there has been a material breach of any
representation, warranty, covenant or agreement on the part of the
non-terminating party set forth in this Agreement (determined in all
cases as if the terms "material" or "materially" were not included in
any such representation or warranty), which breach is not curable or, if
curable, has not been cured within thirty (30) days following receipt by
the non-terminating party of notice of such breach from the terminating
party which breach, when taken together with any other breaches of
representations, warranties, covenants and agreements of the
non-terminating party contained in this Agreement, has or would
reasonably be expected to have a material adverse effect on the Company
and its Subsidiaries taken as a whole; or
(iv) if any court of competent jurisdiction or other competent
Governmental or Regulatory Authority shall have issued an order making
illegal or otherwise preventing or prohibiting the Merger and such order
shall have become final and nonappealable;
(c) By the Company upon five (5) days' prior notice to HoldCo if
(i) the Board of Directors of the Company determines in good faith, that a
failure to terminate this Agreement could reasonably be expected to result in
a breach of its fiduciary duties to stockholders imposed by law by reason of
an unsolicited BONA FIDE Alternative Proposal meeting the requirements of
clauses (B) and (C) of SECTION 5.07 having been made; PROVIDED that
(A) The Board of Directors of the Company shall have been
advised by outside counsel, that notwithstanding a binding commitment to
consummate an agreement of the nature of this Agreement entered into in
the proper exercise of its applicable fiduciary duties, and
notwithstanding all concessions which may be offered by HoldCo in
negotiations entered into pursuant to clause (B) below, a failure to
reconsider such commitment as a result of such Alternative Proposal
could reasonably be expected to result in a breach of its fiduciary
duties to stockholders imposed by law, and
(B) prior to any such termination, the Company shall, and shall
cause its respective financial and legal advisors to, negotiate with
HoldCo to make such adjustments in the terms and conditions of this
Agreement as would enable the Company to proceed with the transactions
contemplated herein on such adjusted terms;
and PROVIDED FURTHER that the Company's ability to terminate this Agreement
pursuant to this clause (i) is conditioned upon the prior payment by the
Company to HoldCo of any amounts owed by it pursuant to SECTION 8.02(b);
or (ii) the Board of Directors of HoldCo (or any committee thereof) shall
have withdrawn or modified in a manner materially adverse to the Company its
approval or recommendation of this Agreement or the Merger; or
(d) By HoldCo if the Board of Directors of the Company (or any
committee thereof) (i) shall have withdrawn or modified in a manner
materially adverse to HoldCo its approval or recommendation of this Agreement
or the Merger, (ii) shall fail to reaffirm such approval or recommendation
upon HoldCo's request, (iii) shall have approved, recommended or
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taken no position with respect to an Alternative Proposal to the stockholders
of the Company or (iv) shall resolve to take any of the foregoing actions; or
(e) By the Company if there has been a Change of Control after the
Scheme Date and prior to the Effective Time. A "Change of Control" shall
occur if any of the following applies: (A) Any "Person", as such term is
used in Sections 13(d) and 14(d) of the Exchange Act is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of HoldCo representing 30 percent or
more of the combined voting power of HoldCo's outstanding capital stock; (B)
the shareholders of HoldCo approve a merger or other consolidation of HoldCo
with any other company, other than a merger or consolidation effected to
implement a recapitalization of HoldCo (or similar transaction) in which no
Person acquires more than 30 percent of the combined voting power of HoldCo's
then outstanding securities; (C) a tender or exchange offer is made for the
ordinary shares of HoldCo (or securities convertible into ordinary shares of
HoldCo) and such offer results in a portion of those securities being
purchased and the offeror after the consummation of the offer is the
beneficial owner (as determined pursuant to Section 13(d) of the Exchange
Act), directly or indirectly, of securities representing at least 30 percent
of the voting power of outstanding securities of HoldCo; or (D) HoldCo sells
30 percent or more of its shares of ScottishPower to a buyer that is not a
member of HoldCo controlled group of corporations.
8.02 EFFECT OF TERMINATION. (a) If this Agreement is validly
terminated by either the Company or HoldCo pursuant to SECTION 8.01, this
Agreement will forthwith become null and void and there will be no liability
or obligation on the part of either the Company, HoldCo or ScottishPower (or
any of their respective Representatives or affiliates), except (i) that the
provisions of SECTIONS 6.13, 6.14 and 6.16, this SECTION 8.02, and SECTIONS
9.10 and 9.11 will continue to apply following any such termination, (ii)
that nothing contained herein shall relieve any party hereto from liability
for willful breach of its representations, warranties, covenants or
agreements contained in this Agreement and (iii) as provided in paragraphs
(b) and (c) below.
(b) In the event that any person or group shall have made an
Alternative Proposal and thereafter (i) this Agreement is terminated (x) by
the Company pursuant to Section 8.01(c)(i), (y) by HoldCo pursuant to SECTION
8.01(b)(iii) or SECTION 8.01(d) or (z) by either party pursuant to SECTION
8.01(b)(ii) as a result of the Company Stockholders' Approval not being
obtained or (ii) this Agreement is terminated for any other reason (other
than by reason of the breach of this Agreement by HoldCo or pursuant to
SECTION 8.01(b)(ii) as a result of the ScottishPower Shareholders' Approval
not being obtained or SECTION 8.01(c)(ii)) or 8.01(e) and, in the case of
this clause (ii) only, a definitive agreement with respect to such
Alternative Proposal is executed within one year after such termination, then
the Company shall pay to HoldCo by wire transfer of same day funds, either on
the date contemplated in SECTION 8.01(c) if applicable, or otherwise, within
two (2) business days after such amount becomes due, a termination fee of
$250,000,000.
(c) In the event that this Agreement is terminated by the Company
following a Change of Control, then HoldCo shall pay to the Company, by wire
transfer of same day funds, within two (2) business days following such
termination, a termination fee of $250,000,000.
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(d) In the event that this Agreement is terminated by either party
pursuant to Section 8.01(b)(ii) in circumstances in which the termination fee
set forth in clause (b) above is not payable, (i) in the case of the Company
Stockholders' Approval not being obtained and the ScottishPower Shareholders'
Approval having been obtained, the Company shall pay to HoldCo (ii) in the
case of the ScottishPower Shareholders' Approval not being obtained and the
Company Stockholders' Approval having been obtained, HoldCo shall pay to the
Company, in each case an amount equal to $10,000,000.
(e) If the Company fails promptly to pay the amount due pursuant
to the preceding paragraphs, and in order to obtain such payment, HoldCo or
Merger Sub commences a suit which results in a judgment against the Company
for the fee set forth in such paragraph, the Company shall pay to HoldCo or
Merger Sub, as the case may be, its cost and expenses (including reasonable
attorneys' fees and expenses) in connection with such suit, together with
interest on the amount of the fee at the prime rate of The Chase Manhattan
Bank in effect on the date such payment was required to be made.
8.03 AMENDMENT. This Agreement may be amended, supplemented or
modified by action taken by or on behalf of the respective Boards of
Directors of the parties hereto at any time prior to the Effective Time,
whether prior to or after the Company Stockholders' Approval or the
ScottishPower Shareholders' Approval shall have been obtained, but after such
adoption and approval only to the extent permitted by applicable law. No
such amendment, supplement or modification shall be effective unless set
forth in a written instrument duly executed by or on behalf of each party
hereto.
8.04 WAIVER. At any time prior to the Effective Time any party
hereto, by action taken by or on behalf of its Board of Directors, may to the
extent permitted by applicable law (i) extend the time for the performance of
any of the obligations or other acts of the other parties hereto, (ii) waive
any inaccuracies in the representations and warranties of the other parties
hereto contained herein or in any document delivered pursuant hereto or (iii)
waive compliance with any of the covenants, agreements or conditions of the
other parties hereto contained herein. No such extension or waiver shall be
effective unless set forth in a written instrument duly executed by or on
behalf of the party extending the time of performance or waiving any such
inaccuracy or non-compliance. No waiver by any party of any term or
condition of this Agreement, in any one or more instances, shall be deemed to
be or construed as a waiver of the same or any other term or condition of
this Agreement on any future occasion.
ARTICLE IX
GENERAL PROVISIONS
9.01 NON-SURVIVAL OF REPRESENTATIONS, WARRANTIES, COVENANTS AND
AGREEMENTS. The representations, warranties, covenants and agreements
contained in this Agreement or in any instrument delivered pursuant to this
Agreement shall not survive the Merger but shall terminate at the Effective
Time, except for the agreements contained in ARTICLE I and ARTICLE II, in
SECTIONS 5.01(o), 5.02(k), 6.09, 6.10, 6.11, 6.12, 6.14, 6.16 and 6.18, this
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ARTICLE IX and the agreements of the "AFFILIATES" of the Company delivered
pursuant to SECTION 6.04, which shall survive the Effective Time.
9.02 NOTICES. All notices, requests and other communications
hereunder must be in writing and will be deemed to have been duly given only
if delivered personally or by facsimile transmission or mailed (first class
postage prepaid) to the parties at the following addresses or facsimile
numbers:
If to HoldCo, ScottishPower, the Partnership or Merger Sub, to:
Scottish Power plc
1 Atlantic Quay
Glasgow G2 8FP
Facsimile No.: 011-44-141-248-8300
Attn: Company Secretary
with a copy to:
Milbank, Tweed, Hadley & McCloy LLP
1 Chase Manhattan Plaza
New York, N.Y. 10005
Facsimile No.: (212) 530-5219
Attn: M. Douglas Dunn
and to:
Freshfields
65 Fleet Street
London EC4Y 1HS
Facsimile No.: 011-44-171-832-7001
Attn: Simon Marchant
If to the Company, to:
PacifiCorp
700 N.E. Multnomah
Portland, Oregon 97232-4116
Facsimile No.: (503) 813-7250
Attn: Executive Vice President and Chief Operating Officer
with a copy to:
Stoel Rives LLP
900 S.W. Fifth Avenue
Suite 2300
Portland, Oregon 97232
Facsimile No.: (503) 220-2480
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Attn: Dexter E. Martin
and to:
LeBoeuf, Lamb, Greene & MacRae, LLP
125 West 55th Street
New York, NY 10019
Facsimile No.: (212) 424-8500
Attn: William S. Lamb
All such notices, requests and other communications will (i) if
delivered personally to the address as provided in this Section, be deemed
given upon delivery, (ii) if delivered by facsimile transmission to the
facsimile number as provided in this Section, be deemed given upon receipt,
and (iii) if delivered by mail in the manner described above to the address
as provided in this Section, be deemed given upon receipt (in each case
regardless of whether such notice, request or other communication is received
by any other person to whom a copy of such notice, request or other
communication is to be delivered pursuant to this Section). Any party from
time to time may change its address, facsimile number or other information
for the purpose of notices to that party by giving notice specifying such
change to the other parties hereto.
9.03 ENTIRE AGREEMENT; INCORPORATION OF EXHIBITS. (a) Subject to
paragraph (c) below, this Agreement supersedes all prior discussions and
agreements among the parties hereto with respect to the subject matter
hereof, other than the Confidentiality Agreement, which shall survive the
execution and delivery of this Agreement in accordance with its terms, and
contains, together with the Confidentiality Agreement, the sole and entire
agreement among the parties hereto with respect to the subject matter hereof.
(b) The Company Disclosure Letter, the ScottishPower Disclosure
Letter and any Exhibit or Schedule attached to this Agreement and referred to
herein are hereby incorporated herein and made a part hereof for all purposes
as if fully set forth herein.
(c) Notwithstanding the execution of this Agreement by the parties
hereto on the date hereof, this Agreement (other than this SECTION 9.03(c)
which shall have immediate effect) shall not take effect until the Scheme
Date; PROVIDED, HOWEVER, that upon the Scheme of Arrangement becoming
effective, this Agreement shall be deemed to have been in full force and
effect since the date hereof. Prior to the Scheme Date, the Original
Agreement shall continue in full force and effect. If ScottishPower gives
written notice to PacifiCorp that the Scheme of Arrangement will not become
effective, the transactions contemplated by the Original Agreement will
proceed as if no notice under Schedule II of the Original Agreement had been
received and this Agreement had not been entered into.
9.04 [Intentionally Omitted.]
9.05 PUBLIC ANNOUNCEMENTS. Except as otherwise required by law or
the rules of any applicable securities exchange or national market system or
any other Regulatory Authority (including the U.K. Takeover Panel), so long
as this Agreement is in effect, HoldCo,
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ScottishPower and the Company will not, and will not permit any of their
respective Subsidiaries or Representatives to, issue or cause the publication
of any press release or make any other public announcement with respect to
the transactions contemplated by this Agreement without the consent of the
other party, which consent shall not be unreasonably withheld. HoldCo,
ScottishPower and the Company will cooperate with each other in the
development and distribution of all press releases and other public
announcements with respect to this Agreement and the transactions
contemplated hereby, and will furnish the other with drafts of any such
releases and announcements as far in advance as practicable.
9.06 NO THIRD PARTY BENEFICIARY. The terms and provisions of this
Agreement are intended solely for the benefit of each party hereto and their
respective successors or permitted assigns, and except as provided in
SECTIONS 6.09, 6.10, 6.11 and 6.12 (which are intended to be for the benefit
of the persons entitled to therein, and may be enforced by any of such
persons), it is not the intention of the parties to confer third-party
beneficiary rights upon any other person.
9.07 NO ASSIGNMENT; BINDING EFFECT. Neither this Agreement nor any
right, interest or obligation hereunder may be assigned by any party hereto
without the prior written consent of the other parties hereto and any attempt
to do so will be void, except that HoldCo may cause Merger Sub to assign any
or all of its rights, interests and obligations hereunder to another direct
or indirect wholly-owned Subsidiary of HoldCo, PROVIDED that any such
Subsidiary agrees in writing to be bound by all of the terms, conditions and
provisions contained herein. This Agreement is binding upon, inures to the
benefit of and is enforceable by the parties hereto and their respective
successors and assigns.
9.08 HEADINGS. The headings used in this Agreement have been
inserted for convenience of reference only and do not define, modify or limit
the provisions hereof.
9.09 INVALID PROVISIONS. If any provision of this Agreement is
held to be illegal, invalid or unenforceable under any present or future law
or order, and if the rights or obligations of any party hereto under this
Agreement will not be materially and adversely affected thereby, (i) such
provision will be fully severable, (ii) this Agreement will be construed and
enforced as if such illegal, invalid or unenforceable provision had never
comprised a part hereof, and (iii) the remaining provisions of this Agreement
will remain in full force and effect and will not be affected by the illegal,
invalid or unenforceable provision or by its severance herefrom.
9.10 GOVERNING LAW. Except to the extent that the BCA is
mandatorily applicable to the Merger and the rights of the stockholders of
the Constituent Corporations, this Agreement shall be governed by and
construed in accordance with the laws of the State of New York applicable to
a contract executed and performed in such State, without giving effect to the
conflicts of laws principles thereof.
9.11 SUBMISSION TO JURISDICTION; WAIVERS. Each of ScottishPower,
HoldCo (on behalf of itself and Merger Sub), the Partnership, UKSub 1, UKSub 2
and the
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Company irrevocably agree that any legal action or proceeding with respect to
this Agreement or for recognition and enforcement of any judgment in respect
hereof brought by another party hereto or its successors or assigns may be
brought and determined in the Supreme Court of the State of New York in New
York County or in the United States District Court for the Southern District
of New York, and each of ScottishPower, HoldCo (on behalf of itself and
Merger Sub), the Partnership, and the Company hereby irrevocably submits with
regard to any such action or proceeding for itself and in respect to its
property, generally and unconditionally, to the nonexclusive jurisdiction of
the aforesaid courts. Any service of process to be made in such action or
proceeding may be made by delivery of process in accordance with the notice
provisions contained in SECTION 9.02. Each of ScottishPower, HoldCo, the
Partnership, Merger Sub, and the Company hereby irrevocably waives, and
agrees not to assert, by way of motion, as a defense, counterclaim or
otherwise, in any action or proceeding with respect to this Agreement, (a)
the defense of sovereign immunity, (b) any claim that it is not personally
subject to the jurisdiction of the above-named courts for any reason other
than the failure to serve process in accordance with this SECTION 9.10, (c)
that it or its property is exempt or immune from jurisdiction of any such
court or from any legal process commenced in such courts (whether through
service of notice, attachment prior to judgment, attachment in aid of
execution of judgment, execution of judgment or otherwise), and (d) to the
fullest extent permitted by applicable law that (i) the suit, action or
proceeding in any such court is brought in an inconvenient forum, (ii) the
venue of such suit, action or proceeding is improper and (iii) this
Agreement, or the subject matter hereof, may not be enforced in or by such
courts.
9.12 ENFORCEMENT OF AGREEMENT. The parties hereto agree that
irreparable damage would occur in the event that any of the provisions of
this Agreement was not performed in accordance with its specified terms or
was otherwise breached. It is accordingly agreed that the parties shall be
entitled to an injunction or injunctions to prevent breaches of this
Agreement and to enforce specifically the terms and provisions hereof in any
court of competent jurisdiction, this being in addition to any other remedy
to which they are entitled at law or in equity.
9.13 CERTAIN DEFINITIONS. As used in this Agreement:
(a) except as used in SECTIONS 2.03(b), 3.02(c), 3.17 and 6.04,
the term "AFFILIATE," as applied to any person, shall mean any other person
directly or indirectly controlling, controlled by, or under common control
with, that person; for purposes of this definition, "CONTROL" (including,
with correlative meanings, the terms "CONTROLLING," "CONTROLLED BY" and
"UNDER COMMON CONTROL WITH"), as applied to any person, means the possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of that person, whether through the ownership of
voting securities, by contract or otherwise;
(b) a person will be deemed to "BENEFICIALLY" own securities if
such person would be the beneficial owner of such securities under Rule 13d-3
under the Exchange Act, including securities which such person has the right
to acquire (whether such right is exercisable immediately or only after the
passage of time);
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(c) the term "BUSINESS DAY" means a day other than Saturday,
Sunday or any day on which banks located in the State of Oregon or London,
England are authorized or obligated to close;
(d) the term "KNOWLEDGE" or any similar formulation of "KNOWLEDGE"
shall mean, with respect to ScottishPower or the Company, the actual
knowledge after due inquiry of the executive officers of ScottishPower or the
Company and their Subsidiaries, set forth in SECTION 9.12(d) of the
ScottishPower Disclosure Letter or SECTION 9.12(d) of the Company Disclosure
Letter and, with respect to HoldCo, the actual knowledge after due inquiry of
the Executive Directors of HoldCo immediately prior to the Effective Date;
(e) any reference to any event, change or effect having a
"MATERIAL ADVERSE EFFECT" on or with respect to an entity (or group of
entities taken as a whole) means such event, change or effect is materially
adverse to the business, properties, assets, liabilities, financial condition
or results of operations of such entity (or of such group of entities taken
as a whole);
(f) the term "NEW FACILITIES" means new revolving credit
facilities and/or amendments to existing revolving credit facilities of not
more than L2.6 billion in the aggregate on terms which are not significantly
less favorable taken as a whole than the RCF;
(g) the term "PERSON" shall include individuals, corporations,
partnerships, trusts, other entities and groups (which term shall include a
"GROUP" as such term is defined in Section 13(d)(3) of the Exchange Act);
(h) the term "RCF" means the Revolving Credit Facility dated June
24, 1996 between, INTER ALIA, ScottishPower, the Royal Bank of Scotland plc
and Union Bank of Switzerland (the "RCF");
(i) the "REPRESENTATIVES" of any entity means such entity's
directors, officers, employees, legal, investment banking and financial
advisors, accountants and any other agents and representatives;
(j) except as used in SECTIONS 3.02(d) and 3.17, the term
"SUBSIDIARY" means, with respect to any party, any corporation or other
organization, whether incorporated or unincorporated, of which more than
fifty percent (50%) of either the equity interests in, or the voting control
of, such corporation or other organization is, directly or indirectly through
Subsidiaries or otherwise, beneficially owned by such party.
(k) "SCHEME CONSENTS" means the consents, clearances and approvals
referred to in Schedule I;
(l) "SCHEME DOCUMENT" means the document, including an explanatory
statement, to be sent to the shareholders of ScottishPower in connection with
the Scheme of Arrangement.
(m) any reference to "transactions contemplated hereby,"
"transactions contemplated hereunder," "transactions contemplated by this
Agreement," "transactions
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contemplated under this Agreement" or any similar formulation shall include
the transaction contemplated by the Scheme of Arrangement; PROVIDED, HOWEVER,
that the reference to such phrase appearing in the parenthetical clause in
the introductory paragraph of SECTION 5.02 shall not include the transaction
contemplated by the Scheme of Arrangement.
9.14 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which will be deemed an original, but all of which
together will constitute one and the same instrument.
9.15 WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO THE
FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL
BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR THE TRANSACTION CONTEMPLATED HEREBY (WHETHER
BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A)
CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS
REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE
EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B)
ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER
INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND
CERTIFICATIONS IN THIS SECTION.
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IN WITNESS WHEREOF, each party hereto has caused this
Agreement to be signed by its officer thereunto duly authorized as of the
date first above written.
NEW SCOTTISH POWER PLC
By: /s/ I.M. Russell
-----------------------------------
Name: I.M. Russell
Title: Director
SCOTTISH POWER PLC
By: /s/ I.M. Russell
-----------------------------------
Name: I.M. Russell
Title: Director
NA GENERAL PARTNERSHIP
By: Scottish Power NA 2 Limited,
a General Partner
By: /s/ I.M. Russell
-----------------------------------
Name: I.M. Russell
Title: Director
PACIFICORP
By: /s/ Richard T. O'Brien
-----------------------------------
Name: Richard T. O'Brien
Title: EVP & CEO
For purposes of Section 2.01 only:
SCOTTISH POWER NA 1 LIMITED
By: /s/ I.M. Russell
-----------------------------------
Name: I.M. Russell
Title: Director
For purposes of Section 2.01 only:
SCOTTISH POWER NA 2 LIMITED
By: /s/ I.M. Russell
-----------------------------------
Name: I.M. Russell
Title: Director
<PAGE>
SCHEDULE I
SCHEME CONSENTS
1. The approval of the Scheme of Arrangement by a majority in number
representing three-fourths in value of the ScottishPower Shareholders
present and voting (either in person or by proxy) at the meeting
convened by the Court.
2. The approval of the Scheme of Arrangement and the reduction in the
capital of ScottishPower, the increase in share capital, the
capitalisation of new ScottishPower Shares and the granting of
authority to the directors of ScottishPower to allot such Shares, in
each case for the purposes of the Scheme of Arrangement by a special
resolution of ScottishPower.
3. The consent in writing of the ScottishPower Special Shareholder to the
Scheme of Arrangement and the proposed amendments to ScottishPower's
Articles of Association, and the approval of such amendments by a
special resolution of ScottishPower.
4. The sanction by the Court of the Scheme of Arrangement (with or
without modification) and the confirmation by the Court of the
reduction in capital by the cancellation of ScottishPower shares
required as part of the Scheme of Arrangement.
5. The approval in writing of the transaction to be effected by the
Scheme of Arrangement by the Secretary of State for Scotland and by
each UK Regulator whose consent is required, or considered by
ScottishPower to be necessary, under the terms of each licence,
appointment or other authorisation held by any member of the
ScottishPower Group.
6. An indication on satisfactory terms by the Secretary of State for
Trade and Industry and by each UK Regulator, as appropriate, that it
is not his intention to seek, as a result of the transaction to be
effected by the Scheme of Arrangement, any revocation of or
modification to any licence, appointment or other authorisation held
by any member of the ScottishPower Group, except on satisfactory
terms.
7. Neither the Secretary of State for Scotland nor any UK Regulator
having sought, as a result of the Scheme of Arrangement, undertakings
or assurances from any member of the ScottishPower Group, except on
satisfactory terms.
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8. The agreement of the LSE to admit the ordinary shares of HoldCo issued
and to be issued pursuant to the Scheme of Arrangement to the Official
List of the LSE (subject only to allotment) and such agreement not
being withdrawn prior to the Scheme Date.
9. The receipt by HoldCo of:
(i) clearances from the Inland Revenue under section 138 of the
Taxation of Chargeable Gains Act 1992 and under section 707 of
the Income and Corporation Taxes Act 1988 in respect of the
transaction to be effected by the Scheme of Arrangement; and
(ii) confirmation as to the application of section 136 of the Taxation
of Chargeable Gains Act 1992 in respect of the transaction to be
effected by the Scheme of Arrangement,
10. The consent under the RCF of the Majority Banks (as defined therein)
to the Scheme of Arrangement, and/or the replacement of the RCF with
the New Facilities under which no such consent is required (or consent
has been given).
11. Confirmation from the European Investment Bank that it will not
require prepayment of any loan to ScottishPower or its subsidiaries as
a result of the change of control of ScottishPower which the Scheme of
Arrangement will result in.
12. The approval of the NYSE listing application in respect of the HoldCo
ADRs issued and to be issued pursuant to the Scheme and the listing
pursuant to such application becoming effective.
13. The execution of the replacement deposit agreement in respect of the
HoldCo ADRs pursuant to Section 6.06(b).
14. [A registration statement to be filed under the Securities Exchange
Act of 1934 shall have been filed by HoldCo and declared effective by
the SEC].
15. The approval of HoldCo's ordinary shareholders (where required, by a
special resolution) (i) to the adoption or amendment of HoldCo's
Articles of Association in accordance with Section 4.01(a) (and to the
proposed changes to HoldCo's Articles of Association referred to in
Section 6.03(c) if the same are to be effective on or prior to the
Scheme Date), (ii) to increase the authorised share capital of HoldCo,
and to give the directors of HoldCo authority to allot shares under
Section 80 of the Companies Act 1985, in respect of the ordinary
shares of HoldCo to be issued pursuant to the Scheme of Arrangement
and the Merger and otherwise for general purposes, (iii) to disapply
statutory pre-emption rights, (iv) to authorise HoldCo to repurchase
its own shares, (v) to change HoldCo's name conditional upon the
Scheme of Arrangement becoming effective, and (vi) to appoint
directors.
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16. Such other approvals, prior to the Scheme Date, of the Shareholders of
HoldCo, the board of HoldCo and the board of ScottishPower as may be
required to implement and give effect to the Scheme of Arrangement and
the terms of this Agreement.
17. The filing of orders, returns and other documents with the Registrar
of Companies in Scotland or with the Court in order to obtain the
sanction of the Court for, and to give effect to, the Scheme of
Arrangement.
18. Such filings and consents as ScottishPower may reasonably consider
necessary or desirable in connection with the Scheme of Arrangement
and/or the Merger with stock exchanges or other Governmental or
Regulatory Authorities in Australia, Canada and Japan.
DEFINITIONS
In this Schedule I, the following definitions apply:
COURT means the Court of session, Edinburgh;
SCOTTISHPOWER SHARES means ordinary shares of 0.50p in the capital of
ScottishPower;
UK REGULATOR means each of the Director General of Electricity Supply. the
Director General of Water Services, the Director General of Gas Supply, and
the Director General of Telecommunications; and
ON SATISFACTORY TERMS means on terms which are satisfactory to HoldCo and
which would not, or would not reasonably be expected to, have, individually
or in the aggregate, a material adverse effect on the HoldCo Group taken as a
whole.
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SCHEDULE II
THE ARTICLES OF ASSOCIATION OF HOLDCO
HoldCo's Articles of Association will have the principal differences from the
current Articles of Association of ScottishPower referred to below. There
will also be some differences of a minor or technical nature which have not
been included below. Holdco's Articles of Association will also include any
changes requested by the ScottishPower Special Shareholder or by the LSE and
agreed to by ScottishPower.
The number identifying each provision of HoldCo's proposed Articles of
Association corresponds (except where otherwise stated) to the numbering of
the current ScottishPower Articles of Association.
(a) ARTICLE 6(E) (THE REDEEMABLE SHARES)
There is no equivalent of this proposed article in ScottishPower's current
Articles of Association. It will set out the rights attaching to non-voting
redeemable shares which it is intended that HoldCo will issue in order to
have the minimum issued capital required to obtain a trading certificate
under section 117 of the Companies Act 1985.
(b) ARTICLE 7 (THE HOLDCO SPECIAL SHARE)
This article, which will set out the rights attaching to the one share of L1
in the capital of HoldCo to be issued to the ScottishPower Special
Shareholder pursuant to the Scheme of Arrangement (the "HoldCo Special
Share"), will be amended from the comparable ScottishPower article so that
each of the following matters will also be deemed to be a variation requiring
prior consent in writing of the HoldCo Special Shareholder:
(i) the giving by HoldCo of any consent or agreement to any amendment to,
deletion of or alteration to the effect of, article 7 of the Articles
of Association of ScottishPower (save as referred to below):
(ii) the giving by HoldCo of any consent or agreement to the creation or
issue of any shares in the capital of ScottishPower other than an
issue of shares upon the issue of which
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HoldCo will own the full legal and beneficial interest in, and
control, shares in the capital of ScottishPower carrying at least
86 per cent. of the voting rights exercisable on a poll at general
meetings of ScottishPower;
(iii) the disposal by HoldCo of any of the shares in ScottishPower or of
any rights or interest therein, or the entering into by HoldCo of any
agreement or arrangement with respect to such shares, or the exercise
of any voting or other rights attaching to such shares, such that
HoldCo would cease to own the full legal and beneficial interest in,
and control, shares in the capital of ScottishPower carrying at least
85 per cent. of the voting rights exercisable on a poll at general
meetings of ScottishPower;
(iv) the giving by HoldCo of any consent or agreement to any abrogation,
variation, waiver or modification of any of the rights or privileges
attaching to any shares in ScottishPower such that HoldCo would cease
to own the full legal and beneficial interest in, and control, shares
in the capital of ScottishPower carrying at least 85 per cent. of the
voting rights exercisable on a poll at general meetings of Scottish
Power; and
(v) any other act or omission to act by HoldCo or the Directors of New
ScottishPower which results in HoldCo ceasing to own the full legal
and beneficial interest in, and control, shares in the capital of
ScottishPower carrying at least 85 per cent. of the voting rights
exercisable on a poll at general meetings of ScottishPower.
The existing article 7 of ScottishPower's Articles is to be deleted and
replaced by an article which ensures that the events set out in paragraphs
(i), (ii) and (iv) above do not occur without the prior written consent of
HoldCo. ScottishPower's Articles of Association will also include any
changes requested by the ScottishPower Special Shareholder and agreed to by
ScottishPower.
(c) ARTICLE 50 (DISCLOSURE OF INTERESTS IN SHARES)
This article, which will relate to the disclosure of interests in shares,
will be amended from the comparable ScottishPower article to remove
references to certain interim arrangements included in ScottishPower's
Articles in connection with the initial floatation of ScottishPower.
(d) ARTICLE 51 (LIMITATIONS ON SHAREHOLDINGS)
This article, which will set out restrictions on persons holding or
controlling the right to cast 15 per cent. or more of the votes at general
meetings, will be amended from the comparable ScottishPower article to remove
references to certain interim arrangements included in ScottishPower's
Articles of Association in connection with the initial flotation of
ScottishPower.
(e) ARTICLE 98 (NUMBER OF DIRECTORS TO RETIRE)
This article, which will relate to the number of directors to retire from
office by rotation, will be amended from the comparable ScottishPower article
in accordance with the new London Stock Exchange requirement that all
directors shall retire by rotation at least every three years.
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(f) ARTICLE 123 (BORROWING POWERS)
This article will, if considered necessary by ScottishPower, be amended from
the comparable ScottishPower article to reflect the new UK Financial
Reporting Standard FRS10. Any such amendment may include provisions to the
effect that, in calculating the borrowing limit, no goodwill or intangible
assets will be deducted except the amount that has been amortised in
accordance with FRS10.
(g) ARTICLE 130 (INTERIM DIVIDENDS)
The article, which will relate to the ability of the Directors to pay interim
dividends, may, if considered necessary or desirable by ScottishPower, be
amended from the comparable ScottishPower article to clarify that the
Directors may declare and pay any dividends, including final dividends, and
not just interim dividends. This relates to the proposed move to quarterly
dividend payments.
(h) ARTICLE 160 (ADR DEPOSITORIES)
Amendments will be made in accordance with Section 6.03(c) of this Agreement,
although these amendments may not be made prior to the Scheme Date.
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EXHIBIT A
Scheme of Arrangement
(under section 425 of the Companies Act 1985)
between Scottish Power plc and the Scheme Shareholders (as hereinafter
defined) and the Special Shareholder (as hereinafter defined)
1. Preliminary
(A) In this Scheme of Arrangement, unless inconsistent with the subject
or context, the following expressions shall bear the following meanings:
BUSINESS DAY means any day other than a Saturday or Sunday on which banks are
generally open for business in England and Wales;
COURT means the Court of Session in Edinburgh;
COURT MEETING means the meeting of holders of Scottish Power Shares convened
by interlocutor of the Court pursuant to section 425 of the Companies Act
1985 for __________, 1999 to consider and, if thought fit, approve this
Scheme;
CREST means a relevant system (as defined in the CREST Regulations) in
respect of which CRESTCo is the operator (as defined in the CREST
Regulations);
CRESTCO means CRESTCo Limited;
CREST REGULATIONS means the Uncertificated Securities Regulations 1995 (SI
1995 No. 3272) as from time to time amended;
HOLDER includes any person entitled by transmission;
NEW SCOTTISH POWER SHARES means new ordinary shares of 50 pence each in the
capital of ScottishPower;
NEW SCOTTISHPOWER means New Scottish Power plc;
NEW SCOTTISHPOWER SPECIAL SHARE means the special rights non-voting
redeemable preference share of L1 in the capital of New ScottishPower;
NEW SHARES means ordinary shares of [50 pence] each in the capital of New
ScottishPower;
RECORD DATE means the business day immediately preceding the Scheme Date;
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SCHEME DATE means the date on which this Scheme becomes effective in
accordance with clause 6 of this Scheme;
SCHEME RECORD DATE means the business day immediately preceding the date of
the hearing of the Court at which the Scheme is sanctioned;
SCHEME SHAREHOLDER means a holder of Scheme Shares as at 5:30 p.m. on the
Record Date;
SCHEME SHARES means:
(a) all ScottishPower Shares in issue at the date of
this Scheme;
(b) all (if any) other ScottishPower Shares in issue
immediately prior to the Court Meeting; and
(c) all (if any) further ScottishPower Shares which
may be in issue at 5:30 p.m. on the Scheme Record
Date;
SCOTTISHPOWER means Scottish Power plc;
SCOTTISHPOWER SHARES means ordinary shares of 50 pence each in the capital of
ScottishPower;
SCOTTISHPOWER SPECIAL SHARE means the special rights non-voting redeemable
preference share of L1 in the capital of ScottishPower.
SPECIAL SHAREHOLDER means the Secretary of State for Scotland, the holder of
the ScottishPower Special Share;
THIS SCHEME means this Scheme of Arrangement in its present form or with any
modification thereof or addition thereto or condition approved or imposed by
the Court; and
UNCERTIFICATED or IN UNCERTIFICATED FORM means recorded on the relevant
register as in uncertificated form, being held in uncertificated form in
CREST and title to the object of which by virtue of the CREST Regulations may
be transferred by means of CREST.
(B) The authorised share capital of ScottishPower as at the date of
this Scheme is L____ divided into _____ ScottishPower Shares, of which _____
have been issued and are fully paid up (and the remainder are unissued), and
one ScottishPower Special Share which has been issued and is fully paid up.
(C) New ScottishPower was incorporated as a public limited company on
_____, 1999 under the name New ScottishPower. The authorised share capital
of New ScottishPower at the date of this Scheme is L_____ divided into _____
New Shares, of which _____ have been issued and are fully paid up (and the
remainder are unissued) and the New ScottishPower Special Share which has not
been issued.
(D) The purpose of this Scheme is to provide for the cancellation of
the Scheme Shares and the ScottishPower Special Share and the issue of new
ScottishPower Shares with an aggregate
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nominal value equal to that of the shares so cancelled to New ScottishPower
in consideration of the allotment by New ScottishPower of New Shares to the
Scheme Shareholders and the allotment by New ScottishPower of the New
ScottishPower Power Special Share to the Special Shareholder.
(E) New ScottishPower has agreed, and it is proposed that the Special
Shareholder will agree, to appear by Counsel on the hearing of the Petition
for the sanction by the Court of this Scheme, to consent thereto and to
undertake to be bound thereby and to execute or procure to be executed all
such documents, and to do or procure to be done all such acts and things, as
may be necessary or desirable to be executed or done by them respectively for
the purpose of giving effect to this Scheme.
2. The Scheme
SCOTTISHPOWER CANCELLATION
1. (a) The share capital of ScottishPower shall be reduced by cancelling
the Scheme Shares and the ScottishPower Special Share.
(b) Forthwith and contingently upon the said reduction of capital
taking effect:
(i) the share capital of ScottishPower shall be increased to
its former amount by the creation of such number of new
ScottishPower Shares as shall be of an aggregate nominal
amount equal to the aggregate nominal amount of the shares
cancelled pursuant to sub-clause (a) of this clause 1;
(ii) ScottishPower shall apply the credit arising in its books
of account on the reduction of capital pursuant to
sub-clause (a) of this clause 1 in paying up, in full at
par, the new ScottishPower Shares created pursuant to
sub-clause (b)(i) of this clause 1 and shall allot and issue
the same, credited as fully paid, to New ScottishPower
and/or its nominee(s); and
(iii) ScottishPower will become a wholly owned subsidiary of New
ScottishPower.
NEW SHARES
2. (a) In consideration of the cancellation of the Scheme Shares and the
ScottishPower Special Share and the issue of the new
ScottishPower Shares to New ScottishPower and/or its nominee(s)
pursuant to clause 1 of this Scheme, New ScottishPower shall
(subject to the provisions of subclause (c) of this clause 2):
(i) allot and issue (credited as fully paid) New Shares to the
Scheme Shareholders on the following basis:
For each Scheme Share held at 5:30 p.m. on the Record Date, one
New Share
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save that for any person holding New Shares as at 5:30 p.m. on
the Record Date his entitlement to receive New Shares pursuant
to this clause 2 shall be reduced by the number of New Shares he
holds at that time; and
(ii) allot and issue (credited as fully paid) the New
ScottishPower Special Share to the Special Shareholder.
(b) The New Shares to be issued pursuant to sub-clause (a)(i) of this
clause 2 shall rank pari passu as a single class of shares inter
se and shall rank in full for all dividends or distributions
made, paid or declared after the Scheme Date on the ordinary
share capital of New ScottishPower.
(c) The provisions of sub-clause (a) of this clause 2 shall be
subject to any prohibition or condition imposed by law. Without
prejudice to the generality of the foregoing, if, in respect of
any Scheme Shareholder who is a citizen, resident or national of
any jurisdiction outside the United Kingdom ("overseas
shareholder"), New ScottishPower is advised that the allotment
and issue of New Shares pursuant to this clause 2 would infringe
the laws of any jurisdiction outside the United Kingdom (other
than the US)] or would require New ScottishPower to observe any
governmental or other consent of any registration, filing or
other formality [(other than the US)], then New ScottishPower may
determine that no New Shares shall be allotted or issued to such
overseas shareholder under this clause 2, but shall instead be
allotted to a nominee appointed by New ScottishPower, as a
trustee for such overseas shareholder, on terms that the nominee
shall, as soon as practicable following the Scheme Date, sell the
New Shares so allotted at the best price which can reasonably be
obtained and shall account for the net proceeds of such sale
(after the deduction of all expenses and commissions, including
value added tax payable thereon) by sending a cheque or warrant
to such overseas shareholder in accordance with the provisions of
clause 3 below. None of ScottishPower, New ScottishPower, any
nominee referred to in this subclause (c) or any broker or agent
of any of them shall have any liability for any loss arising as a
result of the timing or terms of any such sale.
CERTIFICATES AND PAYMENT
3. (a) Not later than five (5) business days after the Scheme Date, New
ScottishPower shall send by post to the allottees of the New
Shares and to the allottee of the New ScottishPower Special Share
allotted and issued pursuant to clause 2 of this Scheme
certificates in respect of such shares, save that where Scheme
Shares are held in uncertificated form, New ScottishPower will
procure that CRESTCo is instructed to credit to the appropriate
stock account in CREST of the Scheme Shareholder concerned such
shareholder's entitlement to New Shares.
(b) Not later than five (5) business days following the sale of any
relevant New Shares pursuant to clause 2(c), New ScottishPower
and/or the nominee shall
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<PAGE>
satisfy the cash consideration payable by it by despatching to
the persons respectively entitled thereto cheques and/or warrants
by post.
(c) All certificates required to be sent by ScottishPower pursuant to
sub-clause (a) of this clause 3 and all cheques or warrants
required to be sent by New ScottishPower and/or any nominee
referred to in clause 2(c) of this Scheme shall be sent through
the post in pre-paid envelopes addressed to the persons
respectively entitled thereto at their respective addresses
appearing in the register of members of ScottishPower at the
close of business on the Record Date (or, in the case of joint
holders, to the address of that one of the joint holders whose
name stands first in the register in respect of the joint
holding) or in accordance with any special instructions regarding
communications received at the registered office of ScottishPower
prior to the Record Date.
(d) None of ScottishPower, New ScottishPower, any nominee referred to
in clause 2(c) or any agent of any of them shall be responsible
for any loss or delay in transmission of certificates, cheques or
warrants sent in accordance with this clause 3.
(e) The preceding sub-clauses of this clause 3 shall take effect
subject to any prohibition or condition imposed by law.
CERTIFICATES REPRESENTING SCHEME SHARES AND THE SCOTTISHPOWER SPECIAL SHARE
4. With effect from and including the Scheme Date, all certificates
representing holdings of Scheme Shares and the ScottishPower Special Share
shall cease to be valid in respect of such holdings and the holders of such
shares shall be bound at the request of ScottishPower to deliver such
certificates for cancellation to ScottishPower or to any person appointed by
ScottishPower to receive the same.
MANDATES
5. Each mandate in force at 5:30 p.m. on the Record Date relating to
the payment of dividends on Scheme Shares and each instruction then in force
as to notices and other communications from ScottishPower shall, unless and
until varied or revoked, be deemed as from the Scheme Date to be a valid and
effective mandate or instruction to New ScottishPower in relation to the
corresponding New Shares to be allotted and issued pursuant to this Scheme.
SCHEME DATE
6. This Scheme shall become effective as soon as an office copy of the
interlocutor of the Court sanctioning this Scheme under section 425 of the
Act and confirming under section 137 of the Act the reduction of capital
proposed under this Scheme shall have been duly delivered to the Registrar of
Companies for registration and the interlocutor and relative minute have been
registered by him.
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7. Unless this Scheme shall have become effective on or before _____,
1999 or such later date, if any, as the Court may allow, it shall lapse.
MODIFICATION
8. ScottishPower and New ScottishPower may jointly consent on behalf
of all persons concerned to any modification of or addition to this Scheme or
to any condition which the Court may think fit to approve or impose.
Dated the _____ day of _____, 1999
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<PAGE>
IN WITNESS WHEREOF, each party hereto has caused this
Agreement to be signed by its officer thereunto duly authorized as of the
date first above written.
NEW SCOTTISH POWER PLC
By:
-----------------------------------
Name:
Title:
SCOTTISH POWER PLC
By:
-----------------------------------
Name:
Title:
NA GENERAL PARTNERSHIP
By: Scottish Power NA 2 Limited,
a General Partner
By:
-----------------------------------
Name:
Title:
PACIFICORP
By:
-----------------------------------
Name:
Title:
For purposes of Section 2.01 only:
SCOTTISH POWER NA 1 LIMITED
By:
-----------------------------------
Name:
Title:
For purposes of Section 2.01 only:
SCOTTISH POWER NA 2 LIMITED
By:
-----------------------------------
Name:
Title:
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<PAGE>
EXHIBIT B
<TABLE>
<CAPTION>
Column A Column B
-------- --------
<S> <C> <C>
Proportion of HoldCo Ordinary Shares
represented by HoldCo ADSs not more than 75% not less than 25%
Proportion of Merger Ordinary Shares not more than 75% not less than 25%
</TABLE>
<PAGE>
EXHIBIT C
[Form of Affiliate's Agreement]
[Date]
[name]
[address]
Ladies and Gentlemen:
I have been advised that as of the date hereof I may be deemed
to be an "AFFILIATE" of PacifiCorp, an Oregon corporation (the "COMPANY"), as
that term is defined for purposes of paragraphs (c) and (d) of Rule 145 of
the rules and regulations (the "RULES AND REGULATIONS") of the Securities and
Exchange Commission (the "COMMISSION") under the Securities Act of 1933, as
amended (the "ACT"). Neither my entering into this agreement, nor anything
contained herein, shall be deemed an admission on my part that I am such an
"AFFILIATE".
Pursuant to the terms of the Amended and Restated Agreement
and Plan of Merger dated as of December 6, 1998, as amended as of January 29,
1999 and February 9, 1999 and amended and restated as of January 23, 1999
(the "MERGER AGREEMENT"), by and among New Scottish Power plc, a public
limited company incorporated under the laws of Scotland ("HOLDCO"), Scottish
Power plc, a public limited company incorporated under the laws of Scotland,
NA General Partnership, a Nevada general partnership (the "PARTNERSHIP"), and
the Company providing for the merger of a wholly-owned subsidiary of the
Partnership with and into the Company (the "MERGER"), and as a result of the
Merger, I may receive shares of HoldCo's American Depositary Shares, each
representing four HoldCo Ordinary Shares (the "HOLDCO SECURITIES"), in
exchange for the shares of common stock, without par value, of the Company
owned by me at the Effective Time (as defined in the Merger Agreement) of the
Merger.
I represent and warrant to HoldCo that in such event:
A. I shall not make any sale, transfer or other disposition
of the HoldCo Securities in violation of the Act or the Rules and Regulations
B. I have carefully read this letter and the Merger
Agreement and discussed its requirements and other applicable limitations
upon my ability to sell, transfer or otherwise dispose of HoldCo Securities,
to the extent I felt necessary, with my counsel or counsel for the Company.
<PAGE>
C. I have been advised that the issuance of HoldCo
Securities to me pursuant to the Merger has been registered with the
Commission under the Act on a Registration Statement on Form F-4. However, I
have also been advised that, since at the time the Merger was submitted for a
vote of the stockholders of the Company I may have been deemed to have been
an affiliate of the Company and a distribution by me of HoldCo Securities has
not been registered under the Act, the HoldCo Securities must be held by me
indefinitely unless (i) a distribution of HoldCo Securities by me has been
registered under the Act, (ii) a sale of HoldCo Securities by me is made in
conformity with the volume and other limitations of Rule 145 promulgated by
the Commission under the Act or (iii) in the opinion of counsel reasonably
acceptable to HoldCo, some other exemption from registration is available
with respect to a proposed sale, transfer or other disposition of the HoldCo
Securities by me.
D. I understand that HoldCo is under no obligation to
register the sale, transfer or other disposition of HoldCo Securities by me
or on my behalf or to take any other action necessary in order to make
compliance with an exemption from registration available.
E. I also understand that stop transfer instructions will be
given to HoldCo's transfer agents with respect to the HoldCo Securities and
that there will be placed on the certificates for the HoldCo Securities, or
any substitutions therefor, a legend stating in substance:
"The shares represented by this certificate were issued in a
transaction to which Rule 145 promulgated under the Securities Act of 1933,
as amended, applies. The shares represented by this certificate may only be
transferred in accordance with the terms of an agreement dated ____________,
____, between the registered holder hereof and ___________ (the
"Corporation"), a copy of which agreement is on file at the principal offices
of the Corporation."
F. I also understand that unless the transfer by me of my
HoldCo Securities has been registered under the Act or is a sale made in
conformity with the provisions of Rule 145, HoldCo reserves the right to put
the following legend on the certificates issued to my transferee:
"The shares represented by this certificate have not been
registered under the Securities Act of 1933, as amended, and were acquired
from a person who received such shares in a transaction to which Rule 145
promulgated under such Act applies. The shares have been acquired by the
holder not with a view to, or for resale in connection with, any distribution
thereof within the meaning of such Act and may not be sold, pledged or
otherwise transferred except in accordance with an exemption from the
registration requirements of such Act."
<PAGE>
It is understood and agreed that the legends set forth in
paragraph E and F above shall be removed by delivery of substitute
certificates without such legend if the undersigned shall have delivered to
HoldCo a copy of a letter from the staff of the Commission, or an opinion of
counsel reasonably acceptable to HoldCo to the effect that such legend is not
required for purposes of the Act.
Very truly yours,
-----------------------------------
Name:
Accepted this ____ day of
__________, ____, by:
NEW SCOTTISH POWER plc
By:
--------------------------------
Name:
Title:
<PAGE>
BYLAWS
OF
PACIFICORP
AS AMENDED EFFECTIVE NOVEMBER 18, 1998
ARTICLE I
OFFICES
The principal office of the Company in the State of Oregon shall be in the
City of Portland, County of Multnomah. The Company may have such other offices,
either within or without the State of Oregon, as the Board of Directors may
designate or as the business of the Company may, from time to time, require.
ARTICLE II
SHAREHOLDERS
2.1 ANNUAL MEETING. The annual meeting of the shareholders shall be held
on the second Wednesday in the month of May in each year, unless a different
date is fixed by the Board of Directors, at such time and place as are fixed by
the Board of Directors and stated in the notice of the meeting. The failure to
hold an annual meeting at the time stated herein shall not affect the validity
of any corporate action.
2.2 SPECIAL MEETINGS. Special meetings of the shareholders, for any
purpose or purposes, unless otherwise prescribed by statute, may be called by
the Chairman of the Board, the President or the Board of Directors and shall be
called by the Chairman of the Board or the President upon the written demand,
describing the purpose or purposes for which the meeting is to be held, signed,
dated and delivered to the Company's Secretary, of the holders of not less than
one-tenth of all the outstanding votes of the Company entitled to be cast on any
issue proposed to be considered at the meeting.
2.3 PLACE OF MEETINGS. Meetings of the shareholders shall be held at
such place, within or without the State of Oregon, as may be designated by the
Board of Directors.
2.4 NOTICE OF MEETINGS. Written or printed notice stating the date, time
and place of the meeting and, in the case of a special meeting or where
otherwise required by law, the purpose or purposes for which the meeting is
called shall be mailed by the Secretary to each shareholder entitled to vote at
the meeting, and if required by law, to such additional shareholders as are
entitled to receive notice, at the shareholder's address shown in the Company's
stock transfer books, with postage thereon prepaid, not less than 10 nor more
than 60 days before the date of the meeting.
2.5 FIXING OF RECORD DATE. For the purpose of determining shareholders
entitled to notice of a shareholders' meeting, to demand a special meeting, to
vote or to take any other action, or shareholders entitled to receive payment of
any dividend, or in order to make a determination of
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<PAGE>
shareholders for any other proper purpose, the Board of Directors of the
Company may fix a future date as the record date for any such determination
of shareholders, such date in any case to be not more than 70 days nor, in
the case of a meeting, less than 10 days before the meeting or action
requiring a determination of shareholders. The record date for any meeting,
vote or other action of the shareholders shall be the same for all voting
groups.
2.6 SHAREHOLDERS' LIST FOR MEETING. After a record date for a meeting
has been fixed, the Company shall prepare an alphabetical list of the names of
all its shareholders entitled to notice of the shareholders' meeting. The list
shall be arranged by voting group and within each voting group by class or
series of shares and show the address of and number of shares held by each
shareholder. The shareholders' list shall be available for inspection by any
shareholder, upon proper demand as may be required by law, beginning two
business days after notice of the meeting is given for which the list was
prepared and continuing through the meeting, at the Company's principal office
or at a place identified in the meeting notice in the city where the meeting
will be held. The Company shall make the shareholders' list available at the
meeting, and any shareholder or the shareholder's agent or attorney shall be
entitled to inspect the list at any time during the meeting or any adjournment.
Refusal or failure to prepare or make available the shareholders' list does not
affect the validity of action taken at the meeting.
2.7 QUORUM; ADJOURNMENT.
(a) Shares entitled to vote as a separate voting group may take
action on a matter at a meeting only if a quorum of those shares exists with
respect to that matter. A majority of the votes entitled to be cast on the
matter by the voting group constitutes a quorum of that voting group for action
in that matter.
(b) A majority of votes represented at the meeting, whether or not
a quorum, may adjourn the meeting from time to time to a different time and
place without further notice to any shareholder of any adjournment, except as
may be required by law. At such adjourned meeting at which a quorum is present,
any business may be transacted that might have been transacted at the meeting
originally held.
(c) Once a share is represented for any purpose at a meeting, it
shall be deemed present for quorum purposes for the remainder of the meeting and
for any adjournment of that meeting unless a new record date is set for the
adjourned meeting. A new record date shall be set if the meeting is adjourned
to a date more than 120 days after the date fixed for the original meeting.
2.8 VOTING REQUIREMENTS; ACTION WITHOUT MEETING.
(a) If a quorum exists, action on a matter, other than the election
of directors, is approved if the votes cast by the shares entitled to vote
favoring the action exceed the votes cast opposing the action, unless a greater
number of affirmative votes is required by law or the Company's Restated
Articles of Incorporation. If any share of capital stock of the Company is
entitled to more or less than one vote on any matter, every reference in these
Bylaws to a majority or other proportion of shares shall refer to such a
majority or other proportion of votes entitled to be cast.
2
<PAGE>
(b) Action required or permitted by law to be taken at a
shareholders' meeting may be taken without a meeting if the action is taken by
all the shareholders entitled to vote on the action. The action must be
evidenced by one or more written consents describing the action taken, signed by
all the shareholders entitled to vote on the action and delivered to the
Secretary for inclusion in the minutes or filing with the Company's records.
Such action shall not be effective unless, at least 10 days before the action is
taken, any non-voting shareholder entitled to notice of the proposed action is
given written notice of the proposed action as required by law. Action taken
under this section is effective when the last shareholder signs the consent,
unless the consent specifies an earlier or later effective date.
2.9 PROXIES. A shareholder may vote shares in person or by proxy by
signing an appointment. A shareholder may appoint a proxy by signing an
appointment form either personally or by the shareholder's attorney-in-fact. An
appointment of a proxy shall be effective when received by the Secretary or
other officer of the corporation authorized to tabulate votes.
2.10 NOTICE OF BUSINESS. At any meeting of the shareholders, only such
business shall be conducted as shall have been brought before the meeting (a)
by or at the direction of the Board of Directors or (b) by any shareholder of
the Company who is a beneficial or record holder at the time of giving of
the notice provided for in this Section 2.10, who shall be entitled to vote
at such meeting and who complies with the notice procedures set forth in this
Section 2.10. For business to be properly brought before a shareholder
meeting by a shareholder, the shareholder must have given timely notice
thereof in writing to the Secretary. To be timely, a shareholder's notice
must be delivered to or mailed and received at the principal executive
offices of the Company not less than 60 days nor more than 90 days prior to
the meeting; provided, however, that in the event that less than 70 days'
notice or prior public disclosure of the date of the meeting is given or
made, notice by the shareholder to be timely must be received no later than
the close of business on the 10th day following the day on which such notice
of the date of the meeting was mailed or such public disclosure was made. A
shareholder's notice to the Secretary shall set forth as to each matter the
shareholder proposes to bring before the meeting (a) a brief description of
the business desired to be brought before the meeting and the reasons for
conducting such business at the meeting, (b) the name and address of the
shareholder proposing such business, (c) the class and number of shares of
the Company which are beneficially owned by the shareholder and (d) any
material interest of the shareholder in such business. If the shareholder is
not a shareholder of record at the time of giving the notice, the notice
shall be accompanied by appropriate documentation of the shareholder's claim
of beneficial ownership. Notwithstanding anything in these Bylaws to the
contrary, no business shall be conducted at a shareholder meeting except in
accordance with the procedures set forth in this Section 2.10. The officer
presiding at the meeting shall, if in the officer's opinion the facts
warrant, determine and declare to the meeting that business was not properly
brought before the meeting in accordance with the provisions of these Bylaws,
and if such officer should so determine, such officer shall so declare to the
meeting and any such business not properly brought before the meeting shall
not be transacted. Notwithstanding the foregoing provisions of this Section
2.10, a shareholder shall also comply with all applicable requirements of the
Securities Exchange Act of 1934, as amended, and the rules and regulations
thereunder with respect to the matters set forth in this Section 2.10.
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<PAGE>
2.11 NOMINATION OF DIRECTORS. Only persons who are nominated in
accordance with the procedures set forth in these Bylaws shall be eligible to
serve as directors. Nominations of persons for election to the Board of
Directors of the Company may be made at a meeting of shareholders (a) by or
at the direction of the Board of Directors or (b) by any shareholder of the
Company who is a beneficial or record holder at the time of giving of notice
provided for in this Section 2.11, who shall be entitled to vote for the
election of directors at the meeting and who complies with the notice
procedures set forth in this Section 2.11. Such nominations, other than
those made by or at the direction of the Board of Directors, shall be made
pursuant to timely notice in writing to the Secretary. To be timely, a
shareholder's notice shall be delivered to or mailed and received at the
principal executive offices of the Company not less than 60 days nor more
than 90 days prior to the meeting; provided, however, that in the event that
less than 70 days' notice or prior public disclosure of the date of the
meeting is given or made, notice by the shareholder to be timely must be
received no later than the close of business on the 10th day following the
day on which such notice of the date of the meeting was mailed or such public
disclosure was made. Such shareholder's notice shall set forth (a) as to
each person whom the shareholder proposes to nominate for election or
reelection as a director all information relating to such person that is
required to be disclosed in solicitations of proxies for election of
directors, or is otherwise required, in each case pursuant to Regulation 14A
under the Securities Exchange Act of 1934, as amended (including such
person's written consent to being named in the proxy statement as a nominee
and to serving as a director if elected); and (b) as to the shareholder
giving the notice (i) the name and address of such shareholder and (ii) the
class and number of shares of the Company which are beneficially owned by
such shareholder. If the shareholder is not a shareholder of record at the
time of giving the notice, the notice shall be accompanied by appropriate
documentation of the shareholder's claim of beneficial ownership. At the
request of the Board of Directors, any person nominated by the Board of
Directors for election as a director shall furnish to the Secretary that
information required to be set forth in a shareholder's notice of nomination
which pertains to the nominee. No person shall be eligible to serve as a
director of the Company unless nominated in accordance with the procedures
set forth in this Section 2.11. The officer presiding at the meeting shall,
if in the officer's opinion the facts warrant, determine and declare to the
meeting that a nomination was not made in accordance with the procedures
prescribed by the Bylaws, and if such officer should so determine, such
officer shall so declare to the meeting and the defective nomination shall be
disregarded. Notwithstanding the foregoing provisions of this Section 2.11,
a shareholder shall also comply with all applicable requirements of the
Securities Exchange Act of 1934, as amended, and the rules and regulations
thereunder with respect to the matters set forth in this Section 2.11.
2.12 CONDUCT OF MEETING. The officer presiding at any meeting of the
shareholders shall have authority to determine the agenda and order of business
at the meeting and to adopt such rules and regulations as may be necessary or
desirable to promote the fair and efficient conduct of the business of the
meeting.
ARTICLE III
BOARD OF DIRECTORS
3.1 DUTIES OF BOARD OF DIRECTORS; ELECTION. All corporate powers shall
be exercised by or under the authority of, and the business and affairs of the
Company shall be managed under
4
<PAGE>
the direction of, its Board of Directors, which shall be divided into three
classes, as nearly equal in number as possible, with one class being elected
each year. Members of a class shall be elected by the shareholders, by a
plurality of the votes cast at the meeting.
3.2 NUMBER, ELECTION AND QUALIFICATION. The exact number of directors
may, within the limits of not less than nine (9) nor more than twenty-one (21)
set forth in Article VI of the Company's Restated Articles of Incorporation, be
fixed and increased or decreased from time to time by resolution of the Board of
Directors. Directors shall hold office for a term of three years, and until
their successors are elected and qualified or the number of directors is
decreased; provided, however, that the term of office of any director shall not
extend beyond the regular quarterly meeting of the Board of Directors following
the date the director reaches age 70; and, provided further, that the term of
any director who is also an employee of the Company shall expire at the date of
the employee's retirement as an employee. No reduction in the number of
directors shall shorten the term of any incumbent director.
3.3 REGULAR MEETINGS. The Board of Directors may provide the time and
place, either within or without the State of Oregon, for the holding of regular
meetings of the Board of Directors without other notice.
3.4 SPECIAL MEETINGS. Special meetings of the Board of Directors may be
called by or at the request of the Chairman of the Board, the President or any
two directors. The person or persons authorized to call special meetings of the
Board of Directors may fix any place, either within or without the State of
Oregon, as the place for holding any special meeting of the Board of Directors
called by them.
3.5 NOTICE. Notice of the date, time and place of any special meeting of
the Board of Directors shall be given at least 48 hours prior to the meeting by
notice communicated in person, by telephone, telegraph, teletype or other form
of wire or wireless communication, or by mail or private carrier. If mailed,
notice shall be deemed effective when deposited in the United States mail
addressed to the director at the director's business address, with postage
thereon prepaid. Notice by all other means shall be deemed effective when
received by or on behalf of the director. Except as otherwise provided by law
or in the Company's Restated Articles of Incorporation, neither the business to
be transacted at, nor the purpose of, any regular or special meeting of the
Board of Directors need be specified in the notice or waiver of notice of such
meeting.
3.6 QUORUM. A majority of the total number of directors fixed in
accordance with Section 3.2 of these Bylaws shall constitute a quorum for the
transaction of business at any meeting of the Board of Directors. If less than
a quorum is present at a meeting, a majority of the directors present may
adjourn the meeting from time to time without further notice.
3.7 MANNER OF ACTING. The act of the majority of the directors present
at a meeting at which a quorum is present shall be the act of the Board of
Directors, unless a different number is provided by law, the Restated Articles
of Incorporation or these Bylaws.
3.8 VACANCIES. Any vacancy, including a vacancy resulting from an
increase in the number of directors, occurring on the Board of Directors may be
filled by the shareholders, the
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Board of Directors or the affirmative vote of a majority of the remaining
directors if less than a quorum of the Board of Directors or by a sole
remaining director. Any directorship not filled by the directors shall be
filled by election at an annual meeting or at a special meeting of
shareholders called for that purpose; if the vacant office was held by a
director elected by a voting group of shareholders, then only the holders of
shares of that voting group are entitled to vote to fill the vacancy. A
director elected to fill a vacancy shall be elected to serve until the next
meeting of shareholders at which directors are elected and shall continue to
serve until a successor shall be elected and qualified or there is a decrease
in the number of directors. A vacancy that will occur at a specific later
date, by reason of a resignation or otherwise, may be filled before the
vacancy occurs, but the new director may not take office until the vacancy
occurs.
3.9 COMPENSATION. By resolution of the Board of Directors, the directors
may be paid a reasonable compensation for their services as directors, and their
expenses, if any, of attendance at each meeting of the Board of Directors;
provided, that no director who is also a full-time officer or employee of the
Company shall receive additional compensation as a director. No such payment
shall preclude any director from serving the Company in any other capacity and
receiving compensation therefor.
3.10 PRESUMPTION OF ASSENT. A director of the Company who is present at a
meeting of the Board of Directors or a committee of the Board of Directors shall
be deemed to have assented to the action taken unless (a) the director's dissent
or abstention from the action is entered in the minutes of the meeting, (b) the
director delivers a written notice of dissent or abstention to the action to the
presiding officer of the meeting before the adjournment thereof or to the
Company immediately after the adjournment of the meeting or (c) the director
objects at the beginning of the meeting or promptly upon the director's arrival
to the holding of the meeting or transacting business at the meeting. The right
to dissent or abstain shall not apply to a director who voted in favor of the
action.
3.11 EXECUTIVE COMMITTEE. The Board of Directors, as soon as may be after
its election in each year, shall by resolution adopted by a majority of all the
Directors in office when the action is taken, designate from among its members
an Executive Committee to consist of the officer designated as Chief Executive
Officer and two or more other directors. Such Committee shall have and may
exercise all of the powers of the Board during the intervals between its
meetings which may be lawfully delegated, subject to such limitations as may be
provided by resolution of the Board. The Board shall have the power at any time
to change the membership of such Committee and to fill vacancies in it. The
Executive Committee may make rules for the conduct of its business and may
appoint such committees and assistants as it may deem necessary. A majority of
the members of such Committee shall be a quorum. The Executive Committee shall
elect one of its members as chairman.
3.12 OTHER COMMITTEES. The Board of Directors, by resolution adopted by a
majority of all the Directors in office when the action is taken, from time to
time may establish, fix the membership, define the duties and appoint the
members of each of such other committees of the Board of Directors as it shall
determine. One-third of the members of each such other committee, but in no
case fewer than two directors, shall be a quorum of the committee.
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ARTICLE IV
OFFICERS
4.1 NUMBER. The officers of the Company shall be a Chairman of the Board
(who shall be a Director of the Company), a President, one or more Vice
Presidents (who may be distinguished from one another by such designations as
the Board of Directors may specify), a Secretary, a Treasurer, and if the Board
of Directors shall deem such an officer desirable, a Controller. Each of the
aforesaid officers shall be appointed by the Board of Directors. The Board of
Directors shall designate one of the officers of the Company (who shall also be
a Director of the Company) as Chief Executive Officer. Other officers and
assistant officers may be appointed as determined by the Board of Directors.
Any two or more offices may be held by the same person.
4.2 APPOINTMENT AND TERM OF OFFICE. With the exception of the initial
appointment of any new officer or assistant officer, or the initial election of
an officer to another or different office, which may be at any meeting of the
Board of Directors, the officers of the Company shall be appointed annually at
the first meeting of the Board of Directors held after each annual meeting of
the shareholders. If the appointment of officers shall not be held at such
meeting, such appointment shall be held as soon thereafter as conveniently may
be. Each officer shall hold office until a successor shall have been duly
appointed and shall have qualified or until such officer's death, resignation,
or removal from office in the manner hereinafter provided.
4.3 REMOVAL. Any officer or agent appointed by the Board of Directors
may be removed by the Board of Directors with or without cause, but such removal
shall be without prejudice to the contract rights, if any, of the person so
removed. The appointment of an officer does not itself create contract rights.
4.4 VACANCIES. A vacancy in any office because of death, resignation,
removal, disqualification or otherwise, may be filled by the Board of Directors
for the unexpired portion of the term.
4.5 CHAIRMAN OF THE BOARD. The Chairman of the Board of Directors shall
preside at all meetings of the Board of Directors and shall perform other duties
assigned by the Board of Directors.
4.6 PRESIDENT. The President shall perform all duties incident to the
office of President and such other duties assigned by the Board of Directors.
4.7 VICE PRESIDENTS. Each of the Vice Presidents shall perform such
duties as from time to time may be assigned by the Chief Executive Officer or
the Board of Directors.
4.8 TREASURER. The Treasurer shall perform the duties usually pertaining
to such office and such other duties as from time to time may be assigned by the
Chief Executive Officer or the Board of Directors. The Treasurer shall give a
bond for faithful discharge of the Treasurer's duties in such sum and with such
surety or sureties as the Board of Directors shall determine.
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4.9 SECRETARY. The Secretary shall have the responsibility for preparing
minutes of all meetings of the directors and shareholders and for authenticating
records of the Company. The Secretary shall in addition perform other duties
assigned by the Chief Executive Officer or the Board of Directors.
4.10 OTHER OFFICERS. Other officers and assistant officers shall perform
such duties as from time to time may be assigned to each of them by the Chief
Executive Officer or the Board of Directors.
4.11 SALARIES. The salaries of the officers shall be fixed from time to
time by the Board of Directors, and no officer shall be prevented from receiving
such salary because the officer is also a director of the Company.
ARTICLE V
INDEMNIFICATION
The Company shall indemnify to the fullest extent not prohibited by law
any person who is made, or threatened to be made, a party to an action, suit
or proceeding, whether civil, criminal, administrative, investigative, or
otherwise (including an action, suit or proceeding by or in the right of the
Company) by reason of the fact that the person is or was a director, officer,
employee or agent of the Company or a fiduciary within the meaning of the
Employee Retirement Income Security Act of 1974 with respect to any employee
benefit plan of the Company, or serves or served at the request of the
Company as a director, officer, employee or agent, or as a fiduciary of an
employee benefit plan, of another corporation, partnership, joint venture,
trust or other enterprise. The Company shall pay for or reimburse the
reasonable expenses incurred by any such person in any such proceeding in
advance of the final disposition of the proceeding to the fullest extent not
prohibited by law. This Article shall not be deemed exclusive of any other
provisions for indemnification or advancement of expenses of directors,
officers, employees, agents and fiduciaries that may be included in any
statute, bylaw, agreement, general or specific action of the Board of
Directors, vote of shareholders or otherwise.
ARTICLE VI
ISSUANCE OF SHARES
6.1 CERTIFICATES FOR SHARES.
(a) Certificates representing shares of the Company shall be in
form determined by the Board of Directors. Such certificates shall be signed
by the Chairman of the Board, the President or a Vice President, and by the
Secretary or an Assistant Secretary or the Treasurer or an Assistant
Treasurer and may be sealed with the seal of the Company or a facsimile
thereof. All certificates for shares shall be consecutively numbered or
otherwise identified. The signatures of officers upon a certificate may be
facsimiles.
8
<PAGE>
(b) Every certificate for shares of stock that are subject to any
restriction on transfer pursuant to the Restated Articles of Incorporation, the
Bylaws, applicable securities laws, agreements among or between shareholders or
any agreement to which the Company is a party shall have conspicuously noted on
the face or back of the certificate either the full text of the restriction or a
statement of the existence of such restriction and that the Company retains a
copy of the restriction. Every certificate issued when the Company is
authorized to issue more than one class or series of stock shall set forth on
its face or back either the full text of the designations, relative rights,
preferences and limitations of the shares of each class and series authorized to
be issued and the authority of the Board of Directors to determine variations
for future series or a statement of the existence of such designations, relative
rights, preferences and limitations and a statement that the Company will
furnish a copy thereof to the holder of such certificate upon written request
and without charge.
(c) All certificates surrendered to the Company for transfer shall
be canceled, and no new certificate shall be issued until the former certificate
for a like number of shares shall have been surrendered and canceled, except
that in case of a lost, destroyed or mutilated certificate a new one may be
issued therefor upon such terms and indemnity to the Company as the Board of
Directors prescribes.
6.2 TRANSFER OF SHARES. Transfer of shares of the Company shall be made
only on the stock transfer books of the Company by the holder of record thereof
or by the holder's legal representative, who shall furnish proper evidence of
authority to transfer, or by the holder's attorney thereunto authorized by power
of attorney duly executed.
6.3 TRANSFER AGENT AND REGISTRAR. The Board of Directors may from time
to time appoint one or more transfer agents and one or more registrars for the
shares of the Company, with such powers and duties as the Board of Directors
determines by resolution.
6.4 OFFICER CEASING TO ACT. If the person who signed a share
certificate, either manually or in facsimile, no longer holds office when the
certificate is issued, the certificate is nevertheless valid.
ARTICLE VII
CONTRACTS, LOANS, CHECKS AND OTHER INSTRUMENTS
7.1 CONTRACTS. The Board of Directors may authorize any officer or
officers, or agent or agents to enter into any contract or execute and deliver
any instrument in the name of and on behalf of the Company, and such authority
may be general or confined to specific instances.
7.2 LOANS. No loans shall be contracted on behalf of the Company and no
evidence of indebtedness shall be issued in its name unless authorized by a
resolution of the Board of Directors. Such authority may be general or confined
to specific instances.
7.3 CHECKS, DRAFTS, ETC. All checks, drafts or other orders for the
payment of money and
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notes or other evidences of indebtedness issued in the name of the Company
shall be signed by such officer or officers, or agent or agents of the
Company and in such manner as shall from time to time be determined by
resolution of the Board of Directors.
7.4 DEPOSITS. All funds of the Company not otherwise employed shall be
deposited from time to time to the credit of the Company in such banks, trust
companies or other depositaries as the Board of Directors or officers of the
Company designated by the Board of Directors may select; or be invested as
authorized by the Board of Directors.
ARTICLE VIII
MISCELLANEOUS PROVISIONS
8.1 SEAL. The corporate seal of the Company shall be circular in form
and shall bear an inscription containing the name of the Company, the year 1910
and the state of incorporation.
8.2 SEVERABILITY. Any determination that any provision of these Bylaws
is for any reason inapplicable, invalid, illegal or otherwise ineffective shall
not affect or invalidate any other provision of these Bylaws.
8.3 WAIVER OF NOTICE.
(a) A shareholder may at any time waive any notice required by
these Bylaws, the Restated Articles of Incorporation or the provisions of any
applicable law. Such waiver shall be in writing, be signed by the shareholder
entitled to the notice and be delivered to the Company for inclusion in the
minutes for filing with the corporate records. A shareholder's attendance at a
meeting waives objection to (i) lack of notice or defective notice of the
meeting, unless the shareholder at the beginning of the meeting objects to
holding the meeting or transacting business at the meeting and (ii)
consideration of a particular matter at the meeting that is not within the
purpose or purposes described in the meeting notice, unless the shareholder
objects to considering the matter when it is presented.
(b) A director may at any time waive any notice required by these
Bylaws, the Restated Articles of Incorporation or the provisions of any
applicable law. Except as set forth below, such waiver must be in writing, be
signed by the director entitled to the notice, must specify the meeting for
which notice is waived and must be filed with the minutes or corporate records.
A director's attendance at or participation in a meeting waives any required
notice to the director of the meeting unless the director at the beginning of
the meeting, or promptly upon the director's arrival, objects to holding the
meeting or transacting business at the meeting and does not thereafter vote for
or assent to action taken at the meeting.
8.4 ENGINEERING DECISIONS IN WASHINGTON. Engineering decisions
pertaining to any project or engineering activities in the State of Washington
shall be made by the engineer designated by or in accordance with resolutions of
the Board of Directors.
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ARTICLE IX
AMENDMENTS
The Company's Bylaws may be amended or repealed or new bylaws may be made:
(a) by the affirmative vote of the holders of record of a majority of the
outstanding capital stock of the Company entitled to vote thereon, irrespective
of class, given at any annual or special meeting of the shareholders; provided
that notice of the proposed amendment, repeal or new bylaw or bylaws be included
in the notice of such meeting or waiver thereof; or (b) by the affirmative vote
of a majority of the entire Board of Directors given at any regular meeting of
the Board, or any special meeting thereof; provided that notice of the proposed
amendment, repeal or new bylaw or bylaws be included in the notice of such
meeting or waiver thereof or all of the directors at the time in office be
present at such meeting.
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<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
PACIFICORP
(AN OREGON CORPORATION)
TO
THE CHASE MANHATTAN BANK
(A NEW YORK CORPORATION)
(FORMERLY KNOWN AS CHEMICAL BANK)
AS TRUSTEE UNDER PACIFICORP'S
MORTGAGE AND DEED OF TRUST,
DATED AS OF JANUARY 9, 1989
-----------
THIRTEENTH SUPPLEMENTAL INDENTURE
DATED AS OF NOVEMBER 1, 1998
SUPPLEMENTAL TO PACIFICORP'S MORTGAGE AND DEED OF TRUST
DATED AS OF JANUARY 9, 1989
-----------
THIS INSTRUMENT GRANTS A SECURITY INTEREST BY A TRANSMITTING UTILITY
THIS INSTRUMENT CONTAINS AFTER-ACQUIRED PROPERTY PROVISIONS
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
THIRTEENTH SUPPLEMENTAL INDENTURE
THIS INDENTURE, dated as of the 1st day of November, 1998, made and entered
into by and between PACIFICORP, a corporation of the State of Oregon, whose
address is 700 NE Multnomah, Portland, Oregon 97232 (hereinafter sometimes
called the "Company"), and THE CHASE MANHATTAN BANK (formerly known as Chemical
Bank), a New York corporation whose address is 450 West 33rd Street, New York,
New York 10001 (the "Trustee"), as Trustee under the Mortgage and Deed of Trust,
dated as of January 9, 1989, as heretofore amended and supplemented (hereinafter
called the "Mortgage"), is executed and delivered by PacifiCorp in accordance
with the provisions of the Mortgage, this indenture (hereinafter called the
"Thirteenth Supplemental Indenture") being supplemental thereto.
WHEREAS, the Mortgage was or is to be recorded in the official records
of the States of Arizona, California, Colorado, Idaho, Montana, New Mexico,
Oregon, Utah, Washington and Wyoming and various counties within such states,
which counties include or will include all counties in which this Thirteenth
Supplemental Indenture is to be recorded; and
WHEREAS, by the Mortgage the Company covenanted that it would execute
and deliver such supplemental indenture or indentures and such further
instruments and do such further acts as might be necessary or proper to carry
out more effectually the purposes of the Mortgage and to make subject to the
Lien of the Mortgage any property thereafter acquired, made or constructed and
intended to be subject to the Lien thereof; and
WHEREAS, in addition to the property described in the Mortgage, the Company
has acquired certain other property, rights and interests in property; and
WHEREAS, the Company has executed, delivered, recorded and filed
Supplemental Indentures as follows:
DATED AS OF
FIRST MARCH 31, 1989
SECOND DECEMBER 29, 1989
THIRD MARCH 31, 1991
FOURTH DECEMBER 31, 1991
FIFTH MARCH 15, 1992
SIXTH JULY 31, 1992
SEVENTH MARCH 15, 1993
EIGHTH NOVEMBER 1, 1993
NINTH JUNE 1, 1994
TENTH AUGUST 1, 1994
ELEVENTH DECEMBER 1, 1995, AND
TWELFTH SEPTEMBER 1, 1996
2
<PAGE>
and
WHEREAS, the Company has heretofore issued, in accordance with the
provisions of the Mortgage, bonds entitled and designated First Mortgage and
Collateral Trust Bonds or First Mortgage Bonds, as the case may be, of the
series and in the principal amounts as follows:
<TABLE>
<CAPTION>
AGGREGATE PRINCIPAL AGGREGATE PRINCIPAL
SERIES DUE DATE AMOUNT ISSUED AMOUNT OUTSTANDING
<S> <C> <C> <C> <C>
FIRST -10.45% 1/9/90 $500,000 0
SECOND -MEDIUM-TERM NOTES, SERIES A VARIOUS 250,000,000 $137,000,000
THIRD -MEDIUM-TERM NOTES, SERIES B VARIOUS 200,000,000 84,500,000
FOURTH -MEDIUM-TERM NOTES, SERIES C VARIOUS 300,000,000 201,405,315
FIFTH -MEDIUM-TERM NOTES, SERIES D VARIOUS 250,000,000 212,500,000
SIXTH -C-U VARIOUS 250,432,000 169,973,000
SEVENTH -MEDIUM-TERM NOTES, SERIES E VARIOUS 500,000,000 439,200,000
EIGHTH -6 3/4% 4/1/2005 150,000,000 150,000,000
NINTH -MEDIUM-TERM NOTES, SERIES F VARIOUS 500,000,000 378,000,000
TENTH -E-L VARIOUS 71,200,000 71,200,000
ELEVENTH -MEDIUM-TERM NOTES, SERIES G VARIOUS 500,000,000 300,000,000
TWELFTH -1994-1 VARIOUS 216,470,000 216,470,000
THIRTEENTH -ADJUSTABLE RATEREPLACEMENT SERIES 2002 13,234,000 0
FOURTEENTH -9 3/8% REPLACEMENT SERIES 1997 50,000,000 0
FIFTEENTH -BOND CREDIT SERIES VARIOUS 498,589,753 0
SIXTEENTH -MEDIUM-TERM NOTES, SERIES H VARIOUS 500,000,000 500,000,000
</TABLE>
and
WHEREAS, Section 2.03 of the Mortgage provides that the form or forms,
terms and conditions of and other matters not inconsistent with the provisions
of the Mortgage, in connection with each series of bonds (other than the First
Series) issued thereunder, shall be established in or pursuant to one or more
Resolutions and/or shall be established in one or more indentures supplemental
to the Mortgage, prior to the initial issuance of bonds of such series; and
WHEREAS, Section 22.04 of the Mortgage provides, among other things, that
any power, privilege or right expressly or impliedly reserved to or in any way
conferred upon the Company by any provision of the Mortgage, whether such power,
privilege or right is in any way restricted or is unrestricted, may be in whole
or in part waived or surrendered or subjected to any restriction if at the time
unrestricted or to additional restriction if already restricted, and the Company
may enter into any further covenants, limitations, restrictions or provisions
for the benefit of any one or more series of bonds issued thereunder and provide
that a breach thereof shall be equivalent to a Default under the Mortgage, or
the Company may cure any ambiguity contained therein, or in any supplemental
indenture, or may (in lieu of establishment in or pursuant to Resolution in
accordance with Section 2.03 of the Mortgage) establish the forms, terms and
provisions of any series of bonds other than said First Series, by an instrument
in writing executed by the Company; and
WHEREAS, the Company now desires to create a new series of bonds and
(pursuant to the provisions of Section 22.04 of the Mortgage) to add to its
covenants and agreements contained in the Mortgage certain other covenants and
agreements to be observed by it; and
WHEREAS, the execution and delivery by the Company of this Thirteenth
Supplemental Indenture, and the terms of the bonds of the Seventeenth Series
herein referred to, have been duly authorized by the Board of Directors in or
pursuant to appropriate Resolutions;
3
<PAGE>
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
That PACIFICORP, an Oregon corporation, in consideration of the premises
and of good and valuable consideration to it duly paid by the Trustee at or
before the ensealing and delivery of these presents, the receipt and sufficiency
whereof is hereby acknowledged, and in order to secure the payment of both the
principal of and interest and premium, if any, on the bonds from time to time
issued under the Mortgage, according to their tenor and effect and the
performance of all provisions of the Mortgage (including any instruments
supplemental thereto and any modification made as in the Mortgage provided) and
of such bonds, and to confirm the Lien of the Mortgage on certain after-acquired
property, hereby mortgages, pledges and grants a security interest in (subject,
however, to Excepted Encumbrances as defined in Section 1.06 of the Mortgage),
unto The Chase Manhattan Bank, as Trustee, and to its successor or successors in
said trust, and to said Trustee and its successors and assigns forever, all
properties of the Company real, personal and mixed, owned by the Company as of
the date of the Mortgage and acquired by the Company after the date of the
Mortgage, subject to the provisions of Section 18.03 of the Mortgage, of any
kind or nature (except any herein or in the Mortgage expressly excepted), now
owned or, subject to the provisions of Section 18.03 of the Mortgage, hereafter
acquired by the Company (by purchase, consolidation, merger, donation,
construction, erection or in any other way) and wheresoever situated (except
such of such properties as are excluded by name or nature from the Lien hereof),
including the properties described in Article IV hereof, and further including
(without limitation) all real estate, lands, easements, servitudes, licenses,
permits, franchises, privileges, rights of way and other rights in or relating
to real estate or the occupancy of the same; all power sites, flowage rights,
water rights, water locations, water appropriations, ditches, flumes,
reservoirs, reservoir sites, canals, raceways, waterways, dams, dam sites,
aqueducts, and all other rights or means for appropriating, conveying, storing
and supplying water; all rights of way and roads; all plants for the generation
of electricity and other forms of energy (whether now known or hereafter
developed) by steam, water, sunlight, chemical processes and/or (without
limitation) all other sources of power (whether now known or hereafter
developed); all power houses, gas plants, street lighting systems, standards and
other equipment incidental thereto; all telephone, radio, television and other
communications, image and data transmission systems, air-conditioning systems
and equipment incidental thereto, water wheels, water works, water systems,
steam and hot water plants, substations, lines, service and supply systems,
bridges, culverts, tracks, ice or refrigeration plants and equipment, offices,
buildings and other structures and the equipment thereof; all machinery,
engines, boilers, dynamos, turbines, electric, gas and other machines, prime
movers, regulators, meters, transformers, generators (including, but not limited
to, engine-driven generators and turbogenerator units), motors, electrical, gas
and mechanical appliances, conduits, cables, water, steam, gas or other pipes,
gas mains and pipes, service pipes, fittings, valves and connections, pole and
transmission lines, towers, overhead conductors and devices, underground
conduits, underground conductors and devices, wires, cables, tools, implements,
apparatus, storage battery equipment and all other fixtures and personalty; all
municipal and other franchises, consents or permits; all lines for the
transmission and distribution of electric current and other forms of energy,
gas, steam, water or communications, images and data for any purpose including
towers, poles, wires, cables, pipes, conduits, ducts and all apparatus for use
in connection therewith and (except as herein or in the Mortgage expressly
excepted) all the right, title and interest of the Company in and to all other
property of any kind or nature appertaining to and/or used and/or occupied
and/or enjoyed in connection with any property hereinbefore described;
TOGETHER WITH all and singular the tenements, hereditaments, prescriptions,
servitudes and appurtenances belonging or in anywise appertaining to the
aforesaid property or any part thereof, with the reversion and reversions,
remainder and remainders and (subject to the provisions of Section 13.01 of the
Mortgage) the tolls, rents, revenues, issues, earnings, income, product and
profits thereof, and all the estate, right, title and interest and claim
whatsoever, at law as well as in equity, which the Company now has or may
hereafter acquire in and to the aforesaid property and franchises and every part
and parcel thereof.
4
<PAGE>
IT IS HEREBY AGREED by the Company that, subject to the provisions of
Section 18.03 of the Mortgage, all the property, rights and franchises acquired
by the Company (by purchase, consolidation, merger, donation, construction,
erection or in any other way) after the date hereof, except any herein or in the
Mortgage expressly excepted, shall be and are as fully mortgaged and pledged
hereby and as fully embraced within the Lien of the Mortgage as if such
property, rights and franchises were now owned by the Company and were
specifically described herein or in the Mortgage and mortgaged hereby or
thereby.
PROVIDED THAT the following are not and are not intended to be now or
hereafter mortgaged or pledged hereunder, nor is a security interest therein
hereby granted or intended to be granted, and the same are hereby expressly
excepted from the Lien and operation of the Mortgage, namely: (1) cash, shares
of stock, bonds, notes and other obligations and other securities not hereafter
specifically pledged, paid, deposited, delivered or held under the Mortgage or
covenanted so to be; (2) merchandise, equipment, apparatus, materials or
supplies held for the purpose of sale or other disposition in the usual course
of business or for the purpose of repairing or replacing (in whole or part) any
rolling stock, buses, motor coaches, automobiles or other vehicles or aircraft
or boats, ships or other vessels, and any fuel, oil and similar materials and
supplies consumable in the operation of any of the properties of the Company;
rolling stock, buses, motor coaches, automobiles and other vehicles and all
aircraft; boats, ships and other vessels; all crops (both growing and
harvested), timber (both growing and harvested), minerals (both in place and
severed), and mineral rights and royalties; (3) bills, notes and other
instruments and accounts receivable, judgments, demands, general intangibles and
choses in action, and all contracts, leases and operating agreements not
specifically pledged under the Mortgage or covenanted so to be; (4) the last day
of the term of any lease or leasehold which may be or become subject to the Lien
of the Mortgage; (5) electric energy, gas, water, steam, ice and other
materials, forms of energy or products generated, manufactured, produced or
purchased by the Company for sale, distribution or use in the ordinary course of
its business; (6) any natural gas wells or natural gas leases or natural gas
transportation lines or other works or property used primarily and principally
in the production of natural gas or its transportation, primarily for the
purpose of sale to natural gas customers or to a natural gas distribution or
pipeline company, up to the point of connection with any distribution system;
(7) the Company's franchise to be a corporation; (8) any interest (as lessee,
owner or otherwise) in the Wyodak Facility, including, without limitation, any
equipment, parts, improvements, substitutions, replacements or other property
relating thereto; and (9) any property heretofore released pursuant to any
provision of the Mortgage and not heretofore disposed of by the Company;
provided, however, that the property and rights expressly excepted from the Lien
and operation of the Mortgage in the above subdivisions (2) and (3) shall (to
the extent permitted by law) cease to be so excepted in the event and as of the
date that the Trustee or a receiver for the Trustee shall enter upon and take
possession of the Mortgaged and Pledged Property in the manner provided in
Article XV of the Mortgage by reason of the occurrence of a Default;
AND PROVIDED FURTHER, that as to any property of the Company that, pursuant
to the after-acquired property provisions thereof, hereafter becomes subject to
the lien of a mortgage, deed of trust or similar indenture that may in
accordance with the Mortgage hereafter become designated as a Class "A"
Mortgage, the Lien hereof shall at all times be junior and subordinate to the
lien of such Class "A" Mortgage;
TO HAVE AND TO HOLD all such properties, real, personal and mixed,
mortgaged and pledged, or in which a security interest has been granted by the
Company as aforesaid, or intended so to be (subject, however, to Excepted
Encumbrances as defined in Section 1.06 of the Mortgage), unto The Chase
Manhattan Bank, as Trustee, and its successors and assigns forever;
IN TRUST NEVERTHELESS, for the same purposes and upon the same terms,
trusts and conditions and subject to and with the same provisos and covenants as
are set forth in the Mortgage, this Thirteenth Supplemental Indenture being
supplemental to the Mortgage;
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AND IT IS HEREBY COVENANTED by the Company that all the terms, conditions,
provisos, covenants and provisions contained in the Mortgage shall affect and
apply to the property hereinbefore described and conveyed, and to the estates,
rights, obligations and duties of the Company and the Trustee and the
beneficiaries of the trust with respect to said property, and to the Trustee and
its successor or successors in the trust, in the same manner and with the same
effect as if the said property had been owned by the Company at the time of the
execution of the Mortgage, and had been specifically and at length described in
and conveyed to said Trustee by the Mortgage as a part of the property therein
stated to be conveyed.
The Company further covenants and agrees to and with the Trustee and its
successor or successors in such trust under the Mortgage, as follows:
ARTICLE I
SEVENTEENTH SERIES OF BONDS
SECTION 1.01. There shall be a series of bonds designated "5.65% Series
due 2006" (herein sometimes referred to as the Seventeenth Series), each of
which shall also bear the descriptive title "First Mortgage Bond," and the form
thereof, which shall be established by or pursuant to a Resolution, shall
contain suitable provisions with respect to the matters hereinafter in this
Section specified.
(I) Bonds of the Seventeenth Series shall mature on November 1, 2006 and
shall be issued as fully registered bonds in the denomination of One Thousand
Dollars and, at the option of the Company, of any multiple or multiples of One
Thousand Dollars (the exercise of such option to be evidenced by the execution
and delivery thereof).
The Company reserves the right to establish, at any time, by or pursuant to
a Resolution filed with the Trustee, a form of coupon bond, and or appurtenant
coupons, for the Seventeenth Series and to provide for exchangeability of such
coupon bonds with the bonds of the Seventeenth Series issued hereunder in fully
registered form and to make all appropriate provisions for such purpose.
(II) Bonds of the Seventeenth Series shall bear interest at the rate of
five and sixty-five hundredths per centum (5.65%) per annum payable
semi-annually on May 1 and November 1 of each year. Bonds of the Seventeenth
Series shall be dated and shall accrue interest as provided in Section 2.06 of
the Mortgage.
Interest payable on any bond of the Seventeenth Series and punctually paid
or duly provided for on any interest payment date for such bond will be paid to
the person in whose name the bond is registered at the close of business on the
Record Date (as hereinafter specified) for such bond next preceding such
interest payment date; provided, however, that interest payable at maturity or
upon earlier redemption will be payable to the person to whom principal shall be
payable. The "Record Date" with respect to bonds of the Seventeenth Series shall
be the April 15 next preceding a May 1 interest payment date and the October 15
next preceding a November 1 interest payment date.
Any interest on any bond of the Seventeenth Series which is payable but is
not punctually paid or duly provided for, on any interest payment date for such
bond (herein called "Defaulted Interest"), shall forthwith cease to be payable
to the registered owner on the relevant Record Date for the payment of such
interest solely by virtue of such owner having been such owner; and such
Defaulted Interest may be paid by the Company, at its election in each case, as
provided in subsection (i) or (ii) below:
(i) The Company may elect to make payment of any Defaulted Interest on
the bonds of the Seventeenth Series to the persons in whose names such
bonds are registered at the close of business on a Special Record Date (as
hereinafter defined) for the payment of such Defaulted Interest, which
shall be fixed in the following manner: The Company shall, at least 30 days
prior to the proposed date of payment, notify the Trustee in writing
(signed by an Authorized Financial Officer of the Company) of the amount of
Defaulted Interest proposed to be paid on each bond of the Seventeenth
Series and the date of the proposed payment (which date shall be such as
will enable the Trustee to comply with
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the next sentence hereof), and at the same time the Company shall deposit
with the Trustee an amount of money equal to the aggregate amount
proposed to be paid in respect of such Defaulted Interest or shall make
arrangements satisfactory to the Trustee for such deposit on or prior to
the date of the proposed payment, such money when deposited to be held in
trust for the benefit of the persons entitled to such Defaulted Interest as
in this subsection provided and not to be deemed part of the Mortgaged and
Pledged Property. Thereupon, the Trustee shall fix a record date (herein
referred to as a "Special Record Date") for the payment of such Defaulted
Interest which date shall be not more than 15 nor less than 10 days prior
to the date of the proposed payment and not less than 10 days after the
receipt by the Trustee of the notice of the proposed payment. The Trustee
shall promptly notify the Company of such Special Record Date and, in the
name and at the expense of the Company, shall cause notice of the proposed
payment of such Defaulted Interest and the Special Record Date therefor to
be mailed, first-class postage prepaid, to each registered owner of a bond
of the Seventeenth Series at his, her or its address as it appears in the
bond register not less than 10 days prior to such Special Record Date.
Notice of the proposed payment of such Defaulted Interest and the Special
Record Date therefor having been mailed as aforesaid, such Defaulted
Interest shall be paid to the persons in whose names the bonds of the
Seventeenth Series are registered at the close of business on such Special
Record Date and shall no longer be payable pursuant to the following
subsection (ii).
(ii) The Company may make payment of any Defaulted Interest on the
bonds of the Seventeenth Series in any other lawful manner not inconsistent
with the requirements of any securities exchange on which such bonds may be
listed and upon such notice as may be required by such exchange, if, after
notice given by the Company to the Trustee of the proposed payment pursuant
to this subsection, such payment shall be deemed practicable by the
Trustee.
Subject to the foregoing provisions of this Section, each bond of the
Seventeenth Series delivered under the Mortgage upon transfer of or in exchange
for or in lieu of any other bond shall carry all rights to interest accrued and
unpaid, and to accrue, which were carried by such other bond and each such bond
shall bear interest from such date, that neither gain nor loss in interest shall
result from such transfer exchange or substitution.
(III) The principal of and interest on each bond of the Seventeenth Series
shall be payable at the office or agency of the Company in the Borough of
Manhattan, The City of New York, in such coin or currency of the United States
of America as at the time of payment is legal tender for public and private
debts or in such other currency or currency unit as shall be determined by or in
accordance with the Resolution filed with the Trustee.
(IV) Bonds of the Seventeenth Series shall not be redeemable prior to
maturity.
(V) Each bond of the Seventeenth Series may have such other terms as are
not inconsistent with Section 2.03 of the Mortgage, and as may be determined by
or in accordance with a Resolution filed with the Trustee.
(VI) At the option of the registered owner, any bonds of the Seventeenth
Series, upon surrender thereof for cancellation at the office or agency of the
Company in the Borough of Manhattan, The City of New York, shall be exchangeable
for a like aggregate principal amount of bonds of the same series and same terms
of other authorized denominations.
(VII) Bonds of the Seventeenth Series shall be transferable, subject to
any restrictions thereon set forth in any such bond of the Seventeenth Series,
upon the surrender therefor for cancellation, together with a written instrument
of transfer in form approved by the registrar duly executed by the registered
owner or by his duly authorized attorney, at the office or agency of the Company
in the Borough of Manhattan, The City of New York. Upon any transfer or
exchange of bonds of the Seventeenth Series, the Company may make a charge
therefor sufficient to reimburse it for any tax or taxes or other government
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charge, as provided in Section 2.08 of the Mortgage, but the Company hereby
waives any right to make a charge in addition thereto for any exchange or
transfer of bonds of the Seventeenth Series.
(VIII) After the execution and delivery of this Thirteenth Supplemental
Indenture and upon compliance with the applicable provisions of the Mortgage and
this Thirteenth Supplemental Indenture, it is contemplated that there shall be
issued bonds of the Seventeenth Series in an aggregate principal amount of Two
Hundred Million Dollars (U.S. $200,000,000).
ARTICLE II
THE COMPANY RESERVES THE RIGHT TO AMEND PROVISIONS
REGARDING PROPERTIES EXCEPTED FROM LIEN OF MORTGAGE
SECTION 2.01. The Company reserves the right, without any consent or other
action by holders of bonds of the Eighth Series, or any other series of bonds
subsequently created under the Mortgage (including the bonds of the Seventeenth
Series), to make such amendments to the Mortgage, as heretofore amended and
supplemented, as shall be necessary in order to amend the first proviso to the
granting clause of the Mortgage, which proviso sets forth the properties
excepted from the Lien of the Mortgage, to add a new exception (10) which shall
read as follows:
"(10) allowances allocated to steam-electric generating plants
owned by the Company or in which the Company has interests, pursuant to
Title IV of the Clean Air Act Amendments of 1990, Pub. L. 101-549, Nov. 15,
1990, 104 Stat. 2399, 42 USC 7651, et seq., as now in effect or as
hereafter supplemented or amended."
ARTICLE III
MISCELLANEOUS PROVISIONS
SECTION 3.01. The right, if any, of the Company to assert the defense of
usury against a holder or holders of bonds of the Seventeenth Series or any
subsequent series shall be determined only under the laws of the State of New
York.
SECTION 3.02. The terms defined in the Mortgage shall, for all purposes of
this Thirteenth Supplemental Indenture, have the meanings specified in the
Mortgage.
SECTION 3.03. The Trustee hereby accepts the trusts hereby declared,
provided, created or supplemented, and agrees to perform the same upon the terms
and conditions herein and in the Mortgage, as hereby supplemented, set forth,
including the following:
The Trustee shall not be responsible in any manner whatsoever for or in
respect of the validity or sufficiency of this Thirteenth Supplemental Indenture
or for or in respect of the recitals contained herein, all of which recitals are
made by the Company solely. Each and every term and condition contained in
Article XIX of the Mortgage shall apply to and form part of this Thirteenth
Supplemental Indenture with the same force and effect as if the same were herein
set forth in full, with such omissions, variations and insertions, if any, as
may be appropriate to make the same conform to the provisions of this Thirteenth
Supplemental Indenture.
SECTION 3.04. Whenever in this Thirteenth Supplemental Indenture either of
the Company or the Trustee is named or referred to, this shall, subject to the
provisions of Articles XVIII and XIX of the Mortgage, be deemed to include the
successors and assigns of such party, and all the covenants and agreements in
this Thirteenth Supplemental Indenture contained by or on behalf of the Company,
or by or on behalf of the Trustee, shall, subject as aforesaid, bind and inure
to the respective benefits of the respective successors and assigns of such
parties, whether so expressed or not.
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SECTION 3.05. Nothing in this Thirteenth Supplemental Indenture, expressed
or implied, is intended, or shall be construed to confer upon, or to give to,
any person, firm or corporation, other than the parties hereto and the holders
of the bonds and coupons outstanding under the Mortgage, any right, remedy or
claim under or by reason of this Thirteenth Supplemental Indenture or any
covenant, condition, stipulation, promise or agreement hereof, and all the
covenants, conditions, stipulations, promises and agreements in this Thirteenth
Supplemental Indenture contained by or on behalf of the Company shall be for the
sole and exclusive benefit of the parties hereto, and of the holders of the
bonds and of the coupons outstanding under the Mortgage.
SECTION 3.06. This Thirteenth Supplemental Indenture shall be executed in
several counterparts, each of which shall be an original and all of which shall
constitute but one and the same instrument.
ARTICLE IV
SPECIFIC DESCRIPTION OF PROPERTY
The properties of the Company, owned as of the date hereof, and used (or
held for future development and use) in connection with the Company's electric
utility systems, or for other purposes, as follows:
A--HYDROELECTRIC GENERATING PLANTS
HYDRO PROJECT--PARCEL NUMBER BE-165
Lands in BEAR LAKE County, State of IDAHO
A tract of land situated in the W 1/2 NW 1/4 of Section 18, Township 15
South, Range 44 East, Boise Meridian, described as follows: Beginning on
the West line of the said Northwest Quarter of said Section 18, at a point
being South (basis of bearing) 952 feet along the said West line from the
Northwest Corner of the said Northwest Quarter and running thence South
1076.5 feet along the said West line to the Southwesterly prolongation of
an existing fence line; thence North 37DEG.02' East 331.1 feet to a Corner
of the said existing fence line; thence North 48DEG.07' East 285 feet to a
Corner of the said existing fence line; thence North 51DEG.19' East 1003.7
feet to a point on the Northeasterly prolongation of the said existing
fence line; thence South 89DEG.40' West 1156 feet to the point of
beginning.
ASHTON RESERVOIR--PARCEL NUMBER FT-032
Lands in FREMONT County, State of IDAHO
Beginning at the south one quarter corner of Section 23, T.9N, R.42E.,
B.M., thence North 660 feet, thence East 330 feet, thence North 660 feet,
more or less, to the South right of way line of a county road, thence West
1650 feet, more or less, thence South 1320 feet more or less, to the South
line of said Section 23, thence East 1320 feet, more or less, along said
South line to the point of beginning and being in the SE 1/4 of the SW 1/4
of the SE 1/4, of said Section 23; containing 45 acres, more or less.
CUTLER HYDRO PROJECT--PARCEL NUMBER CA-364
Lands in CACHE County, State of UTAH
Part of Lot 82, Richland Acres, as shown by the official plat thereof and
further described as follows: Beginning at the Southeast corner of Lot 82
Richland Acres, said point being North 1329.57 feet of the Southeast corner
of the SW 1/4 of Section 35, Township 12 North, Range 1 West of the Salt
Lake
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Base and Meridian, and running thence North 89DEG.57' West 1349.7 feet
to an irrigation ditch, thence along said ditch to wit: N.52DEG.30'E.
992.64 feet; thence N.8DEG.30'E. 85.8 feet; thence N.31DEG.15'W. 693 feet;
thence N.14DEG.15'W. 675.84 feet; thence East 17.16 feet; thence N.10DEG.E.
919.38 feet to the South bank of the Logan River; thence along said river
Easterly to point N.0DEG.17'W. 2770.68 feet of beginning; thence
S.0DEG.17'E. 2770.68 feet to the point of beginning.
CUTLER HYDRO PROJECT--PARCEL NUMBER CA-365
Lands in CACHE County, State of UTAH
Beginning at a point 749.7 feet East of the center of Section 35, T. 12 N.,
R. 1 W., S.L.M., and running thence N.6DEG.25'E. 276.7 feet; thence
N.41DEG.06'W. 328.5 feet; thence N.30DEG.12'E. 254.6 feet; thence
N.38DEG.24'E. 232.1 feet; thence S.70DEG.38'E. 596.1 feet; thence
S.88DEG.11'E. 295.8 feet; thence N.53DEG.54'E. 146.7 feet; thence
N.5DEG.29'E. 393.3 feet; thence S.60DEG.21'E. 627.9 feet; thence
S.26DEG.39'W. 257.5 feet; thence S.15 56"E. 190.1 feet; thence
S.43DEG.17'E. 236.3 feet; thence S.0DEG.49'E. 273.8 feet to a point due
East of beginning; thence West 1750 feet to the place of beginning.
CUTLER HYDRO PLANT--PARCEL NUMBER CA-366
Lands in CACHE County, State of UTAH
A tract of land situate in the Northeast one-quarter of the Southeast
one-quarter of Section 35, Township 12 North, Range 1 West , Salt Lake
Meridian, begin described as follows: Beginning at the Northeast Corner of
said Southeast one-quarter of Section 35 and running thence South 1DEG.32'
East (basis of bearing) 683.60 feet along the East line of said Southeast
one-quarter; thence Northwesterly 752.06 feet to a point on the North line
of said Southeast Quarter; thence Easterly 305.65 feet to the point of
beginning.
CUTLER HYDRO PROJECT--PARCEL NUMBER CA-367
Lands in CACHE County, State of UTAH
A tract of land situate in the Northwest one-quarter of the Southeast
one-quarter of Section 35, Township 12 North, Range 1 West, Salt Lake
Meridian, being described as follows: Beginning on the west line of the
said Southeast one-quarter of Section 35 at a point South 1DEG.33' East
(basis of bearing) 716.2 feet from the Northwest Corner of said Southeast
one-quarter of Section 35 and running thence South 64DEG.23' East 145.0
feet; thence North 48DEG.32' East 504.7 feet; thence North 77DEG.39' East
178.5 feet; thence North 06DEG.25' East 421.11 feet to a point on the North
line of the said Southeast one-quarter, said point being 749.85 feet from
the said Northwest Corner; thence North 89DEG.04' East 100.89 feet along
the said North line; thence South 00DEG.56' East 601.24 feet; thence South
28DEG.22' West 724.89 feet; thence South 89DEG.04' West 449.81 feet along a
line that is parallel with the said North line of the Southeast
one-quarter; thence South 01DEG.33' East 137.00 feet along a line that is
parallel with the said West line of the Southeast one-quarter; thence South
89DEG.04' West 33.00 feet to the said West line of the Southeast
one-quarter of Section 35; thence North 01DEG.33' West 654.30 feet to the
point of beginning.
CUTLER HYDRO PROJECT--PARCEL NUMBERS CA-368, CA-369
Lands in CACHE County, State of UTAH
A tract of land situate in the Northwest one-quarter of the Southeast
one-quarter of Section 15, Township 12 North, Range 1 West, Salt Lake
Meridian, described as follows: Beginning at the Southeast Corner of the
said Northwest one-quarter of the Southeast one-quarter of Section 15 and
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running thence North 00DEG.35'54" West 120.29 feet along the East line of
the said Northwest one-quarter of the Southeast one-quarter; thence South
89DEG.56'06" West 223.86 feet; thence South 00DEG.35'54" East 75.99 feet;
thence North 89DEG.56'06" East 92.00 feet; thence S.00DEG.35'54"E. 46.00
feet; thence N.89DEG. 11'44"E. 131.85 feet to the point of beginning; also
A tract of land situate in the Northeast one-quarter of the Southwest
one-quarter of Section 15, Township 12 North, Range 1 West, Salt Lake
Meridian described as follows: Beginning on the East line of the said
Southwest one-quarter of Section 15, at a point being North 00DEG.40'00"
West (basis of bearing) 2073.06 feet from the Southeast Corner of the said
Southwest one-quarter of Section 15 and running thence along the said East
line of the Southwest one-quarter North 00DEG.40'00" West 467.90 feet;
thence South 06DEG.04'46" West 15.00 feet; thence South 40DEG.20'46" West
362.30 feet; thence South 42DEG.22'10" East 228.05 feet; thence South
84DEG.34'53" East 88.30 feet to the point of beginning.
CUTLER HYDRO PROJECT--PARCEL NUMBER CA-370
Lands in CACHE County, State of UTAH
A tract of land situate in the north one-half of the southwest one-quarter
of Section 2, Township 12 North, Range 1 West, Salt Lake Meridian being
described as follows: Beginning at the Northwest corner of the tract of
land described herein, said corner being East 678.5 feet along the quarter
section line, South 52DEG.23' East 16.5 feet, South 41DEG.50' East 228.9
feet, South 37DEG.00' East 654.4 feet, South 22DEG.25' East 271.7 feet from
the Northwest corner of said north one-half of the southwest one-quarter of
said Section 2 and running thence South 22DEG.25' East 240.7 feet; thence
South 01DEG.10' East 145.7 feet; thence East 3.6 feet to the westerly
right-of-way line of the County Road (3800 West), as presently constructed
and used; thence northerly along said westerly right-of-way line 369 feet;
thence West 92.1 feet to the point of beginning.
CUTLER HYDRO PROJECT--PARCEL NUMBER CA-371
Lands in CACHE County, State of UTAH
Part of the North half of the Northwest Quarter of Section 30, Township 13
North, Range 1 West, Salt Lake Base and Meridian, described as follows:
Beginning at a point 43 rods East of the Northwest Corner of said Section
30 and running thence East 325 feet, more or less, to the West line of the
Cutler Development Reservoir; thence following the said West line of said
Reservoir, South 27DEG.63' East 435 feet; thence South 24DEG.13' East 126
feet; thence South 16DEG.01' East 251 feet, more or less, to the North side
of the State Highway; thence Southwesterly along said highway to the
intersection of the said highway and the East side of the O.S.L.R.R. right
of way; thence Northwesterly parallel with the said right of way to the
place of beginning.
CUTLER HYDRO PROJECT--PARCEL NUMBER CA-372
Lands in CACHE County, State of UTAH
A tract of land situate in the Southwest one-quarter of the Northeast
one-quarter of Section 15, Township 12 North, Range 1 West, Salt Lake
Meridian, described as follows: Beginning at a point on the Westerly
boundary line of the tract of land conveyed herein, said point being
Westerly 924.0 feet (14 chains) along the Section line, South 55DEG.East
1432.20 feet (21.7 chains), South 23DEG.East 280.5 feet (4.25 chains),
South 11DEG.West 363.00 feet (5.5 chains), and South 45DEG.30' West 22.98
feet from the North one-quarter corner of said Section 15, said point being
the true point of beginning, and running thence South 45DEG.30' West 208.02
feet; thence South 238.20 feet to a point on the Northern boundary line of
the abandoned Benson Branch of the Oregon Short Line Railroad Company, as
formerly constructed
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and operated; thence South 84DEG.50'15" East 98.66 feet along said
Northern boundary line; thence North 07DEG.16'08" East 396.07 feet to the
point of beginning.
CUTLER HYDRO PROJECT--PARCEL NUMBER CA-373
Lands in CACHE County, State of UTAH
A tract of land situate in the Northwest One-Quarter of the Southwest
One-Quarter of Section 10, Township 12 North, Range 1 West, Salt Lake
Meridian, being described as follows:
Beginning on a Northerly boundary corner of the tract of land conveyed
herein, said Corner being South 01DEG.23'42" East (Basis of Bearing) 650.0
feet along the West line of the said Southwest One-Quarter, and North
67DEG.18'14" East 139.01 feet from the Northwest Corner of the Southwest
One-Quarter of said Section 10 and running thence North 54DEG.57'14" East
288.06 feet; thence South 35DEG.02'46" East 75.00 feet; thence South
69DEG.32'51" West 297.67 feet to the point of beginning.
CUTLER HYDRO PROJECT--PARCEL NUMBER CA-374
Lands in CACHE County, State of UTAH
A tract of land situate in the Southwest One-Quarter of the Northeast
One-Quarter of Section 4, Township 11 North, Range 1 West, Salt Lake
Meridian, said tract being a part of Lot 6, Block 32, Plat "A" MENDON FARM
SURVEY, described as follows: Beginning on the Quarter Section Line at a
point Southerly 28.98 chains from the North One-Quarter of said Section 4
and running thence South 88DEG.30' East 137.98 feet; thence South 10DEG.53'
East 376.3 feet; thence South 48DEG.09' West 281.31 feet to the said
Quarter Section Line; thence Northerly 555.25 feet to the point of
beginning.
CUTLER HYDRO PROJECT--PARCEL NUMBER CA-375
Lands in CACHE County, State of UTAH
Part of the South one-half of Section 16, Township 12 North, Range 1 West,
Salt Lake Base and Meridian, described as follows: Beginning at a point
North 0DEG.39' West 1234.9 feet from the Southeast Corner of said Section
16; thence running North 0DEG.39' West 1405.1 feet to the East Quarter
Corner of said Section 16; thence South 89DEG.29' West 3101.64 feet; thence
South 0DEG.39' East 1400 feet; thence South 89DEG.34' East 3101.64 feet to
the point of beginning.
CUTLER HYDRO PROJECT--PARCEL NUMBER CA-376
Lands in CACHE County, State of UTAH
A tract of land situate in the Northwest one-quarter of the Southwest
one-quarter of Section 14, Township 12 North, Range 1 West, Salt Lake
Meridian being described as follows: Beginning at the West quarter-corner
of said Section 14, Township 12 North, Range 1 West, Salt Lake Meridian and
running thence Southerly along the Section line 981.26 feet to the Southern
boundary line of the tract conveyed herein, said point being Northerly
1654.8 feet from the Southwest Corner of said Section 14; thence Easterly
50.00 feet along said Southern boundary line; thence Northerly 983.92 feet
to the Quarter-section line; thence Westerly 50.00 feet along said
quarter-section line to the point of beginning.
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CUTLER HYDRO PROJECT--PARCEL NUMBER CA-377
Lands in CACHE County, State of UTAH
A tract of land situate in the NW 1/4 of Section 35, T. 12N., R. 1W.,
S.L.M., said tract being a portion of Lot 87, Richland Acres Subdivision,
according to the official plat thereof as filed in the office of the Cache
County Recorder on December 7, 1916, being described as follows: All of
said Lot 87, Richland Acres Subdivision EXCEPT the following (which was
donated to the State of Utah, Division of Wildlife Resources): Beginning
at the SW corner of said Lot 87, Richland Acres Subdivision, said point
being N.89DEG.38'39"E. 770.22 feet (11.67 chains) along the quarter section
line from the West one-quarter corner of said Section 35 and running thence
northerly 566.37 feet along the west boundary line of said Lot 87; thence
N.89DEG.38'39"E. 838.63 feet to the center of an existing irrigation ditch;
thence S.14DEG.55'32"E. 838.63 feet along said center of the irrigation
ditch to the Southeast corner of said Lot 87; thence S.89DEG.38'39"E.
985.09 feet to the point of beginning; said tract containing 36.14 acres.
CUTLER HYDRO PROJECT--PARCEL NUMBER CA-378
Lands in CACHE County, State of UTAH
Beginning at a point N.0DEG.41'E. 324 feet from the southwest corner of
Section 3, T. 12N., R. 1W., S.L.M., thence running S.32DEG.34'E. 373 feet,
thence S.32DEG.24'E. 284.8 feet; thence S.1DEG.11'W. 771.3 feet; thence
S.21DEG.44'W. 500.3 feet; thence S.47DEG.54'E. 715.6 feet; thence
S.28DEG.05'E. 358.0 feet; thence S.4DEG.15'E. 399.0 feet; thence East
100.28 feet; thence N.4DEG.15'W. 427.53 feet; thence N.28DEG.05'W. 396.56
feet; thence N.47DEG.54'W. 663.52 feet; thence N.21DEG.44'E. 448.88 feet;
thence N.1DEG.11'E. 819.6 feet; thence N.32DEG.24'W. 315.12 feet; thence
N.32DEG.34'W. 303.71 feet; thence N.27DEG.39'E. 616.72 feet; thence
S.36DEG.59'W. 678 feet to the place of beginning.
CUTLER HYDRO PROJECT--PARCEL NUMBER CA-379
Lands in CACHE County, State of UTAH
Part of the South Half of the Southeast Quarter of Section 16, Township 12
North, Range 1 West, Salt Lake Base and Meridian, described as follows:
Beginning at the Southeast Corner of said Section 16, and running thence
North 0DEG.39' West along said Section Line 1234.9 feet; thence North
89DEG.34' West 160 rods; thence South 1244.75 feet, more or less, to the
South Quarter Corner of said Section 16; thence East 160 rods to the point
of beginning.
CUTLER HYDRO PROJECT--PARCEL NUMBER CA-380
Lands in CACHE County, State of UTAH
A tract of land situate in the West one half of the Southeast One-Quarter
of Section 33, Township 12 North, Range 1 West, Salt Lake Meridian, said
tract being a part of Lot 6, Block 37, Plat "A" MENDON FARM SURVEY,
described as follows: Beginning at a point 6.78 chains East, North
1DEG.30' East 1.8 chains and North 88DEG.30' West 32 feet from the South
One-Quarter Corner of the said Section 33, and running thence North
88DEG.30' West 417.09 feet to the West Line of the Southeast One-Quarter of
said Section 33; said point being Northerly 2.02 chains from the said South
One-Quarter Corner of Section 33; thence Northerly 1387.25 feet along said
West line to the South Line of Lot 3, Block 40, said Plat "A"; thence South
88DEG.30' East 316.3 feet along said South Line; thence South 1DEG.30' West
66.0 feet; thence South 61DEG.25' West 200.0 feet; thence South 40DEG.09'
West 93.8 feet; thence South 13DEG.17' West 186.1 feet; thence South
19DEG.59' East 608.5 feet; thence South 25DEG.14' East 446.0 feet to the
point of beginning.
13
<PAGE>
CUTLER HYDRO PROJECT--PARCEL NUMBERS CA-381; CA-401
Lands in CACHE County, State of UTAH
A tract of land situate in the West one-half of the Northeast one-quarter
of Section 4, Township 11 North, Range 1 West, Salt Lake Base and Meridian,
said tract also being a part of Lot 6, Block 32, Plat "A", MENDON FARM
SURVEY, described as follows: Beginning on the Quarter-section line at a
point 18.98 chains South from the North Quarter-section corner of said
Section 4 and running thence East 419.2 feet; thence South 31DEG.38' West
541.7 feet; thence South 2DEG.25' West 142.8 feet; thence South 10DEG.53'
East 50.0 feet; thence North 88DEG.30' West 138.0 feet to the said quarter
section line; thence North 10 chains to the point of beginning; also
A tract of land situate in the Northwest one-quarter of the Northeast
one-quarter of Section 4, said tract being that portion between Lot 6,
Block 32 and Lot 3, Block 37, Plat "A", MENDON FARM SURVEY, described as
follows: Beginning on the quarter-section line at a point 1180.74 feet
South from the North quarter-section corner of said Section 4 and running
thence South 88 DEG.30' East 419.3 feet; thence South 66.0 feet; thence
West 419.2 feet to the said quarter-section line, said point being 18.98
chains South of the said North quarter-section corner; thence North 71.94
feet to the point of beginning.
CUTLER HYDRO PROJECT--PARCEL NUMBER CA-382
Lands in CACHE County, State of UTAH
A tract of land situate in the Northwest one-quarter of the Southwest
one-quarter of Section 36, T. 12N., R. 1W., S.L.M., said tract being a
portion of Lot 29, of the State Land Survey for said Section 36, according
to the official plat thereof as filed in the office of the Cache County
Recorder on May 3, 1898 as Entry No. 17896 and being described as follows:
Beginning at a point Easterly 33.0 feet along the North line of said
Southwest one-quarter and South 1DEG.32' East 130.0 feet from the West
one-quarter corner of said Section 36 and running thence South 64DEG.21'
East 38.0 feet; thence North 88DEG.26' East 437.1 feet; thence South
34DEG.58' West 653.2 feet; thence South 0DEG.14' East 251.27 feet; thence
North 26DEG.04'31" West 184.57 feet; thence North 1DEG.32' West (basis of
bearing) 625.49 feet along a line that is parallel with and 33.0 feet
perpendicularly distant Easterly from the West line of said Southwest
one-quarter to the point of beginning.
CUTLER HYDRO PROJECT--PARCEL NUMBERS CA-383, CA-384, CA-385, CA-386 AND CA-387
Lands in CACHE County, State of UTAH
A parcel of land situate in the N 1/2 of Section 15 and the NE 1/4 of
Section 16, T. 12N., R. 1W., S.L.M., more particularly described as
follows: Commencing at the point of intersection of the north-south center
line of said Section 16 with the center line of the abandoned main track of
the Benson Branch of the Oregon Short Line Railroad Company, as formerly
constructed and operated, said point being 1245.0 feet north of the center
of said Section 16; thence along said center line of the abandoned main
track, S.85DEG.03'E. a distance of 1115.5 feet to a point that is the
northeast corner of that third described parcel of land conveyed by the
Union Pacific Railroad Company to Herschel Bullen by Quitclaim Deed dated
November 27, 1944, U.P.R.R. Co., L.S.D.A. 1359, said point being the true
point of beginning; thence continuing along said center line of the
abandoned main track, S.85DEG.03'E. a distance of 210.5 feet to a point on
the east line of the SW 1/4NE 1/4 of said Section 16; thence along said
east line of the SW 1/4NE 1/4 of Section 16, N.0DEG.22'30"W. a distance of
50.22 feet to a point that is 50.0 feet distant northerly, measured at
right angles, from said center line of the abandoned main track; thence
along a line parallel with and 50.0 feet distant northerly, measured at
right angles, from said center line of the abandoned main track,
S.85DEG.03'E. a distance of 536.66 feet; thence at right angles to the last
described
14
<PAGE>
line N.4DEG.57'E. a distance of 25.0 feet to a point that is 75.0
feet distant northerly measured at right angles, from said center line
of the abandoned main track; thence along a line parallel with and 75.0
feet distant northerly, measured at right angles, from said center line of
the abandoned main track, S.85DEG.03'E. a distance of 2707.61 feet, more or
less, to a point on the west bank of the Logan River; thence along said
west bank of the Logan River S.28DEG.27'W. a distance of 27.26 feet, more
or less, to a point that is 50.0 feet distant northerly, measured at right
angles, from said center line of the abandoned main track; thence along a
line parallel with and 50.0 feet distant northerly, measured at right
angles, from said center line of the abandoned main track, S.85DEG.03'E. a
distance of 1709.06 feet, more or less, to the beginning of a tangent curve
concave southerly, having a radius of 3869.83 feet; thence southeasterly
along said curve and parallel with and 50.0 feet distant northerly,
measured radially from said center line of the abandoned main track,
through an angle of 8DEG.51'21" an arc distance of 598.13 feet to the
northwest corner of that parcel of land conveyed by the Union Pacific
Railroad Company to Gene B. and Vera R. Ricks by Quitclaim Deed dated
January 5, 1957, U.P.R.R. Co., L.S.D.A., 2589; thence along the west line
of said deeded parcel conveyed by Quitclaim Deed dated January 5, 1957,
South, a distance of 103.09 feet to a point that is 50.0 feet distant
southerly, measured radially, from said center line of the abandoned main
track, said point being the beginning of a non-tangent curve concave
southerly, the center of which bears S.14DEG.10'47"W. a distance of 3769.83
feet; thence northwesterly along said curve and parallel with and 50.0 feet
distant southerly, measured radially, from said center line of the
abandoned main track, through an angle of 9DEG.13'47", an arc distance of
607.28 feet; thence tangent to the end of the last described curve and
parallel with and 50.0 feet distant southerly, measured at right angles,
from said center line of the abandoned main track N.85DEG.03'W. a distance
of 1655.8 feet, more or less, to a point on the center line of said Logan
River; thence along said centerline of the Logan River, S.56DEG.57'W. a
distance of 81.21 feet, more or less, to a point that is 100.0 feet
distant southerly, measured at right angels, from said centerline of the
abandoned main track; thence along a line parallel with and 100.0 feet
distant southerly, measured at right angles, from said center line of
abandoned main track, N.85DEG.03'W. a distance of 786.0 feet; thence at
right angles to said center line of the abandoned main track, N.4 57"E. a
distance of 25.0 feet to a point that is 75.0 feet distant southerly,
measured at right angles, from said center line of abandoned main track;
thence along a line parallel with and 75.0 feet distant southerly, measured
at right angles, from said center of the abandoned main track,
N.85DEG.03'W. a distance of 1900.0 feet; thence at right angles to said
center line of the abandoned main track, N.4DEG.57'E. a distance of 25.0
feet to a point that is 50.0 feet distant southerly, measured at right
angles, from said center line of the abandoned main track; thence along a
line parallel with and 50.0 feet distant southerly, measured at right
angles, from said center line of the abandoned main track; N.85DEG.03'W. a
distance of 737.77 feet to the southeast corner of said third described
parcel of land conveyed by said Quitclaim Deed dated November 17, 1944;
thence along the east line of said third described parcel of land,
N.0DEG.27'W. a distance of 50.22 feet to the true point of beginning; also
A parcel of land situate in the S 1/2 of Section 14, T. 12N., R. 1W.,
S.L.M., State of Utah, more particularly described as follows: Beginning
at a point that is 1049.2 feet west and 687.89 feet north of the southwest
corner of the SE 1/4SE 1/4 of said Section 14, said point also being 50.0
feet distant southwesterly, measured at right angles, from the center line
of the abandoned main track of the Benson Branch of the Oregon Short Line
Railroad Company, as formerly constructed and operated; thence along a line
parallel with and 50.0 feet distant southwesterly, measured at right
angles, from said center line of the abandoned main track, N.54DEG.48'W. a
distance of 675.22 feet to the south line of that parcel of land conveyed
by James Baugh, et. al., to the Oregon Short Line Railroad Company by
Decree dated July 22, 1912, O.S.L.R.R. Co., L.P.D.A. 4380; thence along
said south line of said parcel S.89DEG.48'E. a distance of 174.34 feet to
a point that is 50.0 feet distant northeasterly, measured at right angles,
from said center line of the abandoned main track; thence along a line
parallel with and 50.0 feet distant northeasterly, measured at right
angles, from said center line of the abandoned main track, S.54DEG.48'E. a
distance of 461.78 feet, to the most northerly corner of that strip of land
conveyed
15
<PAGE>
by Union Pacific Railroad Company to Joel P. and Hazel P. Ricks by
Quitclaim Deed dated March 10, 1970, U.P.L.S.D.A. L-713; thence along the
west line of said strip, S.0DEG.02'E. a distance of 122.42 feet to the
point of beginning; also
A parcel of land situate in the SE 1/4NE 1/4 of Section 15, T. 12N., R.
1W., S.L.M., more particularly described as follows: Beginning at the
southwest corner of that parcel of land conveyed by Margaret Ricks to the
Oregon Short Line Railroad Company by Warranty Deed dated July 3, 1912,
O.S.L.R.R. Co., L.P.D.A. 4379, said corner being 292.7 feet North and 393.9
feet West of the east quarter corner of said Section 15; thence along the
west line of said deeded parcel, North, a distance of 120.5 feet to a point
that is 50.0 feet distant northeasterly, measured radially, from the center
line of the abandoned main track of the Benson Branch of said Railroad
Company as formerly constructed and operated, said point also being the
beginning of a non-tangent curve concave southwesterly, the center of which
bears S.24DEG.01'40"W. a distance of 3869.83 feet; thence southeasterly
along said curve and parallel with and 50.0 feet distant northeasterly,
measured radially, from said center line of the abandoned main track,
through an angle of 3DEG.59'49", an arc distance of 269.96 feet, more or
less, to the south line of said deeded parcel; thence along said south line
of the deeded parcel, S.89DEG.30'40"W. a distance of 242.54 feet (237.7
feet per deed), more or less, to the point of beginning; also
A parcel of land situate in the SE 1/4 NE 1/4 of Section 15 and in the SW
1/4 NW 1/4 of Section 14, T. 12N., R. 1W., S.L.M., more particularly
described as follows: Beginning at the west quarter corner of said Section
14, thence along the east-west center line of said Section 14, East, a
distance of 262.17 feet; thence North a distance of 215.89 feet; more or
less, to the south line of the east and west County Road; thence along said
south line of the east and west County Road, S.89DEG.30'40"W. a distance of
620.06 feet, more or less, to a point that is 100.0 feet distant
southwesterly, measured radially, from the center line of the abandoned
main track of the Benson Branch of the Oregon Short Line Railroad Company,
as formerly constructed and operated, said point also being the beginning
of a non-tangent curve concave southwesterly, the center of which bears
S.25DEG.47'29"W. a distance of 3719.83 feet; thence southeasterly along
said curve and parallel with and 100.0 feet distant southwesterly, measured
radially, from said center line of the abandoned main track, through an
angle of 6DEG.18'07", an arc distance of 409.14 feet to the east line of
said Section 15; thence along said east line of Section 15, South, a
distance of 12.7 feet to the point of beginning; also
A parcel of land situate in Block 20 1/2, Plot "C", Logan Hayland Survey in
the E 1/2 SE 1/4 of Section 24, T. 12N., R. 1W., S.L.M., more particularly
described as follows: Commencing at the east quarter corner of said
Section 24, thence along the east line of said Section 24, S.0DEG.10'W. a
distance of 1996.5 feet to a point of the center line of the abandoned main
track of the Benson Branch of the Oregon Short Line Railroad Company, as
formerly constructed and operated; thence along said center line of the
abandoned main track, N.54DEG.48'W. a distance of 1,622.0 feet, more or
less, to a point on the west line of that parcel of land conveyed by
Rebecca and Isaac P. Stewart to the Oregon Short Line Railroad Company by
Quitclaim Deed dated August 2, 1912, O.S.L.R.R. Co., L.P.D.A. 4386, said
point also being the true point of beginning; thence along said west line
of said deeded parcel N.0DEG.04'E. a distance of 91.71 feet to a point that
is 75.0 feet distant northeasterly, measured at right angles, from said
center line of the abandoned main track; thence along a line parallel with
and 75.0 feet distant northeasterly, measured at right angles, from said
center line of the abandoned main track, S.54DEG.48'E. a distance of 299.19
feet, more or less, to the north line of Lot 3 in Block 20 1/2 of Plot "C"
of the Logan Hayland Survey; thence along said north line of Lot 3,
N.87DEG.45'W. a distance of 244.86 feet, more or less, to a point on the
west line of said deeded parcel; thence along said west line of said deeded
parcel, N.0DEG.04'E. a distance of 71.14 feet to the true point of
beginning
16
<PAGE>
CUTLER HYDRO PROJECT
Lands in CACHE County, State of UTAH
A tract of land situate in the S 1/2 of the SE 1/4 of Section 23, T. 12N.,
R. 1W., S.L.M., being described as follows: Beginning on the Western right
of way line of a county road (3200 West Street) at a point 1 rod North and
Westerly 33 feet along the section line from the Southeast section Corner
of said Section 23, and running thence West 795 feet; thence South 1 rod;
thence West 1508.73 feet by survey (West 1466 feet by record) along the
section line to the Western boundary line of the tract of land conveyed
herein at a point 349.5 feet, East of the South one-quarter Corner of the
said Section 23; thence N.23DEG.40'W. 27.32 feet along the said Western
boundary line; thence Easterly 2311.61 feet along a line that is parallel
to and 25 feet perpendicularly distant Northerly from the South section
line of said Section 23 to the said Western right of way line; thence
Southerly 25.00 feet to the point of beginning.
CUTLER HYDRO PROJECT
Lands in CACHE County, State of UTAH
A tract of land situate in the N 1/2 of the SW 1/4 of Section 2, Township
11 North, Range 1 West, Salt Lake Meridian, said tract being a portion of
Lot 68, Richland Acres Subdivision, according to the official plat thereof
as filed in the office of the Cache County Recorder on December 7, 1916,
being described as follows: Beginning on the North line of said Lot 68,
Richland Acres Subdivision, at a point S.80DEG.29'41"W. (S.81DEG.45'W. by
record) 492.42 feet from the Northeast Corner of said Lot 68 and running
thence S.14DEG.29'10"E. 143.30 feet; thence S.12DEG.34'45"W. 527.62 feet;
thence N.84DEG.24'52"W. 45.34 feet; thence N.12DEG.34'45"E. 522.31 feet;
thence N.14DEG.29'10"W. 136.39 feet to the said North line of Lot 68;
thence N.80DEG.29'41"E. 45.17 feet to the point of beginning.
CUTLER HYDRO PROJECT--PARCEL NUMBER CA-390
Lands in CACHE County, State of UTAH
A tract of land situate in the NE 1/4 of the SE 1/4 of Section 15, T. 12N.,
R. 1W., S.L.M., being described as follows: Beginning on the South line of
the said NE 1/4 of the SE 1/4 of Section 15 at a point N.00DEG.25'W.
1319.53 feet and S.89DEG.57'51"W. 809.17 feet from the Southeast corner of
said Section 15, said point also being described as the Southwest boundary
corner of the tract of land conveyed herein, and running thence Northerly
440.26 feet along the West boundary line of the tract of land conveyed
herein; thence N.89DEG.10'E. 265.03 feet; thence S.00DEG.28'E. 66.00 feet;
thence S.24DEG.21'W. 419.40 feet to the said South line of the NE 1/4 of
the SE 1/4 of Section 15; thence S.89DEG.57'51"W. 95.47 feet to the point
of beginning.
CUTLER HYDRO PROJECT--PARCEL NUMBER CA-391
Lands in CACHE County, State of UTAH
A tract of land situate in the E 1/2 of the SW 1/2 of Section 21, Township
12 North, Range 1 West, Salt Lake Meridian, being described as follows:
Beginning at the Northeast Corner of the SW 1/4 of said Section 21, and
running thence Westerly 249.50 feet along the North line of the said SW
1/4; thence Southerly 2629.75 feet along a line that is parallel to and
249.50 feet perpendicularly distant Westerly from the East line of the said
SW 1/4 to the Section line; thence Easterly 249.50 feet to the Southeast
Corner of the said SW 1/4; thence Northerly 2629.60 feet to the point of
beginning.
17
<PAGE>
CUTLER HYDRO PROJECT--PARCEL NUMBERS CA-394, CA-395 AND CA-396
Lands in CACHE County, State of UTAH
A tract of land situate in the W 1/2 of the NE 1/4 of Section 16, T. 12N.,
R. 1W., S.L.M., being described as follows: Beginning at the Northeast
Corner of the said W 1/2 of the NE 1/4 of Section 16, and running thence
Southerly 1097.25 feet along the East line of the said W 1/2 of the NE 1/4;
thence West 123.75 feet; thence S.18DEG.36'E. 392.80 feet to a point on the
Northern boundary line of the abandoned Benson Branch of the Oregon Short
Line Railroad Company, as formerly constructed and operated, said point
also being on the said East line of the W 1/2 of the NE 1/4; thence
Southerly 50.18 feet along the said East line of the W 1/2 of the NE 1/4 to
the center line of the abandoned track of said Benson Branch; thence
N.85DEG.03'W. 204.92 feet along said center line; thence Southerly 50.19
feet along a line that is parallel with the West line of the said W 1/2 of
the NE 1/4 to the Southern boundary line of the said abandoned Benson
Branch; thence N.85DEG.03'W. 1115.50 feet along said Southern boundary line
to the West line of the said W 1/2 of the NE 1/4; thence Northerly 50.19
feet along the said West line to the said center line of the abandoned
Benson Branch; thence S.85DEG.03'E. 801.10 feet along said center line;
thence Northerly 1472.90 feet along a line that is parallel with the West
line of the said W 1/2 of the NE 1/4 to a point on the North line of the
said W 1/2 of the NE 1/4, said point being 519.40 feet Westerly from the
point of beginning; thence Easterly 519.40 feet to the point of beginning;
also
A tract of land situate in the NE 1/4 of the SW 1/4 of Section 9, Township
12 North, Range 1 West, Salt Lake Base and Meridian, being described as
follows: Beginning at the Northeast corner of the said SW 1/4 of Section
9, and running thence Southerly 356.00 feet along the East line of the said
SW 1/4; thence Northwesterly 568.38 feet to a point on the North line of
the said SW 1/4; said point being Westerly 444.44 feet from the point of
beginning; thence Easterly 444.44 feet to the point of beginning; also
A tract of land situate in the S 1/2 of the NW 1/4 of Section 33, Township
13 North, Range 1 West, Salt Lake Base and Meridian, being described as
follows: Beginning on the Section line at a point 686.1 feet Northerly
from the West Quarter Corner of said Section 33, and running thence
S.85DEG.45'E. 2263.54 feet; thence East 395.28 feet to a point on the East
line of the said NW 1/4, said point being 464.4 feet Northerly from the
Southeast Corner of the said NW 1/4, thence Southerly 153.70 feet along
said East line; thence West-Northwesterly 2656.42 feet to a point on the
West line of the said NW 1/4, said point being southerly 159.38 feet from
the point of beginning; thence Northerly 159.38 feet to the point of
beginning.
CUTLER HYDRO PROJECT--PARCEL NUMBERS CA-397, CA-398 AND CA-399
Lands in CACHE County, State of UTAH
A tract of land situate in the N 1/2 of the NE 1/4 of Section 33, described
as follows: Beginning on the West line of the said N 1/2 of the NE 1/4 of
Section 33, at a point S.00DEG.51'00"E. (Basis of Bearing) 1044.11 feet
from the North Quarter Corner of said Section 33 and running thence
N.79DEG.10'38"E. 495.05 feet; thence N.88DEG.35'22"E. 657.33 feet; thence
S.72DEG.57'30"E. 631.43 feet; thence S.69DEG.58'55"E. 115.15 feet; thence
S.59DEG.37'16"E. 271.23 feet to the South line of the said N 1/2 of the NE
1/4 at a point S.89DEG.09'04"W. 565.43 feet from the Southeast Corner of
the said N 1/2 of the NE 1/4; thence S.89DEG.09'04"W. 2085.30 feet along
the said South line to the Southwest Corner of the said N 1/2 of the NE
1/4; thence N.00DEG.51'W. 283.42 feet to the point of beginning; less any
portions in the Bear River; also
A tract of land situate in the W 1/2 of the NW 1/4 of Section 34, described
as follows: Beginning on the West line of the said W 1/2 of the NW 1/4 of
Section 34, T. 13N., R. 1W., S.L.M., at a point S.00DEG.48'00"E. (Basis of
Bearing) 1495.30 feet from the Northwest Corner of said Section 34 and
running thence N.28DEG.38'00"E. 50.00 feet; thence N.48DEG.03'00"E. 257.70
feet; thence N.73DEG.21'00"E. 97.60 feet; thence
18
<PAGE>
S.86DEG.12'00"E. 200.4 feet to the North bank of the Cutler Reservoir;
thence Westerly 593 feet, more or less, along said North bank of the Cuter
Reservoir to the said West line of the W 1/2 of the NW 1/4 of Section 34;
thence S.00DEG.48'00" E. 61 feet to the point of beginning; less any
portion in the Cutler Reservoir Development; also
A tract of land situate in the NW 1/4 of Section 34, T. 13N., R. 1W.,
S.L.M., described as follows: Beginning at a boundary corner of the
Grantor's land, said corner being S.00DEG.48'00"E. (Basis of Bearing)
1495.30 feet along the Section line, N.28DEG.38'00"E. 50.00 feet,
N.48DEG.03'00"E. 257.70 feet, N.73DEG.21'00"E. 97.60 feet, S.86DEG.12'00"E.
516.60 feet, and S.56DEG.26'00"E. 308.30 feet from the Northwest Corner of
said Section 34, this point being the true point of beginning, and running
thence N.53DEG.10'00"E. 750.70 feet; thence N.52DEG.50'00"E. 664.50 feet;
thence N.14DEG.26'00"E. 467.00 feet; thence S.69DEG.54'43"E. 304.59 feet to
a point on the East line of the said NW 1/4 of Section 34, said point being
S.00DEG.49'27"E. 299.90 feet from the N 1/4 Corner of said Section 34;
thence N.00DEG.49'27"W. 299.90 feet to the said N 1/4 Corner; thence
S.89DEG.03'28"W. 33.00 feet along the North line of the said NW 1/4 of
Section 34; thence S.00DEG.49'27"E. 260.46 feet; thence N.69DEG.54'43"W.
282.28 feet; thence S.14DEG.26'0"W. 487.14 feet; thence S.57DEG.23'46"W.
1458.88 feet to the Southerly boundary line of the Grantor's land; thence
S.56DEG.26'00"E. 139.50 feet to the true point of beginning; less any
portion in the Cutler Reservoir Development.
CUTLER HYDRO PROJECT--PARCEL NUMBER 400
Lands in CACHE County, State of UTAH
A tract of land situate in the SW 1/4 of the SW 1/4 of Section 2, Township
11 North, Range 1 West, Salt Lake Meridian, said tract being a portion of
Lot 68, Richland Acres Subdivision, according to the official plat thereof
as filed in the office of the Cache County Recorder on December 7, 1916,
being described as follows: Beginning on a boundary corner of the tract of
land conveyed herein, said corner being S.80DEG.29'41"W. (S.81DEG.45'W. by
record) 492.42 feet; S.14DEG.29'10"E. 143.30 feet; and S.12DEG.34'45"W.
527.62 feet from the Northeast Corner of said Lot 68 and running thence
S.30DEG.42'42"W. 38.78 feet; thence S.48DEG.01'45"W. 100.00 feet; thence
S.72DEG.48'19"W. 30.30 feet; thence N.82DEG.11'41"W. 33 feet, more or less,
to the East bank of Spring Creek; thence Northerly 45 feet along said bank;
thence S.82DEG.11'41"E. 20.42 feet, along a line that is parallel with and
45.00 feet perpendicularly distant Northerly from the course described to
the East bank of Spring Creek; thence N.72DEG.48'19"E. 10.44 feet; thence
N.48DEG.01'45"E. 96.54 feet to the North line of the tract of land conveyed
herein; thence S.84DEG.24'52"E. 45.34 feet along said North line to the
point of beginning.
CUTLER HYDRO PROJECT--PARCEL NUMBER CA-423
Lands in CACHE County, State of UTAH
Parcel 1: A tract of land situate in the Northwest One-Quarter of the
Northeast One-Quarter of Section 30, Township 13 North, Range 1 West, Salt
Lake Meridian being described as follows: Beginning at a boundary corner
that is 330.0 feet Easterly along the Section line and 429.0 feet Southerly
along the Western boundary line from a Cache County Monument marking the
North 1/4 Corner of said Section 30, Township 13 North, Range 1 West, Salt
Lake Meridian and running thence Northerly 131.17 feet along said Western
boundary line; thence Southeasterly 563.11 feet to a point on the Southern
boundary line, said point being 476.96 feet Easterly from a boundary
corner, and 182.79 feet Westerly from a point 63 rods Easterly and 30 rods
Southerly from the said North 1/4 Corner; thence Westerly 476.96 feet to a
boundary corner; thence Northerly 66.20 feet to a boundary corner; thence
Westerly 49.49 feet to the point of beginning.
Parcel 2: A tract of land situate in the Southeast One-Quarter of the
Northeast One-Quarter of Section 30, Township 13 North, Range 1 West, Salt
Lake Meridian being described as follows:
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Beginning at a boundary corner that is South 89DEG.53'59" West (Basis of
Bearing) 931.08 feet and South 00DEG.21'54" East 1868.19 feet from a Cache
County Monument marking the Northeast Corner of said Section 30 (said
corner also being described as being 14.111 chains West and 28.235 chains
South from said Northeast Corner of Section 30 as per Warranty Deed
recorded in Book 62 of Deeds, Pages 88-89, Cache County Recorder) and
running thence North 00DEG.21'54" West 117.63 feet (North 117.6 feet, by
record) thence South 84DEG.49'19" West 108.48 feet (South 85DEG.16' West
109 feet, by record); thence North 00DEG.21'58" West 282.29 feet; thence
South 37DEG.25'04" East 346.31 feet; thence North 65DEG.29'33" East 193.17
feet; thence South 35DEG.36'38" East 238.82 feet; thence South 89DEG.51'25"
West 414.67 feet to the point of beginning.
CUTLER HYDRO PROJECT--PARCEL NUMBER CA-424
Lands in CACHE County, State of UTAH
A tract of land situate in the Northwest One-Quarter of the Northeast
One-Quarter of Section 30, Township 13 North, Range 1 West, Salt Lake
Meridian being described as follows: Beginning at a boundary corner that
is South 89DEG.53'59" West (Basis of Bearing) 1600.07 Feet and South
00DEG.22'22" East 777.66 feet from a Cache County Monument marking the
Northeast Corner of Section 30 (said corner also being described as being
63 rods West, 47 rods South and 34 rods West from said Northeast Corner of
Section 30 as per Warranty Deed recorded in Book 736, Page 441, Cache
County Recorder) and running thence North 89DEG.52'55" East 30.25 feet
along the South boundary line; thence North 37DEG.25'04" West 50.21 feet to
the West boundary line; thence South 00DEG.22'22" East 39.94 feet to the
point of beginning.
CUTLER HYDRO PROJECT--PARCEL NUMBER CA-425
Lands in CACHE County, State of UTAH
Parcel 1: A tract of land situate in the Northeast one-quarter of the
Southeast one-quarter of Section 27, Township 13 North, Range 1 West, Salt
Lake Meridian being described as follows: Beginning at a point South
00DEG.42'49" East along the Section line (Basis of Bearing) 1168.4 feet and
North 76DEG.15' West 517.94 feet (518.3 feet by record) from the East
one-quarter Corner of said Section 27, and running thence South 76DEG.15'
East 218.47 feet; thence South 52DEG.59'30" West 274.69 feet; thence
North 01DEG.53' East 217.39 feet to the point of beginning.
Parcel 2: A tract of land situate in the Southwest one-quarter of the
Southeast one-quarter of Section 27, Township 13 North, Range 1 West, Salt
Lake Meridian, beging described as follows: Beginning on the Northeasterly
right-of-way line of a Cache County Road at a point North 89DEG.12'26" East
along the Section line (Basis of Bearing) 261.7 feet and North 45DEG.29'
East 66.64 feet fromt he South one-quarter Corner of said Section 27, and
running thence North 45DEG.29' East 449.20 feet; thence North 57DEG.12'
East 668.54 feet (669.0 feet, by record); thence South 52DEG.29'42" West
1112.12 feet to the point of beginning.
CUTLER HYDRO PROJECT--PARCEL NUMBER CA-426
Lands in CACHE County, State of UTAH
Beginning at the Southwest Corner of Section 28, Township 13 North, Range 1
West, Salt Lake Meridian, and running thence North 00DEG.21'09" East 205.10
feet along the West line of said Section 28; thence South 87DEG.24'26" East
1328.08 feet to a point on the East line of the Southwest One-quarter of
the Southwest One-quarter of said Section 28; thence South 53DEG.59'54"
East 211.29 feet to the South line of said Section 28; thence South
89DEG.12'15" West (basis of bearing) 1499.06 feet to the point of
beginning.
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A-25--COPCO NO. 1 HYDROELECTRIC GENERATING PLANT
Lands in SISKIYOU County, State of CALIFORNIA
A-25--ITEM 1: Lots 1, 2, 3, 4, and the Southwest quarter of Section 15,
Township 48 North, Range 3 West, M.D.M.
A-25--ITEM 2: The Southwest quarter of the Northwest quarter of Section 27,
Township 48 North, Range 3 West, M.D.M.
A-26--NORTH CANAL HYDROELECTRIC PROJECT
Lands in DESCHUTES County, State of OREGON
A-26--ITEM 1: All that portion of the Northeast Quarter of the Northeast
Quarter (NE 1/4 NE 1/4) of Section Twenty-nine (29), Township Seventeen
(17) South, Range Twelve (12) East of the Willamette Meridian lying on the
westerly and northerly side of the U. S. Highway 97 right-of-way (1931
location) and lying also westerly and northerly of the North Canal
right-of-way and extending to the center of the channel of the Deschutes
River; and all of that portion of the Southeast Quarter of the Northeast
Quarter (SE 1/4 NE 1/4) of Section Twenty-nine (29), Township Seventeen
(17) South, Range Twelve (12) East of the Willamette Meridian lying on the
westerly and northerly side of the North Canal right-of-way as now
constructed (right-of-way being fifty feet (50') on each side of the center
line of said canal) to the channel of the Deschutes River lying northerly
and down stream from the North Canal Dam. Excepting, however, from the
above mentioned adjoining tracts the following, designated exceptions No. 1
and No. 2:
Exception No. 1: That portion of land in the Northeast Quarter of the
Northeast Quarter (NE 1/4 NE 1/4) of Section Twenty-nine (29), Township
Seventeen (17) South, Range Twelve (12) East of the Willamette Meridian,
deeded to Charles Boyd by deed dated August 12, 1905, and recorded November
13, 1905, In Volume 12, Page 460 of Crook County Deed Records and
transcribed in Book 2, Page 579 of Deschutes County Deed Records.
Exception No. 2: That portion of land In the East One-half (E 1/2) of
Section Twenty-nine (29), Township Seventeen (17), South, Range Twelve (12)
East of the Willamette Meridian, deeded to the Central Oregon Irrigation
Company by deed dated November 15, 1913, and recorded December 1, 1913, in
Book 32, Page 189 of the Crook County Deed Records and transcribed in
Volume 14, Page 371 of Deschutes County Deed Records consisting of property
for the construction of the North Canal Dam, Canal, and possible waste way
or spillway.
B--STEAM ELECTRIC GENERATING PLANTS
HUNTER PLANT ASH PILE EXPANSION--PARCEL NUMBERS: EM-478, EM-482, EM-483, AND
EM-484
Lands in EMERY County, State of UTAH
The South Half of the Southwest quarter of Section 15, and Lot 1, Lot 2 and
the Southwest quarter of the Southwest quarter of Section 22, all in
Township 19 South, Range 8 East, Salt Lake Meridian.
HUNTER PLANT--PARCEL NUMBER EM-495
Lands in EMERY County, State of UTAH
Beginning at the southeast corner of the Northeast Quarter of the Northeast
Quarter, being also known as Lot 1, of Section 6, Township 18 South, Range
9 East, Salt Lake Meridian, and running
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thence North 80 rods; thence West 80 rods; thence Southeast 113 rods to
beginning. Containing 20 acres. Being land acquired by two Warranty Deeds
from Melvin Vilhelm Gilbert and Joan Blanche Gilbert, as individuals, and
as Trustees of the Melvin Vilhelm Gilbert Trust and the Joan Blanche
Gilbert Trust, dated January 29, 1998, and recorded on February 11, 1998
in the office of the recorder of Emery County in Book 238, Pages 353-4,
Entry Number 347419, and Book 238, Pages 355-6, Entry Number 347420.
NORTH HORN MOUNTAIN COAL LANDS--PARCEL NUMBER EM-481
Lands in EMERY County, State of UTAH
Township 19 South, Range 7 East of the Salt Lake Base and Meridian: Section
6: Lots 1 and 2; S 1/2NE 1/4; SE 1/4NW 1/4; SE 1/4; E 1/2SW 1/4; Section
7: E 1/2NE 1/4.
GADSBY GAS LINE-UDOT PARCEL--PARCEL NUMBER SL-828
Lands in SALT LAKE County, State of UTAH
A tract of land situate in the NE 1/4 of Section 33, T. 1N., R. 1W.,
S.L.M., the boundaries of said tract of land are described as follows:
Beginning at an inside corner of said tract, which point is 531 feet south
and 2313.86 feet east from the North Quarter Corner of said Section 33;
thence West 18.95 feet to a westerly boundary line of said tract; thence
S.0DEG.51'01"W. 1038.36 feet; thence S.DEG.24'03" W. 908.25 feet; thence
S.37DEG.08'21"E. 150.12 feet to the westerly Highway Right of Way and
No-Access Line of I-215; thence N.1DEG.17'30"E. 77.22 feet along said
Highway Right of Way and No-Access line; thence N.37 08'21"W. 73.31 feet;
thence N.0DEG.24'03"E. 351.92 feet; thence N.89DEG.06'26"E. 51.08 feet to
said westerly Highway Right of Way and No-Access line; thence
N.1DEG.17'30"E. 543 feet along said Right of Way and No-Access line; thence
N.1DEG.42'24"W. 1073.42 feet along said Right of Way and No-Access line;
thence N.5DEG.41'41"W. 157 feet along said Right of Way and No-Access line;
thence N.6DEG.10'34"W. 238.13 feet along said Right of Way and No-Access
line to a westerly boundary line of said tract; thence South 431 feet along
said westerly boundary line to the point of beginning.
CENTRALIA COAL LAND--PARCEL NUMBER LE-009
Lands in LEWIS County, State of WASHINGTON
Township 15 North, Range 1 West, W.M., Section 33, SW 1/4SW 1/4.
NAUGHTON CLEARWATER POND #3--PARCEL NUMBER LY-047
Lands in LINCOLN County, State of WYOMING
A tract of land described as follows:
Section 33, Township 21 North, Range 116 West, 6th P.M. SW 1/4SW 1/4NE
1/4NE 1/4; NW 1/4SE 1/4NE 1/4; S 1/2NE 1/4SE 1/4NE 1/4; S 1/2SE 1/4NE 1/4,
N 1/2NW 1/4NE 1/4SE 1/4; NW 1/4NE 1/4NE 1/4SE 1/4.
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C--ELECTRIC SUBSTATIONS AND SWITCHYARDS
SANDCREEK SUBSTATION--PARCEL NUMBER BV-039
Lands in BONNEVILLE County, State of IDAHO
Part of the SE 1/4 of the SE 1/4 of Section 10, Township 2 North, Range 38
East, Boise Meridian, Bonneville County, State of Idaho, described as
follows: Beginning on the East boundary line of the tract of land conveyed
herein at a point 240 feet North and 48 feet West, more or less, from the
Southeast Corner of said Section 10; thence North 250 feet along the East
boundary line of said land; thence West 150 feet; thence South 250 feet;
thence East 150 feet to the point of beginning.
NEW PANTHER SUBSTATION--PARCEL NUMBER CU-084
Lands in CARBON County, State of UTAH
Beginning at a point 640.58 feet North and 1356.32 feet East of the South
West Corner of Section 31, Township 12 South, Range 10 East, Salt Lake Base
and Meridian, said point is on the East Right of Way boundary of State
Highway 191; thence S.49DEG.19'E. 154.29 feet, thence S.43DEG.47'45"W.
235.52 feet, thence N.83DEG.32'49"W. 142.87 feet to the East Right of Way
boundary of State Highway 191, thence Northeasterly along said Right of Way
along a normal curve to the right 206.15 feet, with a radius of 904.93
feet, a chord distance of 205.70 feet and a chord bearing of
N.34DEG.09'25"E., thence N.40DEG.41'E. along said Right of Way 111.17 feet,
more or less, to the Point of Beginning.
NEW CLINTON SUBSTATION--PARCEL NUMBER DV-174
Lands in DAVIS County, State of UTAH
Beginning 20 rods North and 636.66 feet West of the Southeast Corner of the
Northwest Quarter of Section 27, Township 5 North, Range 2 West, Salt Lake
Meridian, said point also being North 62DEG.37'45" West 717.78 feet, more
or less, from the Southeast corner of the Northwest Quarter of said Section
27, and running thence West 268.04 feet, more or less, along said South
boundary line to the West boundary of said land, said West boundary line
also being the East right of way line of Power Company's Ben Lomond
Terminal 345 kV Corridor; thence North 0DEG.08' East 330 feet, more or
less, along said West boundary, to the North boundary line of said land;
thence East 268.04 feet, more or less, along said North boundary line;
thence South 0DEG.08' West 330 feet, more or less, to the point of
beginning.
CUDAHY SUBSTATION--PARCEL NUMBER DV-172
Lands in DAVIS County, State of UTAH
Beginning at the Southeast Corner of the South Davis Sewer Improvement
District Property, said point being South 89DEG.45'51" East along Section
line 763.24 feet and North 00DEG.14'09" East 61.70 feet from the Southwest
Corner of Section 3, Township 1 North, Range 1 West, Salt Lake Base and
Meridian; thence North 00DEG.33'36" East along the East line of said
property 500.00 feet; thence South 89DEG.26'30" East 350.00 feet; thence
South 00DEG.33'36" West 500.00 feet; thence North 89DEG.26'30" West 350.00
feet to the point of beginning.
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NEW ENOCH SUBSTATION--PARCEL NUMBER IR-043
Lands in IRON County, State of UTAH
A parcel of land being in the NW 1/4 of the NE 1/4 of Section 18, Township
35 South, Range 10 West, Salt Lake Base and Meridian, described as follows:
Beginning at a point that is S.52DEG.46'44"E. 671.7 feet from the North
Quarter Corner of said Section 18, thence S.0DEG.01'06"W. 180.0 feet;
thence S.89DEG.58'54"E. 180.0 feet; thence N.0DEG.01'06"E. 180.0 feet;
thence N.89DEG.58'54"W. 180.0 feet to the point of beginning.
MORGAN SUBSTATION ADDITIONAL LANDS--PARCEL NUMBER MG-003
Lands in MORGAN County, State of UTAH
A tract of land in the NW1/4 of the NE1/4 of Section 35, T. 4N., R. 2E.,
S.L.M., in Morgan City, described as follows: Beginning at the southwest
corner of the tract of land conveyed herein 478.59 feet south and 485.88
feet east from the north one quarter corner of said Section 35, running
thence N.69DEG.15'W. 210 feet, more or less, along the southwesterly
boundary line to the most westerly corner of said land, said southwesterly
boundary line also being the northeasterly right of way line of a County
road, thence N.20DEG.00'E. 239 feet, along the westerly boundary line of
the tract of land conveyed herein to the northwest corner of said land,
thence S.84DEG.00'E. 320.94 feet along the northerly boundary line; thence
S.22DEG.30'W. 220.61 feet; thence N.69DEG.22'W. 90.70 feet, thence
S.20DEG.38'W. 100 feet, to the point of beginning.
NEW JORDAN SUBSTATION ADDITIONAL LANDS--PARCELS NUMBERS SL-824, SL-825, SL 843,
SL-844 AND SL-845
Lands in SALT LAKE County, State of UTAH
The North one (1) rod of Lot Twelve (12) Block One (1) and the North one
(1) rod of Lots Twelve (12) and Thirteen (13) of Block Two (2) of the Jones
Subdivision of Block Fifty-four (54) Plat "C", Salt Lake City Survey; also
Beginning at the Northwest corner of Block Fifty-four (54) Plat "C", Salt
Lake City Survey, and running thence South One (1) rod; thence West
two-hundred eighty-five (285) feet, more or less, to the East bank of the
Jordan River, thence North one (1) rod, along said East bank, thence East
two-hundred eighty-five (285) feet, more or less, to the point of
beginning, and being a portion of a vacated road known and designated as
1200 West Street and in the Northwest Quarter of the Northwest Quarter of
Section 2, Township 1 South, Range 1 West, Salt Lake Base and Meridian;
also
Beginning at the Northwest corner of Lot Twelve (12) Block One (1) of the
Jones Subdivision, Block Fifty-four (54), Plat "C", Salt Lake City Survey,
said Northwest corner also being 131 feet South and 1591 feet East, more or
less, from the Northwest corner of Section 2, Township 1 South, Range 1
West, Salt Lake Base and Meridian, and running thence South 16.5 feet,
along the West lot line of said Lot 12, thence West 66 feet to the East
line of Lot 13, Block 2, Jones Subdivision, Block 54, Plat "C", Salt Lake
City Survey, thence North 16.5 feet, along said lot line, thence East 66
feet to the point of beginning, being within a vacated road known and
designated as Glendale Street, in the Northeast Quarter of the Northwest
Quarter of said Section 2; also
Beginning at the Northwest corner of Lot Twelve (12), Block Two (2) of the
Jones Subdivision, Block Fifty-four (54), Plat "C", Salt Lake City Survey,
said Northwest corner also being 131 feet South and 1261 feet East, more or
less, from the Northwest corner of Section 2, Township 1 South, Range 1
West, Salt Lake Base and Meridian, and running thence West 284.8 feet, more
or less, to the East bank of the Jordan River, thence North 4 feet, more or
less, along said East bank, thence South 89DEG.41'35" East 746.8 feet, more
or less, to a point on the North boundary line of said Jones
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Subdivision, thence West 462 feet, more or less, along said North boundary
line to the point of beginning, being within a vacated road known and
designated as South Temple Street, and the North Half of the Northwest
Quarter of said Section 2; also
A tract of land situate in the NE 1/4 of the NW 1/4 of Section 2, Township
1 South, Range 1 West, Salt Lake Meridian, described as follows: Beginning
on the Southeast corner of the tract of land conveyed herein at a point
149.17 feet South and 126.44 feet West, more or less, from the North one
quarter corner of said Section 2, said point also being the Northeast
corner of Lot 8, Block 53, Plat "C", Salt Lake City Survey, running thence
North 33.92 feet along the East boundary line of said land, said East
boundary line also being the West right of way line of 1000 West Street,
thence South 70DEG.16'59" West 108.95 feet to the Grantor's South boundary
line, thence North 88DEG.24'50" East 102.60 feet along said South boundary
line to the point of beginning.
WESTRIDGE SUBSTATION--PARCEL NUMBER SL-839
Lands in SALT LAKE County, State of UTAH
A parcel of land in the SW 1/4 of Section 11, Township 2 South, Range 2
West, Salt Lake Base and Meridian, more particularly described as follows:
Beginning at a point which lies N.0DEG.04'15"E. along the West line of said
Section 11, 1361.80 feet and S.89DEG.36'06"E. 33.00 feet from the found
Southwest corner of said Section 11, said point lies along the East Right
of Way line of 6400 West Street; and running thence S.89DEG.36'06"E. 415.38
feet to a point which intersects a curve to the left, said curve having a
central angle of 14DEG.54'40" and a radius of 3759.80 along a radial
bearing of S.72DEG.19'53"W.; thence along the arc, 978.48 feet to a point
which intersects the East Right of Way line of said 6400 West Street;
thence S.0DEG.04'15"W. along said Right of Way line, 880.53 feet to the
point of beginning.
SORENSON TECHNOLOGY PARK SUBSTATION--PARCEL NUMBER SL-841
Lands in SALT LAKE County, State of UTAH
All of Lot 32, Sorenson Technology Park, Plat 2, according to the official
plat thereof, recorded in the office of the County Recorder of Salt Lake
County, Utah.
MAPLETON SUBSTATION ADDITION--PARCEL NUMBER UT-249
Lands in UTAH County, State of UTAH
All of Lot 4, Lou Dean Subdivision, Mapleton City, according to the
official plat thereof on file in the office of the Recorder, Utah County,
Utah.
CHERRYWOOD SUBSTATION--PARCEL NUMBER UT-250
Lands in UTAH County, State of UTAH
A tract of land situate in the NW 1/4 of the NE 1/4 of Section 10, Township
6 South, Range 2 East, Salt Lake Meridian, being described as follows:
Beginning on the north boundary line of the tract of land conveyed herein
at a point 254.2 feet south and 723.9 feet east, more or less, from the
north one quarter corner of said Section 10, and running thence
N.89DEG.52'57"E. 620.69 feet, along the north boundary line to the
northeast corner of said tract, thence S.0DEG.37'03"E. 326.47 feet along
the east boundary line of said land, thence N.89DEG.53'46"W. 523.73 feet,
to the west boundary line of the tract of land conveyed herein, thence
N.17DEG.13'03"W. 339.44 feet, along said west boundary line to the point of
beginning.
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CHERRYWOOD SUBSTATION ACCESS--PARCEL NUMBER UT-251
Lands in UTAH County, State of UTAH
A tract of land situate in the NW 1/4 of the NE 1/4 of Section 10, T. 6S.,
R. 2E., S.L.M. described as follows: Beginning at the Northeast corner of
the tract of land conveyed herein at a point 1.50 rods South of the
Northeast corner of the Northwest quarter of the Northeast quarter of said
Section 10, and running thence West 167.66 feet, thence S.0DEG.34'E. 222.76
feet, thence East 165.46 feet, thence North 13.50 rods to the point of
beginning.
CHERRYWOOD SUBSTATION ADDITIONAL LAND--PARCEL NUMBER UT-252
Lands in UTAH County, State of UTAH
A tract of land situate in the NW 1/4 of the NE 1/4 of Section 10, T. 6S.,
R. 2E., S.L.M., in Utah County, Utah, described as follows: Beginning on
the easterly boundary line of the tract of land conveyed herein at a point
508.41 feet south and 817.15 feet east, more or less, from the north one
quarter corner of said Section 10, and running thence S.17DEG.13'03"E.
73.42 feet, along the easterly boundary line to the southeast corner of
said land, thence N.89DEG.53'46"W. 14.52 feet along the south boundary line
of said land, thence N.17DEG.13'05"W. 73.41 feet, thence S.89DEG.55'12"E.
14.52 feet, more or less, to the point of beginning.
BEN LOMOND SUB STRIP--PARCEL NUMBER WE-300
Lands in WEBER County, State of UTAH
A tract of land situate in the South one-half of the Southeast one-quarter
of Section 15, Township 7 North, Range 2 West, Salt Lake Base and Meridian,
more particularly described as follows: Beginning at the Southeast corner
of said Section 15, and running thence West 1500 feet, thence North 33
feet, thence East 1500 feet, thence South 33 feet, to the point of
beginning.
GATEWAY SUBSTATION--PARCEL NUMBER WN-068
Lands in WASHINGTON County, State of UTAH
A tract of land situate in Lot 5 of Section 4, Township 42 South, Range 14
West, Salt Lake Meridian, described as follows: Beginning at a point North
0DEG.23'31" West, 1300.32 feet along the one quarter section line from the
South one quarter corner of said Section 4, and running thence North
0DEG.23'31" West, 200.0 feet along the one quarter Section line, said one
quarter section line also being the West boundary line of subject property,
thence North 89DEG.36'29" East, 200.0 feet, thence South 0DEG.23'31" East
200.0 feet, thence South 89DEG.36'29" West 200.0 feet to said West boundary
line to the point of beginning.
C-429--MERRILL SUBSTATION
Lands in KLAMATH County, State of OREGON
C-429--ITEM: A tract of land situated in the N/2 SE/4 of Section 2,
Township 41 South, Range 10 E.W.M., Klamath County, Oregon, consisting of
that portion of Lots 9,14, 15 and 16 of Merrill Tracts, according to the
official plat thereof on file in the office of the County Clerk of Klamath
County, Oregon, said portion lying South of the Burlington Railroad
right-of-way and being more particularly described as follows:
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Beginning at the Southwest Corner of said Lot 16, from which the Northeast
Corner of Lot 4 of Block 1 of Hodges Addition to the Town of Merrill,
Oregon, a subdivision recorded in Klamath County, bears S19DEG.49'09"W,
43.33 feet; thence N00DEG.26'10"W on the West Lines of said Lot 16 and Lot
9, 437.41 feet to a point on the South Line of said Burlington Railroad
right-of-way; thence southeasterly on said South right-of-way line on the
arc of a 2889.79 foot radius curve to the left, 812.49 feet
(delta=16DEG.06'33") to a point on the South Line of said Lot 14; thence
S89DEG.46"46"on the South Line of said Lots 14, 15 and 16, 679.87 feet to
the point of beginning.
C-430--DOG CREEK SUBSTATION
Lands in SHASTA County, State of CALIFORNIA
C-430--ITEM: That portion of the SE 1/4 of the NW 1/4 of Section 34, T 36
N, R 5 W, 14DM, described as follows:
Commencing at an iron pipe with U.S.G.L.O. brass cap marking the Section
Corner common to Sections 27, 28, 33 and 34, T 36 N, R 5 W, MDM, as shown
on the map entitled "Record Of Survey By And For The State Of California
Division Of Highways" recorded June 27, 1969 in Book 33 of Land Surveys at
page 136, Shasta County Records, from which an iron pipe with U.S.G.L.O.
brass cap marking the quarter-section corner common to said Sections 33 and
34, as shown on said map, bears S 01DEG.02' 16" W, 2563.14 feet; thence, S
53DEG.02' 59" E, 2615.77 feet to the southwesterly corner of the parcel of
land conveyed to Pacific Power & Light Company, a corporation, by deeds
recorded January 31, 1963 in Volume 732 at pages 419 and 422, Official
Records of Shasta County, being the True Point Of Beginning of this
description; thence, along the westerly line of said parcel N 00DEG.23'00"
E, 60.00 feet to the northwesterly corner of said parcel thence, S
82DEG.47'22" W, 75.66 feet; thence, S 00DEG.23'00" W, 50.00 feet; thence, S
89DEG.37'00" E, 75.00 feet to the True Point Of Beginning.
C-432--WAITSBURG SUBSTATION
Lands in WALLA WALLA County, State of WASHINGTON
C-432--ITEM: Lots 2, 3, 4, 5, 6 and 7, Block 10 of Bruce's Fourth Addition
to Waitsburg, according to the plat thereof recorded in Volume B of Plats,
page 19, Records of Walla Walla County Washington; Also.
The Easterly 30 feet of vacated 60 foot wide Lincoln Street in the City of
Waitsburg, Washington, as per the plat thereof, bounded on the South by the
North line of 60 foot wide Tenth Street in the City of Waitsburg. Walla
Walla County, Washington, as per the recorded plat thereof, and bounded on
the North by the South Line of 60 foot wide Eighth Street in the City of
Waitsburg, Walla Walla County, Washington, as per the recorded plat
thereof; Also
All of that part of vacated 60 foot wide Ninth Street in the City of
Waitsburg, Walla Walla County. Washington. as per the recorded plat
thereof, which is adjacent to lots 5 and 6 in block 1 and lots 3 and 4 in
Block 10 of Bruce's Fourth Addition to Waitsburg according to the plat
thereof recorded in Volume B of Plats, page 19, Walla Walla County,
Washington, also the southerly 30 feet of said vacated 60 foot wide Ninth
Street which is adjacent to lot 2 in Block 10 of said Bruce's Fourth
Addition, also all of the vacated 15 foot wide alley adjacent to lots 4 and
5 in Block 1 of said Bruce's Fourth Addition to Waitsburg and the southerly
7.5 feet of said vacated 15 foot wide alley adjacent to lot 6 in said Block
1, also all of the vacated 15 foot wide alley adjacent to lots 2, 3, 4, 5,
6 and 7 in Block 10 of Bruces Fourth Addition to Waitsburg according to the
said plat thereof, excepting therefrom all of the above described property
lying easterly of the following described line;
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Commencing at the centerline intersection of Eighth Street and vacated
Lincoln Street, thence S 00DEG.05' 42"W along the centerline of vacated
Lincoln Street a distance of 30.00 feet to a: point on the southerly right
of way line of said Eighth Street, thence S 89DEG.07' 45"E along said
southerly right of way a distance of 51.80 feet to a point which is N
89DEG.07' 45"W a distance of 45.70 feet from the northeast corner of lot 4
Block 1 of Bruce's Fourth Addition to Waitsburg, according to the official
plat thereof and the true point of beginning for the description of this
line, thence S 16DEG.56' 46" E a distance of 598.65 feet to a point on the
northerly right of way line of Tenth Street in the City of Waitsburg, Walla
Walla County, Washington, said point being N 80DEG.07' 45"W a distance of
5.25 feet from the southeast corner of lot 7, Block 10 of said Bruce's
Fourth Addition to Waitsburg and the terminus of said line.
C-433--SULPHER CREEK SUBSTATION
Lands in YAKIMA County, State of WASHINGTON
C-433--ITEM: The South 350 feet of the West 380 feet, as measured along the
West and South lines, of the NW 1/4 of Section 6, Township 9 North, Range
23 East W.M., except the West 30 feet thereof.
D-ELECTRIC TRANSMISSION LINES
HONEYVILLE-LAMPO 138 KV LINE--PARCEL NUMBER BX-063
Lands in BOX ELDER County, State of UTAH
A tract of land situate in the SW 1/4 of the NE 1/4 of Section 4, Township
10 North, Range 2 West, Salt Lake Meridian, described as follows: Beginning
at a southeast corner of the tract of land conveyed herein at a point
N.68 22'59"W. 1632.83 feet, from the east one quarter corner of said
Section 4, and running thence North 538.9 feet, more or less, along an east
boundary line of said land, thence West 178.61 feet, more or less, thence
S.1 22'W. 538.10 feet, more or less, to a south boundary line of said land,
thence East 195.65 feet, more or less, along said south boundary line to
the point of beginning.
HONEYVILLE-LAMPO 138 KV LINE--PARCEL NUMBER BX-064
Lands in BOX ELDER County, State of UTAH
A tract of land situate in the SE 1/4 of the SE 1/4 of Section 4, Township
10 North, Range 2 West, Salt Lake Base and Meridian: Beginning at a
northwest corner of the tract of land conveyed herein at a point
N.50DEG.51'05"W. 1717.07 feet, from the east one quarter corner of Section
4, T. 10N., R. 2W., S.L.M., and running thence S.88DEG.27'E. 243.88 feet
along a north boundary line of said land; thence S.17DEG.40'19"W. 63.48
feet and N.88DEG.20'W. 224.69 feet along a line which is parallel to and 40
feet perpendicularly distant southeasterly and southerly from a power line
on said land to a west boundary line of said land; thence N.0DEG.04'05"E.
60.55 feet along said west boundary line to the point of beginning.
BEN LOMOND-TERMINAL 345/230/138 KV LINE--PARCEL NUMBER DV-173
Lands in DAVIS County, State of UTAH
A tract of land in the North half of the Southeast Quarter of Section 14,
Township 2 North, Range 1 West, Salt Lake Meridian, in Davis County,
described as follows: Beginning on the Northeasterly boundary line of the
tract of land conveyed herein at a point South 89DEG.47'11" West 853.38
feet along the Quarter Section Line and South 0DEG.12'49" East 280.50 feet,
more or less, from the Northeast corner of the Southeast Quarter of said
Section 14, and running thence North 59DEG.12'12" West 544.46 feet
28
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along said Northeasterly boundary line, to the West boundary line of said
land, thence South 0DEG.12'49" East 52.49 feet along said West boundary
line to the center line of an existing road; thence along said center line
South 41DEG.40'44" East 71.51 feet; South 45DEG.58'49" East 105.04 feet;
South 48DEG.02'32" East 92.39 feet; South 53DEG.28'38" East 63.70 feet;
South 62DEG.01'16" East 59.73 feet; South 70DEG.43'21" East 53.07 feet;
South 81DEG.49'05" East 103.06 feet and South 89DEG.35'53" East 100.09 feet
to the East boundary line of said land, thence North 0DEG.37'21" West 61.09
feet along said East boundary line to the North boundary line of said land,
thence South 89DEG.47'10" West 79.68 feet along said North boundary line to
the point of beginning.
90TH SOUTH RELOCATION--PARCEL NUMBER SL-826
Lands in SALT LAKE County, State of UTAH
Beginning at a point which is West along the quarter Section line 182.00
feet from the East quarter corner of Section 5, Township 3 South, Range 1
West, Salt Lake Base and Meridian, and running thence West 85.00 feet;
thence North 288.00 feet; thence East 85.00 feet; thence South 288.00 feet
to the point of beginning.
ALTAVIEW-90TH SOUTH 138 KV LINE--PARCEL NUMBER SL-829
Lands in SALT LAKE County, State of UTAH
A tract of land situate in the SE 1/4 of the SW 1/4 of Section 12, T. 3S.,
R. 1W., S.L.M., described as follows: Beginning at the southwest corner of
the tract of land conveyed herein at a point N.89DEG.27'04"W. 830.34 feet
along the section line from the south one quarter corner of said Section
12, thence N.13DEG.46'24"W. 967.99 feet, and North 163.8 feet, more or
less, along the west boundary line of said land, thence S.13DEG.46'E. 1137
feet, more or less, along a line which is parallel to and 25 feet
perpendicularly distant northeasterly from a power line on said land, to
the south boundary line of said land, thence N.89DEG.27'04"W. 40.2 feet,
more or less, along said south boundary line to the point of beginning.
ALTAVIEW-90TH SOUTH 138 KV LINE--PARCEL NUMBER SL-830
Lands in SALT LAKE County, State of UTAH
A tract of land situate in the NE 1/4 of the NW 1/4 of Section 13, T. 3S.,
R. 1W., S.L.M., described as follows: Beginning at the northwest corner of
the tract of land conveyed herein at a point N.89DEG.27'04"W. 830.30 feet,
from the north one quarter corner of Section 13, T. 3S., R. 1W., S.L.M.,
thence S.13DEG.46'E. 454.1 feet, more or less, along the west boundary line
to the southwest corner of said land, thence S.89DEG.27'04"E. 40.2 feet,
more or less, along the south boundary line of said land, thence
N.13DEG.46'27"W. 454.1 feet, more or less, along a line which is parallel
to and 25 feet perpendicularly distant northeasterly from a power line on
said land to the north boundary line of said land, thence N.89DEG.27'04"W.
40.2 feet, more or less, along said north boundary line to the point of
beginning.
ALTAVIEW-90TH SOUTH 138 KV LINE--PARCEL NUMBER SL-831
Lands in SALT LAKE County, State of UTAH
A tract of land situate in the E 1/2 of the NW 1/4 of Section 13, T. 3S.,
R. 1W., S.L.M., described as follows: Beginning at the northwest corner of
the tract of land conveyed herein at a point S.0DEG.54'50"W. 865.93 feet
and N.89DEG.27'04"W. 603.75 feet, more or less, from the north one quarter
corner of said Section 13, thence S.13DEG.46'24"E. 464 feet, more or less,
along the west boundary line to the southwest corner of said land, thence
N.89DEG.53'E. 40.1 feet, more or less, along the south boundary line of
said
29
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land, thence N.13DEG.46'W. 463.6 feet, more or less, along a line which
is parallel to and 25 feet perpendicularly distant northeasterly from a
power line on said land to said north boundary line, thence
N.89DEG.27'04"W. 40.7 feet, more or less, along said north boundary line to
the point of beginning.
ALTAVIEW-90TH SOUTH 138 KV LINE--PARCEL NUMBER SL-832
Lands in SALT LAKE County, State of UTAH
A tract of land situate in the E 1/2 of the NW 1/4 of Section 13, T. 3S.,
R. 1W., S.L.M, described as follows: Beginning at the northwest corner of
the tract of land conveyed herein at a point 1310 feet south and 507 feet
west, more or less, from the north one quarter corner of said Section 13,
thence S.13DEG.46'E. 25.8 feet, more or less, along the west boundary line
to the southwest corner of said land, thence N.89DEG.55'57'E. 40.4 feet,
more or less, along the south boundary line, thence N.13DEG.46'W. 25.9
feet, more or less, along a line which is parallel to and 25 feet
perpendicularly distant northeasterly from a power line on said land to the
north boundary line of the land, thence N.89DEG.53'W. 40.1 feet, more or
less, along said north boundary line to the point of beginning.
ALTAVIEW-90TH SOUTH 138 KV LINE--PARCEL NUMBER SL-833
Lands in SALT LAKE County, State of UTAH
A tract of land situate in the NE 1/4 of the NW 1/4 of Section 13, T. 3S.,
R. 1W., S.L.M., described as follows: Beginning at the northwest corner of
the tract of land conveyed herein at a point S.0DEG.54'50"W. 440 feet and
N.89DEG.27'04"W. 715.16 feet, more or less, from the north one quarter
corner of said Section 13, thence S.13DEG.46'24"E. 372.4 feet, more or
less, along the west boundary line to the southwest corner of said land,
thence S.89DEG.26'41'E. 40.2 feet, more or less, along the south boundary
line of said land, thence N.13DEG.46'W. 372.4 feet, more or less, along a
line which is parallel to and 25 feet perpendicularly distant northeasterly
from a proposed power line on said land to the north boundary line of said
land, thence N.89DEG.27'04"W. 40.2 feet, more or less, along said north
boundary line to the point of beginning.
ALTAVIEW-90TH SOUTH 138 KV LINE--PARCEL NUMBER SL-834
Lands in SALT LAKE County, State of UTAH
A tract of land situate in the Northeast Quarter of the Northwest Quarter
of Section 13, T. 3S., R. 1W., S.L.M., described as follows: Beginning at
the Northwest corner of the tract of land conveyed herein at a point South
0DEG.54'50" West 800.93 feet and North 89DEG.27'04" West 620.75 feet, more
or less, from the North quarter corner of said Section 13, thence South
13DEG.48'21" East 66.9 feet along the West boundary line to the Southwest
corner of said land, thence South 89DEG.27'04" East 40.6 feet, more or
less, along the South boundary line of said land; thence North 13DEG.46'
West 67 feet, more or less, along a line which is parallel to and 25 feet
perpendicularly distant Northeasterly from a power line on said land, to
the North boundary line of said land; thence North 89DEG.27'04" West 40.7
feet, more or less, along said North boundary line to the point of
beginning.
90TH SOUTH-TERMINAL 345 KV LINE--PARCEL NUMBER SL-837
Lands SALT LAKE County, State of UTAH
Beginning at a point being N.0DEG.02'04"W. 736.19 feet and S.66DEG.24'54"E.
306.32 feet and N.73DEG.19'48"E. 1087.66 feet from the West quarter corner
of Section 27, Township 1 South, Range 1 West, Salt Lake Base and Meridian,
and running thence N.0DEG.01'50"W. 139.15 feet to a point; thence
N.89DEG.56'21"E.
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428.46 feet; thence N.73DEG.19'48"E. 189.87 feet to a point; thence
N.89DEG.56'29"E. 37.98 feet; thence S.73DEG.19'48"W. 686.67 feet to the
point of beginning.
TOOELE-DUGWAY 46 KV LINE--PARCEL NUMBER TO-029
Lands in TOOELE County, State of UTAH
Beginning 1320 feet South and 660 feet East of the West Quarter Corner of
Section 3, Township 6 South, Range 7 West, Salt Lake Base and Meridian; and
running thence South 330 feet; thence East 126 feet to the west line of
County Road; thence N.28DEG.12'13"E. 374.47 feet along the west line of
said Road; thence West 304 feet to the point of beginning.
BEN LOMOND-TERMINAL 345/230/138 KV LINE--PARCEL NUMBER WE-302
Lands in WEBER County, State of UTAH
Part of the SW 1/4 of Section 10, Township 5 North, Range 2 West, Salt Lake
Base and Meridian, beginning at a point 439.58 feet N.00DEG.24'02"E. and
731.77 feet N.89DEG.35'58"W. from the South quarter corner (basis of
bearing) N.00DEG.24'02"E. from south quarter corner to the center of said
Section 10; thence N.89DEG.25'49"W. 143.33 feet; thence N.00DEG.48'01"E.
220.00 feet; thence S.89DEG.36'01"E. 142.73 feet; thence S.00DEG.38'37"W.
220.42 feet to the point of beginning.
D-394 LINE: From Bonneville Power Administration's Alvey Substation in
LANE County, State of OREGON to the Dixonville 500 kV Substation (C-406) in
DOUGLAS County, State of OREGON, including the following tract of land used
for right of way and described as follows:
D-394 ITEM 2: The West 400 feet of the North half of the Northwest quarter
of Section 29, Township 24 South, Range 4 West, Willamette Meridian,
Douglas County, Oregon, excepting therefrom that part lying within County
Road No. 22, TA# 4493.00 and 4493.01.
D-395 LINE: From the Meridian 500 kV Substation (C-375) in JACKSON County,
State of OREGON, to the Dixonville 500 kV Substation (C-406) in DOUGLAS,
County, State of OREGON, including the following tracts of land used for
right of way and described as follows:
D-395 ITEM 1: Beginning at the southeast corner of Block 12 of AGATE
SUBDIVISION EXTENSON No. 2 in Jackson County, Oregon, according to the
official plat thereof, now of record; thence South 89DEG.56'50" West, along
the south line of said Subdivision, 359.46 feet to a 5/8" iron pin; thence
South 0DEG.13'10" West, 657.10 feet to a 5/8' iron pin thence South
88DEG.00'50" East 362.75 feet to a 5/8" iron pin on the southerly
projection of the west line of Lake View Drive; thence North 0DEG.02'50"
West 670.0 feet to the point of beginning. Excepting therefrom that portion
conveyed to the State of Oregon (by and through its State Highway
Commission) by Deed recorded as No. 68-10763 of the Official Records of
Jackson County, Oregon.
D-395 ITEM 2: TRACT A: All that portion of the following described tracts
lying within Section 21 in Township 36 South, Range 1 West of the
Willamette Meridian in Jackson County, Oregon:
Beginning at a 1/2" iron pin at the southeast corner of Lot 6 in Block 2
of AGATE SUBDIVISION in Jackson County, Oregon, according to the official
plat thereof, now of record thence South 89DEG.47'30" East, along the south
line of said Subdivision 255.05 feet to the west line of AGATE SUBDIVISION
EXTENSION No. 2, according to the official plat thereof, now of record;
thence South 0DEG.13'00" West 152.58 feet to a 5/8" iron pin at the
southwest corner of said Agate Subdivision Extension No. 2; thence North
89DEG.56'50" East, along the south line of said Agate Subdivision Extension
No. 2; a distance of 250.05 feet to a 5/8" iron pin; thence South
0DEG.13'40" West 639.29 feet to a 5/8" iron pin; thence North 88DEG.00'50"
West 504.58 feet to a 5/8" iron pin; thence North 0DEG.10'15" East 775.08
feet to the point of beginning.
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TRACT B:
Beginning at the southeast corner of Lot 1 in Block 12 of AGATE SUBDIVISION
EXTENSION No. 2, in Jackson County, Oregon, according to the official plat
thereof, now of record; thence North 89DEG.56'50" East, along the south
line of said Subdivision, 500.10 feet; thence South 0DEG.13'10" West 657.10
feet to a 5/8" iron pin; thence North 88DEG.00'50" West 500.42 feet to a
5/8" iron pin; thence North 0DEG.13'40" East 639.29 feet to the point of
beginning.
EXCEPTING FROM THE FOREGOING TRACTS that portion conveyed to the State of
Oregon, (by and through its State Highway Commission) by deed recorded
October 28, 1968, as No. 68-10634 of the Official Records of Jackson
County, Oregon.
D-395 ITEM 3: Beginning at the southeast corner of South Forty Subdivision
in Jackson County, Oregon, according to the official plat thereof, now of
record; thence North 89DEG.57'30" West 1260.0 feet to the west line of the
Southeast Quarter of the Northwest Quarter of Section 4 in Township 36
South, Range 2 West, Willamette Meridian.thence south, along said west
line, 450.0 feet to the southwest corner of said quarter-quarter; thence
east, along the south line of said quarter-quarter 1260.0 feet to the west
line of Wheeler Road; thence north, along said west line, 450.0 feet to the
point of beginning.
D-395 ITEM 4: The West Half of the West Half of the Northwest Quarter of
the Northeast Quarter of Section 5 in Township 36 South, Range 2 West of
the Willamette Meridian in Jackson County, Oregon.
D-395 ITEM 5: Tract A: Tract 35, of Eleven-Eighty Orchard Tract in Jackson
County, Oregon, according to the official plat thereof, now of record.
D-395 ITEM 6: The Southwest Quarter, the West Half of the Southeast
Quarter, and Lots 3 and 4 of Section 35 in Township 36 South, Range 1 West
of the Willamette Meridian in Jackson County, Oregon.
D-395 ITEM 7: PARCEL I: Beginning at a 3/4" galvanized iron pipe with a 2
1/2" bronze cap located at the quarter corner common to Sections 4 and 9,
Township 36 South, Range 2 West of the Willamette Meridian in Jackson
County, Oregon, thence along the north-south centerline of said Section 4,
North 0DEG.21'45" West, 660.00 feet, thence South 89DEG.54'15" East, 330.00
feet, thence South 0DEG.21'45" East, 630.00 feet, thence South 89DEG.54'15"
East, 974.46 feet to intersect the southwesterly boundary of tract
described in Volume 57 page 80 of the Deed Records of said County, thence
South 31DEG.02' East, 35.045 feet to the southwest corner of said tract,
thence along the south boundary of said Section 4, North 89DEG.54'15" West
1322.34 feet to the point of beginning.
PARCEL II: Beginning at a 3/4" galvanized iron pipe with a 2 1/2" bronze
cap located at the quarter corner common to Sections 4 and 9, Township 36
South, Range 2 West of the Willamette Meridian in Jackson County, Oregon,
thence along the north-south centerline of said Section 4, North
0DEG.21'45" West, 660.00 feet, thence South 89DEG.54'15" East, 330.00 feet
to the true point of beginning; thence South 0DEG.21'45" East, 630.00 feet;
thence South 89DEG.54'15" East, 330.00 feet; thence North 0DEG.21'45" West
630.00 feet, to a point South 89DEG.54'15" East, from the true point of
beginning; thence North 89DEG.54'15" West, 330.0 feet to the true point of
beginning.
PARCEL III: Beginning at a 3/4" galvanized iron pipe with a 2 1/2" bronze
cap located at the quarter corner common to Sections 4 and 9, Township 36
South, Range 2 West of the Willamette Meridian in Jackson County, Oregon,
thence along the north-south centerline of said Section 4, North
0DEG.21'45" West, 660.00 feet for the true point of beginning; thence South
89DEG.54'15" East 330.00 feet; thence North 0DEG.21'45" West to the north
line of the Southwest Quarter of the Southeast Quarter; thence West 330.00
feet, to the centerline of Section 4, thence South 0DEG.21'45" East, along
said centerline to the true point of beginning.
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<PAGE>
PARCEL IV: Beginning at a 3/4" galvanized iron pipe with a 2 1/2" bronze
cap located at the quarter corner common to Sections 4 and 9, Township 36
South, Range 2 West of the Willamette Meridian in Jackson County, Oregon,
thence along the north-south centerline of said Section 4, North
0DEG.21'45" West, 660.00 feet, thence South 89DEG.54'15" East 330.00 feet
to the true point of beginning; thence continue South 89DEG.54'15" East,
330.00 feet; thence North 0DEG.21'45" West, to a point on the southwesterly
line of Wheeler Road, as described in Volume 57 page 80, of the Deed
Records; thence North 31DEG.02' West along said line to a point on the
north line of the Southwest Quarter of the Southeast Quarter; thence West
along said North line to a point North 0DEG.21'45" West from the true point
of beginning; thence South 0DEG.21'45" East to the true point of beginning.
PARCEL V: Beginning at a 3/4" galvanized iron pipe with a 2 1/2" bronze
cap located at the quarter corner common to Sections 4 and 9, Township 36
South, Range 2 West of the Willamette Meridian in Jackson County, Oregon,
thence South 89DEG.54'15" East 1322.34 feet to the southwest corner of the
tract described in Volume 57 page 80 of the Deed Records of Jackson County,
thence North 31DEG.02' West 35.045 feet to the true point of beginning;
thence North 89DEG.54'15" West 644.46 feet to a point which is South
89DEG.54'15" East 660 feet from the north-south centerline of said Section
4; thence North 0DEG.21'45" West to a point on the southwesterly line of
Wheeler Road as described in Volume 57 page 80, said Deed Records of said
County; thence South 31DEG.02' East along said line to the true point of
beginning.
D-395 ITEM 8: Beginning on a point on the north line of Section 32 in
Township 35 South of Range 2 West of the Willamette Meridian in Jackson
County, Oregon, which bears south 89DEG.56' west 1,988.5 feet from the
northeast corner of said Section 32; thence south 0DEG.20' east parallel to
the east line of the west half of the northeast quarter of said section
1,320 feet; thence south 89DEG.56' west 660 feet more or less to the west
line of said west half of the northeast quarter; thence north 0DEG.20' west
along the west line of said west half of the northeast quarter a distance
of 1,320 feet to the north line of said Section 32; thence north 89DEG.56'
east along said line a distance of 660 feet more or less to the point of
beginning.
D-395 ITEM 9: Lot 14, Whistler's Park Estates, Douglas County, State of
Oregon.
D-395 ITEM 10: Lot Five, Block Three of Sams Valley Park Subdivision in
Jackson County, Oregon.
F--OTHER PROPERTY AND RIGHTS
RILDA CANYON ACCESS ROAD/PARKING LOT--PARCEL NUMBERS EM-477 AND EM-485
Lands in EMERY County, State of UTAH
Beginning at a point which is South 1320.0 feet and East 907.32 feet from
the center of Section 22, T. 16S., R. 7E., SLM; said point being on the
South boundary line of the Northwest 1/4 of the Southeast 1/4 of said
Section 22; thence West 25.09 feet; thence N.37DEG.07'40"E. 193.51 feet to
the beginning of a circular curve to the right having a radius of 1020.0
feet and a delta angle of 19DEG.39'52"; thence Northeasterly along said
curve an arc length of 350.08 feet (chord bears N.46DEG.57'36"E. 348.36
feet); thence N.56DEG.47'32"E. 390.63 feet to the beginning of a circular
curve to the left having a radius of 105.0 feet and a delta angle of
36DEG.33'39"; thence Northeasterly along said curve an arc length of 67.00
feet (chord bears N.38DEG.30'43"E. 65.87 feet); thence
N.20DEG.13'53"E. 0.90 feet to the beginning of a circular curve to the left
having a radius of 70.0 feet and a delta angle of 38DEG.43'53"; thence
Northerly along said curve an arc length of 109.63 feet (chord bears
N.24DEG.38'03"W. 98.76 feet); thence S.69DEG.30'00"E. 180.00 feet to the
beginning of a non-tangent circular curve to the left having a radius of
70.0 feet and a delta angle of 90DEG.16'07"; thence Southerly along said
curve an arc length of 110.28 feet (chord bears S.65DEG.21'57"W. 99.23
feet); thence S.20DEG.13'53"W. 0.05 feet to the beginning of a circular
curve to the right having a radius of 145.0 feet and a delta angle of
36DEG.33'39"; thence Southwesterly
33
<PAGE>
along said curve an arc length of 92.53 feet (chord bears S.38DEG.30'43"W.
90.96 feet); thence S.56DEG.47'32"W. 390.63 feet to the beginning of a
circular curve to the left having a radius of 980.0 feet and a delta angle
of 19DEG.39'52"; thence Southwesterly along said curve an arc length of
336.35 feet (chord bears S.46DEG.57'36"W. 334.70 feet); thence
S.37DEG.07'40"W. 163.23 feet to the South boundary line of the Northwest
1/4 of the Southeast 1/4 of said Section 22; thence West 25.09 feet to the
point of beginning; also
Beginning at a point which is South 935.66 feet and East 1314.91 feet from
the center of Section 22, T. 16S., R. 7E., SLB&M; said point being at the
beginning of a non-tangent circular curve to the right having a radius of
20.0 feet and a delta angle of 88DEG.47'17"; thence Southeasterly along
said curve an arc length of 30.99 feet (chord bears S.78DEG.48'51"E. 27.98
feet); thence S.34DEG.25'13"E. 18.40 feet to the beginning of a circular
curve to the right having a radius of 20.0 feet and a delta angle of
84DEG.25'16"; thence Southerly along said curve an arc length of 29.47 feet
(chord bears S.7DEG.47'25"W. 26.87 feet); thence S.56DEG.15'41"W. 137.56
feet to the beginning of a non-tangent circular curve to the left having a
radius of 25.0 feet and a delta angle of 90DEG.00'00"; thence Southerly
along said curve an arc length of 39.27 feet (chord bears
S.5DEG.00'02"W. 35.36 feet); thence S.39DEG.59'53"E. 130.0 feet to the
beginning of a non-tangent circular curve to the left having a radius of
25.0 feet and delta angle of 90DEG.00'00"; thence Southeasterly along said
curve an arc length of 39.27 feet (chord bears S.84DEG.59'53"E. 35.36
feet); thence N.56DEG.35'23"E. 305.01 feet to the beginning of a
non-tangent circular curve to the left having a radius of 60.0 feet and
delta angle of 90DEG.00'00"; thence Northeasterly along said curve an arc
length of 94.24 feet (chord bears N.5DEG.00'02"E. 84.85 feet); thence
N.46DEG.08'41"W. 130.75 feet to the beginning of a non-tangent circular
curve to the left having a radius of 46.0 feet and delta angle of
90DEG.00'00"; thence Northwesterly along said curve an arc length of 72.26
feet (chord bears N.84DEG.59'53"W. 65.05 feet); thence
S.27DEG.15'25"W. 93.12 feet to the beginning of a non-tangent circular
curve to the right having a radius of 20.0 feet and a delta angle of
95DEG.34'44"; thence Northwesterly along said curve an arc length of 33.36
feet (chord bears N.82DEG.12'35"W. 29.63 feet); thence
N.34DEG.25'13"W. 8.90 feet to the beginning of a circular curve to the
right having a radius of 20.0 feet and a delta angle of 91DEG.12'43";
thence along said curve an arc length of 31.84 feet (chord bears
N.11DEG.11'09"E. 28.58 feet); thence S.56DEG.47'31"W. 80.02 feet to the
point of beginning.
PARK CITY LANDS--PARCELS NUMBERS SU-037 AND SU-038
Lands in SUMMIT County, State of UTAH
Beginning at a point North 705.59 feet and West 656.54 feet from the
Southwest Corner of the Southeast Quarter of the Northeast Quarter of
Section 16, Township 2 South, Range 4 East, Salt Lake Base & Meridian, said
point is also located N.35DEG.59'W. 115.00 feet and N.54DEG.01'00"E. 127.41
feet from the survey monument located at the intersection of Park Avenue
and 9th Street; and running thence N.52DEG.40'35"E. 38.49 feet; thence
S.36DEG.12'28"E. 27.33 feet; thence N.56DEG.00'02"E. 59.38 feet; thence
S.43DEG.33'48"E. 23.44 feet to a point on a 155.00 foot radius curve to the
left, whose radius point bears S.75DEG.26'06"E.; thence along the arc of
said curve 19.45 feet through a central angle of 7DEG.11'28" to a point on
a 302.00 foot radius curve to the left whose radius point bears
S.17DEG.27'17"E.; thence along the arc of said curve 37.59 feet through a
central angle of 7DEG.07'56" to a point on a 42.00 foot radius curve to the
left, whose radius point bears S.24DEG.35'13"E.; thence along the arc of
said curve 74.50 feet through a central angle of 101DEG.38'09" to a point
on a 302.00 foot radius curve to the left, whose radius point bears
N.53DEG.46'38"E.; thence along the arc of said curve 27.95 feet through a
central angle of 5DEG.18'09" to a point of a 15.00 foot radius curve to the
right, whose radius point bears S.48DEG.28'30"W.; thence along the arc of
said curve 7.79 feet through a central angle of 29DEG.44'47"; thence
S.58DEG.45'01"W. 12.36 feet; thence N.26DEG.46'00"W. 14.00 feet; thence
N.29DEG.53'00"W. 50.00 feet; thence N.32DEG.16'00"W. 67.72 feet to the
point of beginning; also
34
<PAGE>
Beginning at a point North 598.89 feet and West 578.60 feet from the
Southwest Corner of the Southeast Quarter of the Northeast Quarter of
Section 16, T. 2S., R. 4E., S.L.M., said point is also located
S.28DEG.50'00"E. 1.09 feet and N.61DEG.10'00"E. 128.93 feet from the survey
monument located at the intersection of Park Avenue and 9th Street; said
point is also on a 15.00 foot radius curve to the left, whose radius point
bears S.78DEG.13'17"W.; and running thence along the arc of said curve 7.79
feet through a central angle of 29DEG.44'47" to a point of a 302.00 foot
radius curve to the right, whose radius point bears N.48DEG.28'30"E; thence
along the arc of said curve 27.95 feet through a central angle of
5DEG.18'09" to a point on a 42.00 foot radius curve to the right, whose
radius point bears N.53DEG.46'38"E.; thence along the arc of said curve
74.50 feet through a central angle of 101DEG.38'09" to a point on a 302.00
foot radius curve to the right, whose radius point bears S.24DEG.35'13"E.;
thence along the arc of said curve 37.59 feet through a central angle of
7DEG.07'56" to a point on a 155.00 foot radius curve to the left, whose
radius point bears S.82DEG.37'34"E.; thence along the arc of said curve
69.83 feet through a central angle of 25DEG.48'41" to a point on a 15.00
foot radius curve to the right, whose radius point bears S.71DEG.33'46"W.;
thence along the arc of said curve 20.21 feet through a central angle of
77DEG.11'14"; thence S.58DEG.45'00"W. 35.93 feet to the point of beginning.
H--OFFICE BUILDINGS
LAKE DISTRICT SERVICE CENTER--PARCEL NUMBER DV-170
Lands in DAVIS County, State of UTAH
A tract of land situated in the NW1/4 of the SW1/4 of Section 26, T. 2N.,
R. 1W., S.L.M., described as follows: Beginning at a point on the North
line of the said Southwest Quarter lying on the East Right of Way line of
1800 West Street, said point being South 89DEG.56'39" East 70.12 feet from
the Northwest corner of the said Southwest Quarter (West One Quarter
Corner, a found brass cap) of said Section 26; thence continuing South
89DEG.56'39" East along the North line of the said Southwest quarter,
532.65 feet; thence South 0DEG.13'19" East 814.00 feet; thence North
89DEG.56'39" West 535.51 feet to a point on the East Right of Way line of
1800 West Street; thence North 0DEG.19'07" West along said Right of Way
line, 409.50 feet to a Right of Way Marker; thence North 0DEG.16'55" East
along said Right of Way line 404.50 feet to the point of beginning.
ENERGY WEST OFFICE--PARCEL NUMBER EM-476
Lands in EMERY County, State of UTAH
Beginning at the Southwest corner of Lot 1, Block 37, Huntington Townsite
Survey; thence East 0.25 feet, thence North 235.25 feet, thence West 0.50
feet, thence South 235.25 feet, thence East 0.25 feet, more or less, to the
point of beginning.
WASATCH FRONT BUSINESS CENTER--PARCEL NUMBER SL-842
Lands in SALT LAKE County, State of UTAH
Proposed Lot 103A, Lake Park Corporate Centre, being specifically described
as follows:
Beginning at a point S.89DEG.58'39"W. 904.599 feet along the Section line
and North 51.440 feet from the Northeast Corner of Section 30, Township 1
South, Range 1 West, Salt Lake Base and Meridian, and running thence South
601.574 feet to the golf course property described and recorded in Book
7483, beginning on Page 1058 of the official records of the Salt Lake
County Recorder's office; thence N.63DEG.47'23"W. 269.115 feet; thence
S.79DEG.05'55"W. 167.569 feet; thence West 53.112 feet; thence
N.04DEG.40'38"E. 421.995 feet to the Southerly right-of-way line of Lake
Park Boulevard; thence along
35
<PAGE>
last said right-of-way line N.80DEG.30'00"E. 199.148 feet; thence
N.78DEG.11'16"E. 173.521 feet along the South line of a widened portion
of said Lake Park Boulevard; thence Northeasterly 63.735 feet along an
844.000 foot radius curve to the left (Delta = 04DEG.19'36" and chord
bears N.66DEG.28'56"E. 63.720 feet) to the point of beginning.
EVANSTON TECH OPS CENTER--PARCEL NUMBER UY-013
Lands in UINTA County, State of WYOMING
Lot 3 in Block 2 of the Evanston Industrial Center Addition to the City of
Evanston.
H-41--ROSEBURG OFFICE/SERVICE CENTER
In DOUGLAS County, State of OREGON:
H-41--ITEM 2: Commencing at the Northwest corner of the Charles Smith
Donation Land Claim No. 43 in Section 11, Township 28 South, Range 6 West
of the Willamette Meridian; thence South 33DEG.47'44" West 947.50 feet
(record South 34DEG.44' West 952.7 feet) to the southeasterly corner of
that tract described in Book 898, Page 177 of the Deed records of Douglas
County, Oregon, said point being on the westerly boundary of the right of
way of Pacific Highway 99, and from which a 3/4 inch iron bolt bears North
75DEG.32' West 0.49 feet; thence North 14DEG.28'29" East (record North
15DEG.39' East) along said right of way boundary 391.13 feet to a 5/8 inch
diameter iron pin for the true POINT OF BEGINNING; thence continuing along
said westerly right of way boundary, North 14DEG.28'29" East 643.12 feet to
a 5/8 inch diameter iron pin at the northeast corner of said described
tract; thence leaving said westerly right of way boundary, North
75DEG.36'08" West 412.53 feet (record North 74DEG.21' West 413.1 feet) to
the northwest corner of said described tract, being on the easterly
boundary of the Southern Pacific Railroad lands; thence South 15DEG.47'48"
West along said easterly boundary 352.34 feet; thence south 74DEG.12'12"
East 30.00 feet to a 5/8 inch diameter iron pin; thence continuing along
said easterly boundary, South 15DEG.47'48" West 290.23 feet to a 5/8 inch
diameter iron pin; thence leaving said easterly boundary South 75DEG.36'08"
East 397.37 feet to the point of beginning.
H-49--CLATSOP SERVICE CENTER
In CLATSOP County, State of OREGON:
H-49--ITEM: Tract 11, Rodney Acres, in the City of Warrenton.
H-50--ADDITION TO GRANTS PASS SERVICE CENTER
In JOSEPHINE County, State of OREGON:
H-50--ITEM: A tract of land situated in the Southeast Quarter of Section
19, Township 36 South, Range 5 West, of Willamette Meridian, described as
follows: Beginning at a point which is 1755 feet North and 1302 feet East
of the South Quarter corner of said Section, said point being on the West
boundary of the county road; thence North 106 feet, more or less, to the
Southeast corner of a parcel of land conveyed to the Union Oil Company, by
deed recorded in Deed Book 54, at page 454; thence West 203 feet to the
center of irrigation ditch; thence South 10DEG. 20'00" East along the
center of said ditch, 107.64 feet to a point West of the point of
beginning; thence East 184 feet to the point of beginning; except that
portion lying within relocated 6th Street as described in Final Order in
Case No. 77-557L, Josephine County Court Records.
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<PAGE>
H-51--STAYTON OFFICE/SERVICE CENTER
In MARION County, State of OREGON:
H-51--ITEM: Lots 2, 3, 7 and 8, Block 1, STAYTON INDUSTRIAL PARK in the
City of STAYTON.
H-52--PENDLETON SERVICE CENTER
In UMATILLA County, State of OREGON:
H-52--ITEM: Lot 2 of Partition Plat 1994-39 recorded November 30, 1994 in
Partition Plat records; situated in the Southwest Quarter of Section 5,
Township 2 North, Range 32 East, of the Willamette Meridian.
H-53--SISKIYOU (YREKA) POWER BUILDING
In SISKIYOU County, State of CALIFORNIA:
H-53--ITEM: Parcel 1, as shown on that certain parcel map for Edward and
Sandra Miley Trusts, being located in the North 1/2 of Section 34, T. 45
N., R. 7 W., M.D.M. filed for record January 21, 1994, in parcel map book
11, page 116, Siskiyou County Recorder's Office.
H-54--YAKIMA OPERATIONS CENTER
In YAKIMA County, State of Washington:
H-54--ITEM: All that part of Tracts 8 and 7, J.H. Hathaway's Five Acre
Tracts in Section 13, Township 13, Range 18 East, W.M., described as
follows:
Beginning at the southwest corner of Tract 8, J. H. Hathaway's Five Acre
Tracts, according to the plat recorded in volume "A" of Plats, page 26, records
of said County; thence north along the west line of said tract, 311 feet; thence
east parallel with the south line of said tract, 315 feet; thence south 311
feet; thence west to the point of beginning; with all appurtenances and
improvements thereto.
IN WITNESS WHEREOF, PACIFICORP has caused its corporate name to be hereunto
affixed, and this instrument to be signed and sealed by an Authorized Executive
Officer of the Company, and its corporate seal to be attested to by its
Secretary or one of its Assistant Secretaries for and in its behalf, and The
Chase Manhattan Bank has caused its corporate name to be hereunto affixed, and
this instrument to
37
<PAGE>
be signed and sealed by one of its Vice Presidents or one of its Assistant
Vice Presidents, and its corporate seal to be attested to by one of its
Senior Trust Officers, all as of the day and year first above written.
[SEAL] PACIFICORP
By /s/ W. E. Peressini
--------------------------
WILLIAM E. PERESSINI
VICE PRESIDENT AND TREASURER
/s/ Lenore M. Martin
-------------------------
Attest: LENORE M. MARTIN
ASSISTANT SECRETARY
[SEAL] THE CHASE MANHATTAN BANK
as Trustee
By /s/ Glenn G. McKeever
--------------------------
GLENN G. MCKEEVER
VICE PRESIDENT
/s/ L. O'Brien
------------------------
Attest: L. O'BRIEN
SENIOR TRUST OFFICER
38
<PAGE>
STATE OF OREGON )
COUNTY OF MULTNOMAH ) SS.:
On this 3rd day of November, 1998, before me, SHERYL L. STRATTON, a
Notary Public in and for the State of Oregon, personally appeared WILLIAM E.
PERESSINI AND LENORE M. MARTIN, known to me to be a Vice President and Treasurer
and an Assistant Secretary, respectively, of PACIFICORP, an Oregon corporation,
who being duly sworn, stated that the seal affixed to the foregoing instrument
is the corporate seal of said corporation and acknowledged this instrument to be
the free, voluntary and in all respects duly and properly authorized act and
deed of said corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and official seal the
day and year first above written.
/s/ Sheryl Lee Stratton
----------------------------------
[SEAL] My commission expires: May 25, 2000
Residing at: Portland, Oregon
Commission No. 053955
STATE OF NEW YORK )
COUNTY OF NEW YORK ) SS.:
On this 4th day of November, 1998, before me, Emily Fayan,
a Notary Public in and for the State of New York, personally appeared GLENN G.
MCKEEVER AND L. O'BRIEN, known to me to be a Vice President and a Senior Trust
Officer, respectively, of THE CHASE MANHATTAN BANK, a New York corporation, who
being duly sworn, stated that the seal affixed to the foregoing instrument is
the corporate seal of said corporation and acknowledged this instrument to be
the free, voluntary and in all respects duly and properly authorized act and
deed of said corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and official seal the
day and year first above written.
[SEAL]
/s/ Emily Fayan
------------------------------------
Notary Public, State of New York
[STAMP]
39
<PAGE>
PACIFICORP
COMPENSATION REDUCTION PLAN
DECEMBER 1, 1994
(AS AMENDED THROUGH AMENDMENT NO. 3)
PACIFICORP
AN OREGON CORPORATION
700 NE MULTNOMAH
PORTLAND, OREGON 97232 COMPANY
[LETTERHEAD]
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
1. ADMINISTRATION; PLAN YEAR 1
2. ELIGIBILITY 2
3. DEFERRAL ELECTION 2
4. DEFERRED COMPENSATION ACCOUNTS 3
5. TRUST 5
6. TIME AND MANNER OF PAYMENT 6
7. DEATH OR DISABILITY 8
8. WITHDRAWALS 10
9. SUPPLEMENTAL PENSION BENEFIT 11
10. AMENDMENT; TERMINATION 11
11. CLAIMS PROCEDURE 13
12. GENERAL PROVISIONS 14
13. EXPENSES 15
14. EFFECTIVE DATE 15
</TABLE>
i
<PAGE>
INDEX OF TERMS
<TABLE>
<CAPTION>
SECTION PAGE
------- ----
<S> <C> <C>
Accounts 4.1 3
Advisory Boards 2.1(b) 2
Change in Control 10.4 12
Code 3.3 2
Committee 1.2 1
Common Stock 3.3 2
Company Preamble 1
Compensation 3.2 2
Controlled Group of Corporations 6.1(b) 6
Credit Account 4.3 4
Deferred Election 3.1 2
Disabled 7.6 9
Employer 1.1 1
Financial Hardship 8.2 10
LTIP 3.3 2
Participant 2.2 2
Plan 1 1
Plan Year 1.3 1
Restricted Stock Awards 3.3 2
Retirement Plan 6.3(a) 7
Stock Account 4.2 4
Trust 5.1 5
Years of Service 6.3(b) 7
</TABLE>
ii
<PAGE>
PACIFICORP
COMPENSATION REDUCTION PLAN
DECEMBER 1, 1994
(AS AMENDED BY AMENDMENT NO. 3)
PACIFICORP
AN OREGON CORPORATION
700 NE MULTNOMAH
PORTLAND, OREGON 97232 "COMPANY"
The Company adopts this Compensation Reduction Plan (the "Plan") as a
nonqualified plan of deferred compensation for directors and a select group of
management or highly compensated employees. The purpose of the Plan is to
provide an additional benefit to eligible directors and employees as a means to
attract and retain highly effective individuals. Furthermore, by allowing
Participants to elect to have their deferred compensation adjusted by the
performance of Company stock, the Plan provides a vehicle for further incentive
to improve the economic return to shareholders.
1. ADMINISTRATION; PLAN YEAR.
1.1 The Plan shall apply to the Company and affiliates of the Company
for whom an eligible employee or director performs services. The term
"Employer" refers to the Company or such affiliate for which such services are
performed.
1.2 This Plan shall be administered by the Personnel Committee of the
Board of Directors of the Company (the "Committee"). The Committee shall
interpret the Plan, determine eligibility and the amount of benefits, maintain
records, determine interest rates and stock credits and generally be responsible
for seeing that the purposes of the Plan are accomplished. The Committee may
delegate all or part of its administrative duties to others.
1.3 The fiscal year of the Plan (the "Plan Year") shall be a calendar
year.
1.4 The Plan is unfunded for tax purposes and for purposes of Title I
of ERISA.
<PAGE>
2. ELIGIBILITY.
2.1 The following persons shall be eligible to participate in this
Plan:
(a) A director of the Company;
(b) A member of the Advisory Boards of Pacific Power
and Light Company and Utah Power and Light Company (together
the "Advisory Boards");
(c) An executive officer of the Company; and
(d) Any other employee of the Company or an affiliate
who is designated in writing for participation in the Plan
by the Chief Executive Officer of the Company.
2.2 An eligible employee or director who elects to defer Compensation
or Restricted Stock Awards pursuant to Section 3 for any Plan Year shall
participate in the Plan (a "Participant").
3. DEFERRAL ELECTION.
3.1 An eligible employee or director may elect to participate for
each Plan Year by completing a form prescribed by the Committee (a "Deferral
Election"), signing it and returning it to the Committee. The Deferral Election
may provide for a deferral of Compensation under 3.2 or deferral of Restricted
Stock Awards under 3.3, or both.
3.2 "Compensation" means an eligible director's retainer and fees and
an eligible employee's salary and bonus earned within the Plan Year for which a
Deferral Election is made. The Deferral Election shall designate a dollar
amount or percentage to be deferred out of the director's annual retainer and/or
fees, or the employee's annual salary and/or bonus, which dollar amount or
percentage may be different as between retainer and fee, or salary and bonus.
The minimum annual retainer deferred shall be $3,600 and the minimum monthly
salary deferred shall be $300.
3.3 "Restricted Stock Award" means a grant to a Participant of
restricted Common Stock of the Company (the "Common Stock") under the PacifiCorp
Long-Term Incentive Plan, as amended by the 1993 Restatement (the "LTIP"), or
under another plan or arrangement providing for the grant of Common Stock in
connection with performance of services that is not substantially vested for
purposes of Section 83 of the Internal Revenue Code of 1986, as amended (the
"Code"). The Deferral Election for a Plan Year shall apply to any portion of a
Restricted Stock Award that vests within the 12-month period starting on May 1
of such Plan
2
<PAGE>
Year, and such portion shall be considered as vested based on actions
required to be taken during such Plan Year. The Participant may elect
deferral of all or one-half of such portion, except that no deferral shall be
allowed of a Restricted Stock Award as to which the Participant has made an
election under Section 83(b) of the Code.
3.4 To be effective for a Plan Year, the Deferral Election must be
returned before January 1 of the Plan Year, except as follows:
(a) The Deferral Election of an eligible employee's
1994 bonus must be returned by December 30, 1994.
(b) The Deferral Election of an eligible employee's
Restricted Stock Award granted under the LTIP or an
individual agreement and becoming vested as of a date in
February 1995 based on actions required to be taken in 1994
must be returned by December 30, 1994.
(c) A Participant who becomes eligible under 2.1
during a Plan Year may return a Deferral Election for that
Plan Year within 30 days after the eligibility date. Such
Deferral Election shall be effective for Compensation and
Restricted Stock Awards for such Plan Year that are payable
after the eligibility date.
3.5 The Employer shall reduce the Participant's Compensation by the
amounts deferred and shall credit such amounts and any deferred Restricted Stock
Awards to the Participant's Account(s) as provided under Section 4. Amounts due
for FICA taxes on an employee-Participant's elected amounts, including all
deferred Compensation and Restricted Stock Awards, will be withheld from the
Participant's remaining nondeferred Compensation. If an employee-Participant
has no remaining nondeferred Compensation, such employee-Participant shall pay
cash to the Employer in an amount sufficient to cover amounts due for FICA taxes
on the employee-Participant's deferrals.
4. DEFERRED COMPENSATION ACCOUNTS.
4.1 Each Participant shall have one or two Accounts in the Plan: a
Stock Account and/or a Credit Account (individually, an "Account" and
collectively, the "Accounts"). Compensation deferred by a Participant under
Section 3 shall be credited to the Stock Account or Credit Account as elected by
the Participant in the Deferral Election. Such election may be divided between
the two Accounts in increments of 25 percent of the deferred Compensation
governed by the election, except as provided in 4.4. An election between the
Stock Account or
3
<PAGE>
the Credit Account shall be irrevocable as to the deferred Compensation
covered by the election. Restricted Stock Awards deferred by a Participant
under Section 3 shall be credited to the Stock Account.
4.2 A Participant's Stock Account shall be denominated in shares of
the Company's publicly traded common stock ("Common Stock"), including
fractional shares. With respect to each amount of Compensation deferred to the
Stock Account, the Participant's Stock Account shall be credited with a number
of shares equal to the deferred Compensation divided by the market value of the
Common Stock on the day the deferred Compensation would have been paid had it
not been deferred. As of each date for payment of dividends on the Common
Stock, the Participant's Stock Account shall be credited with an additional
number of shares (including fractional shares) equal to the amount of dividends
that would be paid on the number of shares recorded as the balance of the Stock
Account as of the record date for such dividend divided by the market value per
share of Common Stock on such payment date. Market value for purposes of this
section shall be the closing price on the New York Stock Exchange as of the
relevant date. If the day to be used for valuing Common Stock in a deferral of
Compensation or a dividend payment date is not a trading day, market value shall
be taken from the last preceding trading day.
4.3 A Participant's Credit Account shall be denominated in dollars.
As of each date on which a Participant would have received Compensation deferred
to the Credit Account had it not been deferred, the amount of the deferred
Compensation shall be credited to the Participant's Credit Account. The Credit
Account also shall be credited with interest on the balance in the Account until
the entire Account has been paid out. Interest shall be compounded monthly at
the rate determined as of the last business day of the preceding calendar
quarter. The rate of interest shall be the Moody's Intermediate Corporate Bond
Yield for Aa rated Public Utility Bonds. If the index described in the
foregoing sentence ceases to exist, the rate of interest shall be determined
under the most nearly comparable index as selected by the Committee.
4.4 A Participant shall be permitted to transfer amounts from the
Credit Account to the Stock Account up to two times each year. Such transfers
shall be permitted within a period commencing with the third business day
following each date on which the Company releases its earnings report for the
preceding calendar quarter and ending with the twelfth business day following
such date. The minimum amount of each transfer shall be $2,000.
4.5 The Accounts shall be established solely for the purpose of
measuring the amount owed to a Participant under the Plan and shall not give
Participants any ownership rights in any assets of the Company or the Trust.
4
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4.6 The Plan shall accept and hold amounts transferred from the
PacifiCorp Holdings, Inc. Executive Deferred Compensation Plan, formerly the
Pacific Telecom, Inc. Executive Deferred Compensation Plan (the PHI Plan), as
follows:
(a) The amounts transferred shall be for Participants
who are removed from participation in the PHI Plan pursuant
to 2.1(a) of the PHI Plan.
(b) The transferred amounts shall be credited to the
Participant's Stock Account and/or Credit Account under 4.1
based on an election made by the Participant at the time of
transfer.
(c) The transferred amounts shall be paid to the
Participant in accordance with the payment forms and
elections made by the Participant under the PHI Plan, but
shall be an obligation of the Company.
(d) The trustee of the Trust shall accept assets
related to the transferred amount from the trustee of the
trust established for the PHI Plan, shall pay to the Company
any transferred amount as to which the Participant has
elected placement in the Credit Account, and shall hold any
remaining transferred amounts in the Trust.
5. TRUST.
5.1 The Company shall establish a trust with a financial institution
for payment of benefits under the Stock Account described in 4.2 (the "Trust").
The Trust may be established by amendment to the PacifiCorp Supplemental
Executive Retirement Trust or by separate agreement. The Trust shall be a
grantor trust for tax purposes and shall provide that any assets contributed to
the trustee shall be used exclusively for payment of benefits under 4.2 of this
Plan except in the event the Company becomes insolvent, in which case the trust
fund shall be held for payment of the Company's obligations to its general
creditors. The Trust shall further provide that all rights associated with the
assets of the Trust shall be exercised by the trustee, or a person designated by
the trustee, and in no event shall be exercisable by or rest with Participants.
5.2 The Company shall periodically contribute to the Trust the
amounts necessary to purchase Common Stock equal to the total balance of all
Stock Accounts. Such contributions shall be held in a separate fund within the
Trust for the sole purpose of paying benefits under
5
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the Plan measured by Stock Accounts, except as provided in the Trust document
upon the Company's insolvency. The assets of such fund shall be invested by
the trustee in Common Stock. If the assets of such fund exceed the total
balance of all Stock Accounts, the excess shall be retained in the fund until
reduced by payment of benefits.
5.3 The Company may, in its discretion, contribute amounts to the
Trust to be held in a separate fund for the sole purpose of paying benefits
under the Plan measured by the Credit Accounts described in 4.3, except as
provided in the Trust document upon the Company's insolvency. The assets of
such fund shall be invested by the trustee in accordance with instructions by
the Committee. If the assets of such fund exceed the total balance of all
Credit Accounts, the excess shall be retained in the fund until reduced by
payment of benefits.
5.4 Common Stock included in any deferred Restricted Stock Award
shall be transferred to the Trustee as soon as practicable after the date that
such Restricted Stock Award vests, which date may be after the end of the Plan
Year for which the Deferral Election was made.
6. TIME AND MANNER OF PAYMENT.
6.1 A benefit based on the Participant's deferrals shall be paid to
the Participant at a time determined as follows:
(a) A benefit derived from deferral of Compensation or
from deferral of Restricted Stock Awards receivable as a
member of the Company's Board of Directors or the Advisory
Boards shall be payable upon termination of membership of
the Participant on such Board of Directors and Advisory
Boards.
(b) A benefit derived from deferral of Compensation or
from deferral of Restricted Stock Awards receivable as an
employee shall be payable upon termination of all employment
with the controlled group of corporations, as defined in
Section 1563(a) of the Code, of which the Company is a
member.
(c) A benefit derived from deferral of Compensation or
from deferral of Restricted Stock Awards with respect to
which the Participant elected payment on a date certain
under 6.5(c) shall be payable on that date.
6
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6.2 The total benefit payable to a Participant shall be an amount
equal to the Participant's Accounts. Subject to 6.4, the method of payment
shall be determined as follows:
(a) An amount payable to an employee-Participant
upon a termination of employment described in 6.1(b) that
does not constitute a retirement under 6.3 shall be paid as
soon as practicable after the January 15 following the
employment termination.
(b) An amount payable in circumstances other than
those described in (a) shall be paid by the method selected
by the Participant under 6.5.
6.3 An employee-Participant's termination of employment shall
constitute a retirement if:
(a) The employee-Participant qualifies at the time of
employment termination for early, normal or deferred
retirement under the PacifiCorp Retirement Plan (the
"Retirement Plan"); or
(b) At the time of employment termination the
employee-Participant is not covered by the Retirement Plan,
has attained age 55 and has completed five "Years of
Service" under the definition of such term in that
Retirement Plan as in effect at the time this Plan is
adopted.
6.4 Subject to 8.1, benefits payable to a Participant from a Stock
Account shall only be paid to such Participant as a distribution of Common Stock
plus cash for fractional shares of Common Stock credited to such Participant's
Stock Account.
6.5 In the Participant's Deferral Election the Participant shall
select the method of payment under 6.2(a) from among the following:
(a) A lump sum from the Credit Account and a
distribution of Common Stock plus cash for fractional shares
from the Stock Account, both as soon as practicable after
the January 15 following the termination of membership on
the Board of Directors or Advisory Boards, or employment.
7
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(b) Substantially equal annual installments of cash
from the Credit Account and Common Stock and cash for
fractional shares from the Stock Account beginning, both as
soon as practicable after the January 15 following the
termination of membership on the Board of Directors or
Advisory Boards, or employment and continuing for 5, 10 or
15 years.
(c) A lump sum from the Credit Account and a
distribution of Common Stock plus cash for fractional shares
from the Stock Account, both as soon as practicable after a
date certain.
6.6 A Participant's selection under 6.5 shall be irrevocable for
deferrals credited to the Participant's Account(s) while the selection is in
effect and any interest credited thereto. Upon application from a Participant
at the time of termination of membership on the Board of Directors or Advisory
Boards, termination of employment or at the date certain specified in such
Participant's Deferral Election, the Company, in its sole discretion, may change
the form of payment. The application shall be submitted to the Committee, which
shall transmit it to the Company. The Company shall consider its capital
requirements and the effective cost of funds. If the Company modifies the form
of payment, such a change may require a reduction in the rate of interest
credited to the Participant's Credit Account to three percentage points less
than the rate stated in 4.3, or such a change may require the Company to reduce
the total value of Participant's Stock Account by a specified discount
determined upon such application.
6.7 The Employer may withhold from any payments any deductions
required by law. If payments of cash are insufficient to cover the entire
amount required to be withheld, the Employer may withhold the required amounts
from nondeferred Compensation or require the Participant to pay such amounts.
7. DEATH OR DISABILITY.
7.1 Regardless of the provisions of Section 6, amounts payable to a
Participant thereunder shall be payable under 7.2 through 7.6 on the
Participant's death or disability.
7.2 On death, the amount payable shall be paid as follows:
(a) If the recipient is the surviving spouse and the
Participant had selected an installment payout, by
installments in accordance with the selection under 6.5,
beginning within 60 days after the Participant's death.
8
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(b) In all other cases, by a lump sum from the Credit
Account and a distribution of Common Stock plus cash for
fractional shares from the Stock Account, payable within 60
days after the Participant's death.
7.3 An amount payable on death of a Participant shall be paid to the
Participant's beneficiary in the following order of priority:
(a) To the surviving beneficiaries designated by the
Participant in writing to the Committee.
(b) To the Participant's estate.
7.4 If a surviving spouse is receiving installments from a Credit
Account and dies when a balance remains in one or both Accounts, the balance
shall be paid to the spouse's estate in a lump sum from the Credit Account and a
distribution of Common Stock plus cash for fractional shares from the Stock
Account.
7.5 A Participant temporarily disabled while employed or receiving
long-term disability benefits under a plan described in 7.6 shall be treated as
employed, and no payments will be made under this Plan. If disability benefits
stop and disability continues, the amount payable shall be paid in the manner
selected under 6.5, with either the lump sum or the first installment due within
30 days of the date the disability benefits stop. If the Participant dies, the
provisions applicable to death shall be followed. If the Participant ceases to
be disabled and does not resume active employment, the amount payable shall be
paid in accordance with Section 6.
7.6 A Participant is disabled if the Committee determines that either
of the following apply:
(a) The Participant is eligible to receive long-term
disability benefits under a plan maintained by the Employer.
(b) In the absence of eligibility for a plan described
in (a), the Participant is permanently and totally disabled
on the basis of comparable criteria.
9
<PAGE>
8. WITHDRAWALS.
8.1 A Participant or surviving spouse may withdraw the Participant's
entire Account at any time before the Account would otherwise be payable. The
amount paid on such a withdrawal shall be discounted ten percent from the stated
balance of the Account. The other ten percent shall be forfeited as a penalty
for early withdrawal. Distributions upon such a withdrawal shall be paid in
cash from the Credit Account and in the form of Common Stock from the Stock
Account.
8.2 A Participant or surviving spouse may withdraw amounts from an
Account before those amounts would otherwise have been paid because of Financial
Hardship, as determined by the Committee. The withdrawal shall be limited to
the amount reasonably necessary to meet the Financial Hardship. Distributions
based upon Financial Hardship shall be paid entirely in cash even if withdrawals
are from a Stock Account.
8.3 "Financial Hardship" means a Participant's or surviving spouse's
immediate and substantial financial need that cannot be met from other
reasonably available resources and is caused by one or more of the following:
(a) Medical expenses for the Participant or surviving
spouse, a member of the Participant's or surviving spouse's
immediate family or household, or other dependent.
(b) Loss of or damage to a Participant's possessions
or property due to casualty.
(c) Other extraordinary and unforeseeable
circumstances arising from events beyond the Participant's
control.
8.4 The Committee shall establish guidelines and procedures for
implementing withdrawals. An application shall be written, be signed by the
Participant or surviving spouse and include a statement of facts causing the
Financial Hardship, if applicable, and any other facts required by the
Committee.
8.5 The withdrawal date shall be fixed by the Committee. The
Committee may require a minimum advance notice and may limit the amount, time
and frequency of withdrawals.
10
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9. SUPPLEMENTAL PENSION BENEFIT.
9.1 The Company's Retirement Plan provides retirement benefits for
eligible employees based in part on Compensation. A Participant that elects
deferral of Compensation may receive smaller benefits under the Retirement Plan
than would have been paid if none of the Participant's Compensation had been
deferred. If the Participant receives benefits under the PacifiCorp
Supplemental Executive Retirement Plan, or another nonqualified deferred
compensation plan providing benefits that are offset by benefits of the
Retirement Plan, the reduction in Retirement Plan benefits may be made up.
9.2 If a Participant receives benefits under the Company's Retirement
Plan that are reduced as a result of deferrals under this Plan and not made up
by another nonqualified deferred compensation plan, a supplemental pension
benefit shall be paid under this Plan as follows:
(a) The supplemental pension benefit shall be the
amount by which the benefit payable from the Retirement Plan
is less than the amount of such benefit that would have been
payable if the Participant had not deferred Compensation
under this Plan.
(b) Employer shall pay the supplemental pension
benefit to the Participant at the same time and in the same
form as the Participant's benefit is paid under the
Retirement Plan.
10. AMENDMENT; TERMINATION.
10.1 The Company may amend this Plan effective the first day of any
month by notice to the Participants, except the provisions in 4.2 on adjustments
of Stock Accounts shall not be changed, nor shall the rate of interest credited
under 4.3 be reduced, without the consent of a Participant as to the
Participant's Credit Account or Stock Account balance as of the date of the
change or reduction.
10.2 Subject to 10.4 at any time the Company may terminate the Plan
and pay out all amounts payable to the Participants, spouses or other persons
then entitled to such amounts and thereby discharge all the benefit obligations
of the Plan. Upon such termination any assets remaining in the Trust shall be
returned to the Company.
10.3 If the Internal Revenue Service issues a final ruling that any
amounts deferred under this Plan will be subject to current income tax, all
amounts to which the ruling is applicable shall be paid to the Participants
within 30 days.
11
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10.4 After a Change in Control, the Company may not terminate the
Plan pursuant to 10.2 without receiving written approval by Participants with
Accounts constituting a majority of the aggregate balance of all the Accounts
in the Plan at the time of the Change in Control. "Change in Control" shall
mean the occurrence of any of the following events:
(a) The consummation of:
(1) any consolidation, merger or plan of share
exchange involving the Company (a "Merger") as a result of
which the holders of outstanding securities of the Company
ordinarily having the right to vote for the election of
directors ("Voting Securities") immediately prior to the
Merger do not continue to hold at least 50 percent of the
combined voting power of the outstanding Voting Securities
of the surviving or continuing corporation immediately after
the Merger, disregarding any Voting Securities issued or
retained by such holders in respect of securities of any
other party to the Merger; or
(2) any sale, lease, exchange or other transfer (in
one transaction or a series of related transactions) of all,
or substantially all, the assets of the Company.
(b) At any time during a period of two consecutive years,
individuals who at the beginning of such period constituted the
Board ("Incumbent Directors") shall cease for any reason to
constitute at least a majority thereof; provided, however, that
the term "Incumbent Director" shall also include each new
director elected during such two-year period whose nomination or
election was approved by two-thirds of the Incumbent Directors
then in office.
(c) Any "person" or "group" (within the meaning of Sections
13(d) and 14(d)(2) of the Securities Exchange Act of 1934, as
amended (the "Act")) shall, as a result of a tender or exchange
offer, open market purchases or privately negotiated purchases
from anyone other than the Company, have become the beneficial
owner (within the meaning of Rule 13d-3 under
12
<PAGE>
the Act), directly or indirectly, of Voting Securities
representing 20 percent or more of the combined voting
power of the then outstanding Voting Securities.
11. CLAIMS PROCEDURE.
11.1 Any person claiming a benefit or requesting an interpretation,
ruling or information under the Plan shall present the request in writing to the
Committee, which shall respond in writing as soon as practicable.
11.2 If the claim or request is denied, the written notice of denial
shall state:
(a) The reasons for denial, with specific reference to
the Plan provisions on which the denial is based.
(b) A description of any additional materials or
information required and an explanation of why it is
necessary.
(c) An explanation of the Plan's claim review
procedure.
11.3 The initial notice of denial shall normally be given within 90
days of receipt of the claim. If special circumstances require an extension of
time, the claimant shall be so notified and the time limit shall be 180 days.
11.4 Any person whose claim or request is denied or who has not
received a response within the time period described in 11.3 may request review
by notice in writing to the Committee. The original decision shall be reviewed
by the Committee, which may, but shall not be required to, grant the claimant a
hearing. On review, whether or not there is a hearing, the claimant may have
representation, examine pertinent documents and submit issues and comments in
writing.
11.5 The decision on review shall ordinarily be made within 60 days.
If an extension of time is required for a hearing or other special
circumstances, the claimant shall be so notified and the time limit shall be 120
days. The decision shall be in writing and shall state the reasons and the
relevant plan provisions. All decisions on review shall be final and bind all
parties concerned.
13
<PAGE>
12. GENERAL PROVISIONS.
12.1 If suit or action is instituted to enforce any rights under this
Plan, the prevailing party may recover from the other party reasonable
attorneys' fees at trial and on any appeal.
12.2 Any notice under this Plan shall be in writing and shall be
effective when actually delivered or, if mailed, when deposited as first class
mail postage prepaid. Mail shall be directed to the Company at the address
stated in this Plan, to the Participant's last known home address shown in the
Company's records, or to such other address as a party may specify by notice to
the other parties. Notices to an Employer or the Committee shall be sent to the
Company's address.
12.3 The rights of a Participant under this Plan are personal.
Except for the limited provisions of Section 7 no interest of a Participant or
one claiming through a Participant may be directly or indirectly assigned,
transferred or encumbered and no such interest shall be subject to seizure by
legal process or in any other way subjected to the claims of any creditor. A
Participant's rights to benefits payable under this Plan are not subject in any
manner to anticipation, alienation, sale, transfer, assignment, pledge or
encumbrance. Such rights shall not be subject to the debts, contracts,
liabilities, engagements or torts of the Participant or the Participant's
beneficiary.
12.4 Following termination of membership on the Board of Directors of
the Company or Advisory Boards or employment, a Participant shall not be a
director or an employee of an Employer or an affiliate for any purpose, and
payments under Sections 6 and 7 shall not constitute salary or wages. A
Participant shall receive such payments as retirement benefits, not as
compensation for performance of any substantial services.
12.5 Amounts payable under this Plan shall be an obligation of the
Company and the Trust described in Section 5. If an Employer merges,
consolidates, or otherwise reorganizes or if its business or assets are acquired
by another company, this Plan shall continue with respect to those eligible
individuals who continue in the employ of the successor company. The transition
of Employers shall not be considered a termination of employment for purposes of
this Plan. In such an event, however, a successor corporation may terminate
this Plan as to its Participants on the effective date of the succession by
notice to Participants within 30 days after the succession.
12.6 The Committee may decide that because of the mental or physical
condition of a person entitled to payments, or because of other relevant
factors, it is in the person's best interest to make payments to others for the
benefit of the person entitled to payment. In that event, the Committee may in
its discretion direct that payments be made as follows:
14
<PAGE>
(a) To a parent or spouse or a child of legal age;
(b) To a legal guardian; or
(c) To one furnishing maintenance, support, or
hospitalization.
13. EXPENSES.
Costs of administration of the Plan will be paid by the Company.
14. EFFECTIVE DATE.
This Plan shall be effective December 1, 1994.
Adopted: November 9, 1994
PACIFICORP
By: MICHAEL J. PITTMAN
-------------------------
Executed: November 30, 1994
AMENDMENT NO. 1 EXECUTED AS FOLLOWS EFFECTIVE JANUARY 1, 1995:
- --------------------------------------------------------------
COMPANY PACIFICORP
By: MICHAEL J. PITTMAN
-------------------------
Executed: February 7, 1995
15
<PAGE>
AMENDMENT NO. 2 EXECUTED AS FOLLOWS EFFECTIVE JANUARY 1, 1996:
- --------------------------------------------------------------
COMPANY PACIFICORP
By: MICHAEL J. PITTMAN
------------------------
Executed: May 27, 1996
AMENDMENT NO. 3 EXECUTED AS FOLLOWS EFFECTIVE JANUARY 1, 1999:
- --------------------------------------------------------------
Adopted: November 18, 1998
COMPANY PACIFICORP
By: KEITH McKENNON
------------------------
Executed: November 20, 1998
16
<PAGE>
PACIFICORP STOCK INCENTIVE PLAN
AND
PACIFICORP LONG TERM INCENTIVE PLAN
NOTICE OF AMENDMENT TO RESTRICTED STOCK AGREEMENT
(PERFORMANCE BASED)
On November 18, 1998, the Board of Directors of PacifiCorp (the "Company")
approved amendments to all outstanding restricted stock awards granted under the
Company's Stock Incentive Plan and the Company's Long Term Incentive Plan. This
Notice of Amendment is intended to apply to each Restricted Stock Agreement
covering a restricted stock award granted under the Company's Long Term
Incentive Plan and each Restricted Stock Agreement covering a restricted stock
award identified as a "Performance Based" award under the Company's Stock
Incentive Plan. The Company agrees that each Restricted Stock Agreement
covering such a restricted stock award outstanding as of November 18, 1998 is
hereby amended as follows:
1. SECTION 3.2(b) OF THE RESTRICTED STOCK AGREEMENT IS AMENDED TO READ IN ITS
ENTIRETY AS FOLLOWS:
"(b) ACCELERATED VESTING. Any unvested Grant Shares shall
become fully Vested upon the occurrence of any of the following:
(i) Upon a Change in Control, unless such
acceleration of vesting would preclude the availability of "pooling of
interests" accounting. For purposes of this Agreement, "Change in Control"
shall mean the occurrence of any of the following events:
(A) The consummation of:
(1) any consolidation, merger or
plan of share exchange involving the Company (a "Merger") as a result
of which the holders of outstanding securities of the Company
ordinarily having the right to vote for the election of directors
("Voting Securities") immediately prior to the Merger do not continue
to hold at least 50% of the combined voting power of the outstanding
Voting Securities of the surviving or continuing corporation
immediately after the Merger, disregarding any Voting Securities
issued or retained by such holders in respect of securities of any
other party to the Merger; or
(2) any sale, lease, exchange
or other transfer (in one transaction or a series of related
transactions) of all, or substantially all, the assets of the
Company.
(B) At any time during a period of
two consecutive years, individuals who at the beginning of such
period constituted the
1
<PAGE>
Board ("Incumbent Directors") shall cease for any reason to constitute
at least a majority thereof; provided, however, that the term
"Incumbent Director" shall also include each new director elected
during such two-year period whose nomination or election was approved
by two-thirds of the Incumbent Directors then in office; or
(C) Any "person" or "group"
(within the meaning of Sections 13(d) and 14(d)(2) of the
Securities Exchange Act of 1934, as amended (the "Act")) shall,
as a result of a tender or exchange offer, open market purchases
or privately negotiated purchases from anyone other than the
Company, have become the beneficial owner (within the meaning of
Rule 13d-3 under the Act), directly or indirectly, of Voting
Securities representing twenty percent (20%) or more of the
combined voting power of the then outstanding Voting Securities.
(ii) If an "Employer Disposition" occurs and
either (a) the Employee is not employed by the Company or a parent or subsidiary
of the Company within 120 days after such Employer Disposition or (b) the
Employee is employed by the Company or a parent or subsidiary of the Company
within 120 days after such Employer Disposition but leaves such employment on or
before the 120th day. For purposes of this Agreement, an "Employer Disposition"
occurs when all the equity ownership of the subsidiary of the Company employing
the Employee is disposed of and as a result, no part of such equity ownership is
held by the Company or one of its subsidiaries;
(iii) January 1 following the death of the
Employee; or
(iv) Receipt by the Employee of formal written
notice of termination following the permanent and total disability of the
Employee, which shall mean any medically determinable physical or mental
impairment that renders the Employee unable to engage in any substantial gainful
activity and can be expected to result in death or which has lasted or can be
expected to last for a continuous period of not less than 12 months; or
(v) January 1 following the Retirement of the
Employee after age 55 and completion of at least 5 "years of service" within the
meaning of the tax qualified defined benefit plan maintained by the Employee's
employer or, if no such defined benefit plan exists, the Company's defined
benefit plan."
2. ALL OTHER PROVISIONS OF THE RESTRICTED STOCK AGREEMENT SHALL REMAIN IN FULL
FORCE AND EFFECT WITHOUT CHANGE BY THIS NOTICE OF AMENDMENT.
PACIFICORP
By
---------------------------------
2
<PAGE>
CONFORMED COPY
PACIFICORP LONG TERM INCENTIVE PLAN
1993 RESTATEMENT
(AS AMENDED THROUGH AMENDMENT NO. 2)
STOEL RIVES LLP
-------------------------
A T T O R N E Y S
STANDARD INSURANCE CENTER
900 SW FIFTH AVENUE, SUITE 2300
PORTLAND, OREGON 97204-1268
TELEPHONE (503) 224-3380
FAX (503) 220-2480
TDD (503)
<PAGE>
PACIFICORP LONG TERM INCENTIVE PLAN
1993 RESTATEMENT
(AS AMENDED THROUGH AMENDMENT NO. 2)
PacifiCorp, an Oregon corporation (the "Company"), amends and restates
its Long Term Incentive Plan, as adopted effective January 1, 1985 and amended
by Amendment No. 1 effective October 25, 1985, to provide in its entirety as set
forth herein. This Long Term Incentive Plan, as amended and restated (the
"Plan"), shall govern incentive awards made on or after the date the Plan is
approved by the Company's board of directors (the "Board of Directors").
Approval of the Plan by the Board of Directors shall not affect incentive awards
to be made with respect to performance cycles that began under the Company's
existing Long Term Incentive Plan prior to such approval, unless the Company and
the recipients of such awards agree otherwise.
1. PURPOSE AND ADOPTION BY SUBSIDIARIES.
1.1 PURPOSE. The purpose of the Plan, as restated herein, is to
promote the long-term success of the Company and its Subsidiaries by
providing stock-based incentives for selected executive employees of the
Company and its Subsidiaries to exert their best efforts on behalf of the
Company and its shareholders. Awards under the Plan shall take the form of
grants of shares of the Company's Common Stock ("Common Stock"). Such
shares shall be held by Plan participants ("Participants") subject to
satisfaction of such vesting and stock ownership restrictions as may be
specified at the time of grant.
1.2 SUBSIDIARIES. For purposes of this Plan, the term "Subsidiary"
shall mean any corporation that is a member, together with the Company, of
a controlled group of corporations within the meaning of Internal Revenue
Code Section 1563 and that adopts this Plan with the Company's approval.
Awards under the Plan for any Participant employed by a Subsidiary shall be
the financial responsibility of such Subsidiary. The Subsidiary's
agreement to be bound by this obligation and other terms of the Plan shall
be evidenced by a statement of adoption of the Plan executed by the
Subsidiary and by the Company. All grants under the Plan to a
participant employed by a Subsidiary shall be treated for tax purposes as
if made by the Subsidiary and shall be reported accordingly.
2. SHARES SUBJECT TO THE PLAN. Subject to adjustment as provided in
Section 7, the total number of shares of Common Stock that may be awarded under
the Plan shall not exceed 900,000 shares. Shares awarded under the Plan shall
be purchased on the open market for delivery to Participants.
3. EFFECTIVE DATE AND DURATION OF PLAN.
3.1 EFFECTIVE DATE. The Plan shall become effective on the date
adopted by the Board of Directors; provided, however, that no award under
the Plan shall be
<PAGE>
deemed effective until the Plan is approved by the affirmative vote of
the holders of a majority of the securities of the Company represented and
entitled to vote at a duly held meeting of the Company's shareholders at
which a quorum is present. Any award made prior to shareholder approval
of the Plan shall be conditioned on and made subject to such approval.
Subject to this limitation, shares may be awarded under the Plan at any
time after the effective date and before termination of the Plan.
3.2 DURATION AND EARLY TERMINATION. Unless earlier terminated, the
Plan shall continue in effect until all shares available for awards under
the Plan have been awarded and all restrictions on such shares, if any,
have lapsed. The Board of Directors may suspend or terminate the Plan at
any time except with respect to outstanding shares held subject to
restrictions. Termination shall not affect the forfeitability of shares
awarded under the Plan.
4. ADMINISTRATION.
4.1 BOARD OF DIRECTORS. The Plan shall be administered by the Board
of Directors of the Company, which shall determine and designate from time
to time the individuals to whom awards shall be made, the amount of the
awards and the other terms and conditions of the awards. Subject to the
provisions of the Plan, the Board of Directors may from time to time adopt
and amend rules and regulations relating to administration of the Plan,
waive or modify any restriction applicable to shares (except those
restrictions imposed by law) and make all other determinations that are, in
the judgment of the Board of Directors, necessary or desirable for the
administration of the Plan. The interpretation and construction of the
provisions of the Plan and related agreements by the Board of Directors
shall be final and conclusive. The Board of Directors may correct any
defect or supply any omission or reconcile any inconsistency in the Plan or
in any related agreement in the manner and to the extent it shall deem
expedient to carry the Plan into effect, and it shall be the sole and final
judge of such expediency.
4.2 COMMITTEE. The Board of Directors may delegate to a committee of
directors (the "Committee") any or all authority for administration of the
Plan. If authority is delegated to a Committee, all references to the
Board of Directors in the Plan shall mean and relate to the Committee
except (i) as otherwise provided by the Board of Directors, and (ii) that
only the Board of Directors may terminate or amend the Plan as provided in
Sections 3.2 and 11.
4.3 OFFICER. The Board of Directors or the Committee, as applicable,
may delegate to an executive officer of the Company authority to administer
those aspects of the Plan that do not involve selection of Participants or
decisions concerning the timing, pricing, or amounts of awards. No officer
to whom administrative authority has been granted under this Section 4.3
may waive or modify any restriction applicable to shares granted to such
officer under the Plan.
2
<PAGE>
5. ELIGIBILITY. All executive employees of the Company and its
Subsidiaries are eligible for selection as Participants. The Board of Directors
may, from time to time, select as Participants those executive employees who the
Board of Directors believes have made or will make important contributions to
the long-term performance of the Company and its Subsidiaries.
6. AWARDS.
6.1 GRANT CRITERIA. In determining the individuals to whom awards
under the Plan shall be made and the amounts of the awards, the Board of
Directors shall consider criteria such as the following:
(a) Total shareholder return relative to peer companies;
(b) Earnings per share growth over time relative to peer
companies;
(c) Achievement of long term goals, strategies and plans; and
(d) Maintenance of competitive position.
6.2 RESTRICTIONS. Shares awarded shall be subject to such terms,
conditions, and restrictions as may be determined by the Board of Directors
to be consistent with the purpose of the Plan and the best interests of the
Company. The restrictions may include, without limitation, stock transfer
restrictions and forfeiture provisions designed to facilitate the
achievement by Participants of specified stock ownership goals.
6.3 AGREEMENTS. The Board of Directors may require the recipient to
sign an agreement as a condition of the award.
7. CHANGES IN CAPITAL STRUCTURE. If the outstanding Common Stock of the
Company is hereafter increased or decreased or changed into or exchanged for a
different number or kind of shares or other securities of the Company or of
another corporation by reason of any reorganization, merger, consolidation, plan
of exchange, recapitalization, reclassification, stock split-up, combination of
shares or dividend payable in shares, appropriate adjustment shall be made by
the Board of Directors in the number and kind of shares available for awards
under the Plan. Notwithstanding the foregoing, the Board of Directors shall
have no obligation to effect any adjustment that would or might result in the
issuance of fractional shares, and any fractional shares resulting from any
adjustment may be disregarded or provided for in any manner determined by the
Board of Directors. Any such adjustments made by the Board of Directors shall
be conclusive.
3
<PAGE>
8. ACCELERATION UPON TERMINATION AFTER CHANGE IN CONTROL.
Notwithstanding any other provisions of the Plan or related agreements, all
restrictions affecting shares of Common Stock awarded to a Participant under the
Plan shall immediately lapse upon termination of the Participant's employment
within two years after the date on which any of the events described in 8.1, 8.2
or 8.3 has taken place or upon an Employer Disposition described in 8.4, if (i)
the Participant does not become employed by the Company or a Subsidiary within
120 days after such Employer Disposition occurs, or (ii) the Participant becomes
employed by the Company or an affiliate within 120 days after the Employer
Disposition occurs, but leaves such employment on or before the 120th day.
8.1 TENDER OR EXCHANGE OFFER. A tender or exchange offer, other than
one made by the Company, is made for Common Stock (or securities
convertible into Common Stock) and such offer results in a portion of those
securities being purchased and the offeror after the consummation of the
offer is the beneficial owner (as determined pursuant to Section 13(d) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act")),
directly or indirectly, of at least 20 percent of the outstanding Common
Stock ; or
8.2 20 PERCENT OWNER. The Company receives a report on Schedule 13D
under the Exchange Act reporting the beneficial ownership by any person of
20 percent or more of the Company's outstanding Common Stock; or
8.3 BOARD OF DIRECTORS. During any period of 12 months or less,
individuals who at the beginning of such period constituted a majority of
the Board of Directors cease for any reason to constitute a majority
thereof unless the nomination or election of such new directors was
approved by a vote of at least two-thirds of the directors then still in
office who were directors at the beginning of such period.
8.4 EMPLOYER DISPOSITION. All the equity ownership of the Subsidiary
employing the Participant is disposed of and as a result no part of such
equity ownership is held by the Company or one of its Subsidiaries.
9. STOCK CERTIFICATE LEGENDS. The certificates representing shares of
Common Stock awarded under the Plan shall bear any legends required by the Board
of Directors.
10. WITHHOLDING TAX. The Company may require any recipient of an award
under the Plan to pay to the Company in cash upon demand amounts necessary to
satisfy any applicable federal, state or local tax withholding requirements. If
the recipient fails to pay the amount demanded, the Company may withhold that
amount from other amounts payable by the Company to the recipient, including
salary or fees for services, subject to applicable law.
11. AMENDMENT OF PLAN. The Board of Directors may at any time, and from
time to time, modify or amend the Plan in such respects as it shall deem
advisable because of changes in the law while the Plan is in effect or for any
other reason. Except as provided in Sections 4.1 and 8, however, no change in
an award already granted shall be made without the written consent of the
recipient of such award.
4
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12. APPROVALS. The obligations of the Company under the Plan are subject
to the approval of state and federal authorities or agencies with jurisdiction
in the matter. The Company will use its best efforts to take steps required by
state or federal law or applicable regulations, including rules and regulations
of the Securities and Exchange Commission and any stock exchange on which the
Company's shares may then be listed, in connection with the grants under the
Plan. The foregoing notwithstanding, the Company shall not be obligated to
issue or deliver Common Stock under the Plan if such issuance or delivery would
violate applicable state or federal securities laws.
13. EMPLOYMENT AND SERVICE RIGHTS. Nothing in the Plan or any award
pursuant to the Plan shall (i) confer upon any employee any right to be
continued in the employment of the Company or any Subsidiary or interfere in any
way with the right of the Company or any Subsidiary by whom such employee is
employed to terminate such employee's employment at any time, for any reason,
with or without cause, or to decrease such employee's compensation or benefits,
or (ii) confer upon any person engaged by the Company or any Subsidiary any
right to be retained or employed by the Company or any Subsidiary or to the
continuation, extension, renewal, or modification of any compensation, contract,
or arrangement with or by the Company or any Subsidiary.
14. RIGHTS AS A SHAREHOLDER. The recipient of an award under the Plan
shall have the right to vote all shares of Common Stock awarded to such
recipient and shall have the right to all ordinary dividends payable in respect
of such shares, regardless of whether such shares have vested or are subject to
restrictions.
1993 Restatement Adopted by Board of Directors: November 17, 1993
1993 Restatement Approved by Shareholders: May 11, 1994
Amendment No. 1 Adopted by Board of Directors: May 21, 1997
Amendment No. 2 Adopted by Board of Directors: February 11, 1998
6
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CONFORMED COPY
PACIFICORP
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
1996 RESTATEMENT
January 1, 1996
(As Amended through Amendment No. 6)
PacifiCorp
an Oregon corporation
700 NE Multnomah
Portland, Oregon 97232 Company
[LETTERHEAD]
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
INDEX OF TERMS iii
1. PURPOSE; EMPLOYERS; ADMINISTRATION 1
1.1 Purpose 1
1.2 Affiliates; Employers 1
1.3 Administration 2
2. PARTICIPATION; SERVICE; FORFEITURE 2
2.1 Eligibility; Participants 2
2.2 Service 3
2.3 Vesting 3
2.4 Misconduct Forfeiture 3
2.5 Change in Control; Employer Disposition 3
2.6 Removal from Active Participation 4
3. PARTICIPANTS' RETIREMENT BENEFITS 5
3.1 Entitlement; Retirement Dates 5
3.2 Normal Retirement Benefit 5
3.3 Actuarial Equivalents 8
3.4 Early Retirement Benefit 8
3.5 Termination Benefit 10
3.6 Time and Manner of Payment 10
3.7 Time of Payment After Employer Disposition 11
3.8 Basic Plan Make-Up 11
3.9 Benefits After Change in Control 11
4. PRERETIREMENT DEATH BENEFITS 13
4.1 Spouse's Benefit 13
4.2 Dependent Child's Benefit 13
5. DISABILITY 14
5.1 Service Continuation 14
5.2 Benefits 14
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6. CLAIMS PROCEDURE 14
6.1 Original Claim 14
6.2 Denial 14
6.3 Request for Review 15
6.4 Final Decision 15
6.5 Arbitration 15
7. AMENDMENT; TERMINATION 15
7.1 Amendment 15
7.2 Termination 16
8. GENERAL PROVISIONS 16
8.1 Nonassignability 16
8.2 Funding 17
8.3 Trust 17
8.4 Notices 17
8.5 Attorneys' Fees 17
8.6 Indemnity 17
8.7 Applicable Law 18
8.8 Company Obligation 18
8.9 Payment for Individual's Benefit 18
8.10 Not Contract of Employment 18
9. EFFECTIVE DATE 18
</TABLE>
ii
<PAGE>
INDEX OF TERMS
<TABLE>
<CAPTION>
SECTION PAGE
<S> <C> <C>
Accrued Benefit 3.6 10
Actuarial Equivalent 3.3 8
Basic Plan Preamble 1
Benefit Starting Date 3.7 11
Benefit Year 2.2 3
Board 1.3 2
Career Ratio 3.4(b) 9
Change in Control 2.5 3
Chief Executive Officer 2.1 2
Committee 1.3 2
Earliest Normal Retirement Date 3.5 10
Early Retirement Date 3.1(b) 5
Early Retirement Factor 3.4(c) 9
Final Average Pay 3.2(a) 5
Normal Retirement Benefit 3.2 5
Normal Retirement Date 3.1(a) 5
Other Plan Offset 3.2(d) 7
PacifiCorp Primary Insurance Amount 3.2(c) 7
Participant 2.1 2
Performance Benefit 3.2(b) 6
Projected Short Service Factor 3.4(a) 9
Short Service Factor 3.2(b) 6
Year of Participation 2.2 3
Years of Service 2.2 3
</TABLE>
iii
<PAGE>
PACIFICORP
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
1996 RESTATEMENT
JANUARY 1, 1996
(AS AMENDED THROUGH AMENDMENT NO. 6)
PACIFICORP
AN OREGON CORPORATION
700 NE MULTNOMAH
PORTLAND, OREGON 97232 COMPANY
The Company adopted this plan effective January 1, 1988 to providing
retirement benefits for its executive employees and those of Company Affiliates
that adopt the plan with the approval of the Company. The plan is the successor
to several nonqualified supplemental retirement plans maintained by the Company
and its Affiliates. The benefits provided by the plan are in addition to those
provided by the tax qualified defined benefit plans maintained by the Company
and its Affiliates (the Basic Plans).
In order to base eligibility for participation on annual salary rate,
replace a portion of the benefit formula with a Performance Benefit, provide for
earlier vesting and an earlier Early Retirement Date, and eliminate the increase
in benefits commencing after earliest normal retirement date, the Company adopts
this 1996 Restatement.
1. PURPOSE; EMPLOYERS; ADMINISTRATION
1.1 PURPOSE
The purpose of this plan is to provide eligible executive officers of
the Company and its Affiliates with additional retirement benefits that will
help to attract and retain individuals of very high quality.
1.2 AFFILIATES; EMPLOYERS
The plan shall apply to the Company and to Affiliates that adopt the
plan for their employees with the approval of the Company. Affiliate means a
member, with the Company, of a controlled group or group of trades or businesses
under common control under sections
<PAGE>
414(b) or (c) of the Internal Revenue Code. The term "Employer" refers to the
Company and such an adopting Affiliate. Adoption of the plan by an Affiliate
shall be by a statement in writing that is signed by the Affiliate and by the
Company. The statement shall include the effective date of adoption and any
special provisions that are to be applicable to employees of the adopting
Affiliate.
1.3 ADMINISTRATION
This plan shall be administered by the Personnel Committee (the
Committee) of the Company's Board of Directors (the Board). The Committee shall
interpret the plan and make determinations about benefits. Any decision by the
Committee within its authority shall be final and binding on all parties. The
Committee shall consider recommendations from the President of the Company where
provided for in this plan and otherwise in its discretion. The Committee may
delegate any part of its powers and responsibilities to others.
2. PARTICIPATION; SERVICE; FORFEITURE
2.1 ELIGIBILITY; PARTICIPANTS
An individual described in any of the categories in (a) through (f)
shall be eligible to accrue benefits under the plan commencing with the first
of any month as of which the officer's annual base salary rate exceeds
$125,000. If an executive officer receives a lump sum payment in lieu of an
increase in annual base salary rate, the executive officer shall be treated
as having received such increase during the 12-month period to which the lump
sum payment applies for purposes of determining eligibility for the plan. As
of July 1 of each year, commencing with July 1, 1996, the $125,000 shall be
increased by the percentage increase in salary provided by the Company's
nonunion employee merit pool applicable to salary adjustments taking effect
in such year. An individual who has benefits accrued under this plan prior to
the 1996 Restatement and does not satisfy the eligibility requirement of this
2.1 shall participate in the plan for the limited purpose of receiving prior
accrued benefits. An executive officer or other individual who has an
accrued benefit under the plan shall be referred to as a participant.
(a) An executive officer of PacifiCorp.
(b) An officer of Pacific Telecom, Inc.
(c) An officer of PacifiCorp Financial Services, Inc.
(d) The President of Pacific Generation Company.
2
<PAGE>
(e) The President and the Chief Operating Officer of
PacifiCorp Power Marketing, Inc.
(f) Any other executive employee of an Employer who is
recommended for participation by the President of the Company and
approved by the Board of the Company.
2.2 SERVICE
A participant's Years of Service and Benefit Years for purposes of
this plan shall be determined under the rules for such service under the Basic
Plan(s) covering the participant, except as follows. Any limitation of the
Basic Plan(s) on the length of service counted for periods in which no services
are performed shall be disregarded. A participant shall be credited with a Year
of Participation under this plan for each calendar year during which the
participant satisfied the eligibility requirement of 2.1 and was not removed
from active participation under 2.6. A partial Year of Participation shall be
credited based on the number of completed calendar months.
2.3 VESTING
A participant's right to receive benefits under this plan shall be
vested at all times.
2.4 MISCONDUCT FORFEITURE
Unless a Change in Control has occurred, the Committee may forfeit the
benefit for any participant, or the participant's spouse, beneficiary or
contingent annuitant, if:
(a) The participant is discharged for any act that is
materially inimical to the best interests of the Company and that
constitutes, on the part of the participant, common law fraud,
felony, or other gross malfeasance of duty; or
(b) After retirement, the participant performs services for
an organization where there is a major conflict of interest that
is materially adverse to the Company as a whole or any of its
principal subsidiaries.
2.5 CHANGE IN CONTROL
"Change in Control" shall mean the occurrence of any of the following
events:
(a) The consummation of:
3
<PAGE>
(1) any consolidation, merger or plan of share
exchange involving the Company (a "Merger") as a result of
which the holders of outstanding securities of the Company
ordinarily having the right to vote for the election of
directors ("Voting Securities") immediately prior to the
Merger do not continue to hold at least 50 percent of the
combined voting power of the outstanding Voting Securities
of the surviving or continuing corporation immediately after
the Merger, disregarding any Voting Securities issued or
retained by such holders in respect of securities of any
other party to the Merger; or
(2) any sale, lease, exchange or other transfer (in
one transaction or a series of related transactions) of all,
or substantially all, the assets of the Company.
(b) At any time during a period of two consecutive years,
individuals who at the beginning of such period constituted the
Board ("Incumbent Directors") shall cease for any reason to
constitute at least a majority thereof; provided, however, that
the term "Incumbent Director" shall also include each new
director elected during such two-year period whose nomination or
election was approved by two-thirds of the Incumbent Directors
then in office.
(c) Any "person" or "group" (within the meaning of Sections
13(d) and 14(d)(2) of the Securities Exchange Act of 1934, as
amended (the "Act")) shall, as a result of a tender or exchange
offer, open market purchases or privately negotiated purchases
from anyone other than the Company, have become the beneficial
owner (within the meaning of Rule 13d-3 under the Act), directly
or indirectly, of Voting Securities representing 20 percent or
more of the combined voting power of the then outstanding Voting
Securities.
2.6 REMOVAL FROM ACTIVE PARTICIPATION
An individual who previously has qualified for participation under 2.1
shall be removed from active participation as of the first day of any month at
which the individual ceases to so qualify. Upon removal the participant shall
have an Accrued Benefit determined under 3.5 on the basis of the participant's
Final Average Pay, Projected Short Service Factor, Performance Benefit, and
Career Ratio, calculated as of the effective date of removal, and on the
participant's PacifiCorp Primary Insurance Amount and Other Plan Offset
calculated as of the date of benefit commencement. If the participant qualifies
for a retirement benefit under 3.1, the Accrued Benefit shall be paid as either
a normal retirement benefit or an early retirement
4
<PAGE>
benefit depending on whether the participant terminates employment before
normal retirement date. If an early retirement benefit is paid, the Early
Retirement Factor shall be based on the months by which commencement of the
benefit precedes age 60.
3. PARTICIPANTS' RETIREMENT BENEFITS
3.1 ENTITLEMENT; RETIREMENT DATES
A participant shall be entitled to retirement benefits under this plan
on becoming eligible for benefits under a Basic Plan because of termination of
employment after vesting under 2.3 or one of the following retirement dates:
(a) Normal retirement - age 65.
(b) Early retirement - 5 Years of Participation plus
either of the following:
(1) Age 55; or
(2) Age 50 and 15 Years of Service.
3.2 NORMAL RETIREMENT BENEFIT
A participant's normal retirement benefit under this plan shall be a
single life annuity for the life of the participant equal to 50 percent of Final
Average Pay (FAP) plus the Performance Benefit (PB) times the Short Service
Factor (SSF) minus the PacifiCorp Primary Insurance Amount (PPIA) and the Other
Plan Offset (OPO) as follows:
Benefit = [([50% x FAP] + PB) x SSF] - PPIA - OPO
The terms used in this formula are defined as follows:
(a) Final Average Pay (FAP) means the amount
determined for the participant under the Basic Plan, with
the following adjustments:
(1) The limit on annual compensation counted
for any participant to $200,000 per year through
1993 and to $150,000 per year thereafter (both
subject to cost of living adjustments) shall not
apply.
5
<PAGE>
(2) No reduction shall be made for deferrals
elected by the participant under a nonqualified
deferred compensation plan maintained by the
Company or an Affiliate.
(3) No benefit payments under a nonqualified
deferred compensation plan shall be counted.
(4) No part of long-term incentive, stock
bonus or stock option compensation shall be
counted.
(5) All cash bonuses that are not part of a
long-term incentive plan or arrangement shall be
counted, without the 10 percent limit of the Basic
Plan, except as follows. Cash bonuses paid as an
incentive in connection with an acquisition,
disposition, or merger of an entity, business, or
piece of property shall not be counted, except to
the extent designated in writing by the Company.
(6) A bonus earned in one calendar year and
paid in the following calendar year, including any
bonus paid in the year following employment
termination, shall be divided evenly among the
participant's completed calendar months of
employment with Employer during the year the bonus
was earned and counted as compensation in those
months.
(b) Performance Benefit (PB) means an additional 1
percent of Final Average Pay (FAP) for each calendar year of
participation, commencing with 1996, for which the Company
meets a performance goal set by the Committee for that year
and announced to participants. If the participant is
employed by Employer for less than a full year, including a
partial initial or final year of employment, the 1 percent
amount shall be prorated based on the portion of the year
worked. The total amount of Performance Benefit payable to
a participant shall not exceed 15 percent of the
participant's Final Average Pay, minus the number of
percentage points, if any, provided to the participant by
9.2(c).
6
<PAGE>
(c) Short Service Factor (SSF) means a percentage, not
to exceed 100 percent, determined by dividing the
participant's Benefit Years by 15.
(d) PacifiCorp Primary Insurance Amount (PPIA) means
the portion earned while working at PacifiCorp of the
participant's primary insurance amount on retirement at or
after age 65 under the federal Social Security Act
determined as follows:
(1) The amount shall be estimated from the
regular pay rate under rules established by the
Committee assuming a standard pay progression over
a full working career.
(2) The amount shall not be changed by
amendments to the Act or cost of living index
adjustments after the participant's actual
termination date or attainment of Social Security
retirement age, whichever is first.
(3) If a participant retires early, the
Primary Social Security Benefit shall be the
amount that would be received at age 65 assuming
no further earnings and no change in the Act.
(4) The portion earned at PacifiCorp shall
be determined by multiplying the participant's
full primary insurance amount by a ratio of the
participant's Years of Service divided by 35.
(e) Other Plan Offset (OPO) means the sum of the
straight life actuarial equivalents of (1) through (4)
below, as interpreted under (5) below:
(1) Retirement benefits payable under the
Basic Plan, including any benefits assumed from
the Utah Power & Light Company Deferred
Compensation Plan and excess benefits provided by
the Utah Power & Light Company Retirement and
Death Benefit Plan.
7
<PAGE>
(2) Retirement benefits payable under a
defined benefit plan or individual retirement
benefit agreement, whether or not tax-qualified,
on account of service before employment with
Employer.
(3) Benefits paid or payable under a defined
contribution plan on account of service before
employment with Employer if the earlier employer
maintained no defined benefit plan covering the
participant during the period of such service and
the aggregate employer contributions to the
defined contribution plan were 3 percent or more
of the participant's compensation, as defined for
determining Final Average Pay under this plan,
with the earlier employer.
(4) Any amount added to an account of the
participant under a nonqualified deferred
compensation plan maintained by Employer to
compensate for reduction in the Basic Plan benefit
on account of compensation deferrals.
(5) For purposes of determining whether
employer contributions to a defined contribution
plan are 3 percent or more of compensation, and
for measuring the amount of offset, elective
contributions under a 401(k) plan and
contributions individually elected by a
self-employed person shall be disregarded.
3.3 ACTUARIAL EQUIVALENTS
Actuarial equivalents shall be determined on the basis of the
actuarial equivalency factors used by the Basic Plan.
3.4 EARLY RETIREMENT BENEFIT
A participant's early retirement benefit shall be a single life
annuity for the life of the participant equal to 50 percent of Final Average Pay
(FAP) plus the Performance Benefit (PB) times the Projected Short Service Factor
(PSSF) times the Career Ratio (CR) minus the PacifiCorp Primary Insurance Amount
(PPIA) times the Early Retirement Factor (ERF) minus the Other Plan Offset (OPO)
as follows:
8
<PAGE>
Benefit = ([([(50% x FAP) + PB] x PSSF x CR) - PPIA] x ERF) - OPO
The terms Final Average Pay (FAP), Performance Benefit (PB), and PacifiCorp
Primary Insurance Amount (PPIA) are defined in 3.2. The term Other Plan Offset
(OPO) shall be as defined in 3.2, except the offset for a participant whose
Benefit Starting Date is earlier than age 55 shall not apply until the first of
the month after age 55. As a result, such a participant shall receive a larger
monthly benefit until attainment of age 55 and then a monthly benefit reduced by
the amount of the Other Plan Offset. At age 55 the participant's benefit under
this plan in the form of a single life annuity shall be offset by the amount of
the participant's Other Plan Offset stated in single life annuity form. The
remaining benefit shall be adjusted to the same form of benefit the participant
had commenced receiving on the previous early retirement based on the factors
for actuarial equivalency in effect at the time the adjustment is made and the
ages of the participant and any contingent annuitant at such time. The
participant shall not be permitted to change to a different form of benefit. If
a contingent annuitant dies after the early retirement and before the
participant attains age 55, the adjustment shall be based on the age the
contingent annuitant would have attained but for such death. If a participant
starting benefits before age 55 elects a contingent annuity and dies before age
55, the benefit of the contingent annuitant shall be reduced by the Other Plan
Offset when the participant would have attained age 55. The definitions of the
remaining terms are as follows:
(a) Projected Short Service Factor (PSSF) means the
Short Service Factor the participant would have had at age
60 if Benefit Years had continued to that date. If the
participant is over age 60 at the time the early retirement
benefit is determined, the Projected Short Service Factor
shall be the same as the Short Service Factor. As a result,
it shall be based on actual Benefit Years as of the date the
determination is made.
(b) Career Ratio (CR) means the participant's actual
Benefit Years, up to a maximum of 30, divided by the
participant's projected Benefit Years at age 60, up to a
maximum of 30, assuming continuous full-time service to that
date. If the participant is earning Benefit Years at or
after age 60, the Career Ratio shall be 1.0.
(c) Early Retirement Factor (ERF) means a percentage
equal to 100 percent minus .25 percent for each month by
which the commencement of benefits precedes the end of the
month in which the participant will attain age 60.
9
<PAGE>
3.5 TERMINATION BENEFIT
A participant who terminates employment before early or normal
retirement date and after becoming vested shall receive the participant's
Accrued Benefit as provided below. The Accrued Benefit is a single life annuity
for the life of the participant equal to 50 percent of Final Average Pay (FAP)
plus the Performance Benefit (PB) times the Projected Short Service Factor
(PSSF) times the Career Ratio (CR) minus the PacifiCorp Primary Insurance Amount
(PPIA) times the Early Retirement Factor (ERF) minus the Other Plan Offset (OPO)
as follows:
Benefit = [([(50% x FAP) + PB] x PSSF x CR) - PPIA) x ERF] - OPO
The terms used in this formula are defined in 3.2 and 3.4.
3.6 TIME AND MANNER OF PAYMENT
Retirement benefits under 3.2 or 3.4 shall commence as of the first
day of the month beginning after a termination of employment that constitutes a
retirement under 3.1. Termination benefits under 3.5 shall commence as of the
first day of the month after the participant's early retirement date. A
participant who does not have 5 Years of Participation shall commence receiving
benefits on the first of the month after the later of the participant's
termination of employment or the participant's attainment of age 55. The date
of commencement shall be the participant's Benefit Starting Date. Payment shall
be made monthly in one of the forms listed below on the payment schedule
maintained for that form by the Basic Plan covering the participant. If the
participant is covered by more than one Basic Plan, the payment schedule for the
plan with the largest benefit shall apply. The amount paid in the forms
provided in (b), (c) or (d) shall be the actuarial equivalent, as determined
under 3.3, of the amount paid in the form provided in (a). The form shall be
irrevocably elected by the participant on a form provided by the Committee prior
to receipt of the first payment, subject to the following. An election by a
married participant of a form provided in (a) or (d) shall not be effective
unless the spouse consents in the manner provided under the Basic Plan for
elections not to receive a joint and survivor annuity.
(a) A single life annuity for the life of the
participant.
(b) A life annuity with payments continuing after the
participant's death at 50 percent to a contingent annuitant
for life.
(c) A life annuity with payments continuing after the
participant's death at 100 percent to a contingent annuitant
for life.
(d) A life annuity with payments continuing to a
designated beneficiary for the remainder of the first 120
months if the participant dies before then.
10
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3.7 TIME OF PAYMENT AFTER EMPLOYER DISPOSITION
A participant who becomes vested upon an Employer Disposition shall
receive payment of the benefit under this plan upon becoming eligible for a
benefit at early or normal retirement date under the Basic Plan covering the
participant at the time of the Employer Disposition. The amount payable shall
be based on the participant's Final Average Pay, Performance Benefit, Short
Service Factor or Projected Short Service Factor, Career Ratio, PacifiCorp
Primary Insurance Amount, and Other Plan Offset determined at the time of the
Employer Disposition. The Early Retirement Factor shall be determined at the
time benefits commence.
3.8 BASIC PLAN MAKE-UP
If a participant in this plan has a reduced benefit under the Basic
Plan as a result of any of the causes described in (a), (b), or (c) below, and
such reduction is not otherwise made up by this plan, the amount of such
reduction shall be paid as an additional benefit under this plan. The
additional benefit provided by this 3.7 shall be paid at the same time and in
the same form as it would have been under the Basic Plan if there had been no
reduction. The causes for which a benefit reduction will be made up are as
follows:
(a) The participant's election to defer pay under a
nonqualified deferred compensation plan of Employer for a
year in which the participant is removed from participation
under 2.5.
(b) The limits on benefits imposed by Internal Revenue
Code Section 415.
(c) The limit on compensation imposed by Internal
Revenue Code Section 401(a)(17).
3.9 BENEFITS AFTER CHANGE IN CONTROL
(a) A participant whose employment with the Company
and its Affiliates is involuntarily terminated no more than
24 months after a Change in Control or who voluntarily
terminates such employment at least 12 months, and no more
than 14 months, after a Change in Control shall be provided
with benefit enhancements as follows:
(1) The participant shall be credited with three
Benefit Years, in addition to the participant's actual
Benefit Years, in calculating the participant's Short
Service Factor and the participant's Career Ratio. The
participant shall be credited with
11
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three additional increments of 1 percent of Final Average
Pay in calculating the participant's Performance Benefit.
(2) The participant's Final Average Pay shall be the
amount determined under 3.2(a) or the amount determined
under the alternative definition in the following sentence,
whichever is greater. The alternative definition is the sum
of the participant's base salary received in the last 12
completed calendar months of employment with the Company and
its Affiliates, plus the greater of (i) the participant's
target annual bonus for the calendar year in which such
employment terminates or (ii) the average of the highest
three consecutive annual bonuses from the Company and its
Affiliates received in the last ten years of such
employment.
(b) A termination of employment shall be treated as
involuntary under (a) if the participant is discharged or if the
participant resigns after any of the following occurs following
the Change in Control:
(1) The participant's annualized base salary or target
bonus opportunity is decreased.
(2) The participant is reassigned to a position in an
office located more than 100 miles from the participant's
then-current office or 60 miles from the participant's
residence, whichever is greater.
(3) The participant's reporting level in the Company
is changed and is lower after the change than it was before;
there is a material reduction in the scope of the
participant/s duties or responsibilities; or there is a
material reduction in the participant's authority.
(c) If there is an alteration to the participant's position
during the 24 months following a Change in Control, the participant
may tender resignation from employment if in the participant's
judgment an event described in (b) above has occurred. The
resignation shall be contingent upon the Company's acknowledgment that
it will not challenge the participant's determination and the
participant will be entitled to the benefit enhancements described in
(a) upon resignation. The Company will have five business days to
give notice to the participant that it intends to challenge the
participant's determination that a material alteration of position has
occurred. If the Company gives the participant such notice, the
participant may treat that notice as denial of the participant's claim
for
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<PAGE>
benefits and seek review of such decision under 6.3. Alternatively,
the participant may refer the claim for benefits to arbitration
under 6.5. Both the participant and the Company will be expected
to reasonably cooperate in good faith in the arbitration process to
ensure timely resolution. The participant will continue to receive
salary and benefits from the Company at the rate in effect at the
time the resignation is tendered until the issue is resolved in
arbitration.
4. PRERETIREMENT DEATH BENEFITS
If a participant with a spouse or dependent children dies before the
Benefit Starting Date while employed with the Company or an Affiliate, whether
or not an adopting Employer, a death benefit shall be paid as provided below.
The death benefit shall be a percentage of the participant's Accrued Benefit as
of the date of death, based on an Early Retirement Factor of 100 percent.
4.1 SPOUSE'S BENEFIT
A surviving spouse shall be paid a benefit as follows:
(a) The amount shall be 50 percent of the
participant's Accrued Benefit.
(b) The form shall be a single life annuity for the
life of the spouse starting with the month following the
date of death.
4.2 DEPENDENT CHILD'S BENEFIT
If the participant is unmarried with one or more dependent children,
the benefit shall be paid to such children. A dependent child is one who is age
19 to 22 and enrolled in a full-time program of education at a secondary school
or at a college, university or other post-secondary school or who is age 18 or
younger. The dependent child's benefit shall be paid as follows:
(a) The amount payable to a sole dependent child shall
be 25 percent of the participant's Accrued Benefit.
(b) The amount payable to two or more dependent
children shall be 40 percent of the participant's Accrued
Benefit, divided equally among such children.
(c) The dependent child's benefit shall be paid
monthly starting with the month following the date of death
and ending with
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the month the individual ceases to be a dependent child.
If one of two dependent children receiving a share of the
amount under (b) ceases to be a dependent child, the
remaining dependent child then shall receive the amount
under (a).
5. DISABILITY
5.1 SERVICE CONTINUATION
A disabled participant shall continue to accrue benefit service under
this plan so long as Benefit Hours are accrued for the participant under the
Basic Plan.
5.2 BENEFITS
A disabled participant continuing to accrue service shall be treated
like any other employee until disability ends or retirement or death occurs. In
the event of death or retirement after disability, retirement or spouse's death
benefits under this plan shall be determined in the same manner as for any
participant.
6. CLAIMS PROCEDURE
6.1 ORIGINAL CLAIM
Any person whose benefit under this plan is not promptly paid may
present a written claim for the benefit to the Committee. The Committee shall
respond to the claim in writing as soon as practicable. However, during the 24
months following a Change in Control a participant may initiate arbitration
under 6.5 and seek a declaratory order as to whether an event described in
3.9(b) has occurred. The participant is not required to complete the claims and
review procedure described in 6.1 through 6.4 prior to requesting such
declaratory order.
6.2 DENIAL
If the claim is denied, the written notice of denial shall state:
(a) The reasons for denial, with specific reference to
the plan provisions on which the denial is based.
(b) A description of any additional material or
information required and an explanation of why it is
necessary.
(c) An explanation of the plan's claim review
procedure.
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6.3 REQUEST FOR REVIEW
Any person whose claim is denied or who has not received a response
within 30 days may request review of the claim by the trustee for the plan
appointed under 8.3 by notice given in writing to the trustee. The claim or
request shall be reviewed by the trustee which may, but shall not be required
to, have the claimant and a representative of the Committee appear before it.
On review, the claimant may have representation, examine pertinent documents,
and submit issues and comments in writing.
6.4 FINAL DECISION
The trustee's decision on review shall normally be made within 60
days. If an extension is required for a hearing or other special circumstances
the claimant shall be so notified and the time limit shall be 120 days. The
trustee's decision shall be in writing and shall state the reasons and the
relevant plan provisions. All decisions on review shall be final and bind all
parties concerned.
6.5 ARBITRATION
A dispute between the Company and a participant as to whether an event
described in 3.9(b) has occurred may be submitted by the participant to binding
arbitration. Except as specifically provided herein, the arbitration shall be
governed under Federal Arbitration Act. The parties shall select a mutually
agreeable arbitrator. If the parties are unable to agree on the selection of an
arbitrator within thirty days, each party shall designate one arbitrator from
the list of Oregon and Washington arbitrators maintained by the Judicial
Arbitration and Mediation Services (J.A.M.S) office in Portland, Oregon. The
arbitrators so selected shall select a third arbitrator. The arbitrator shall
rule in favor of the participant if there is substantial evidence on the record
supporting the participant's position. The arbitration shall be conducted in
Portland, Oregon with no attorneys' fees or costs to be awarded to either side,
except as follows. A prevailing participant shall be entitled to an award of
reasonable attorneys fees and costs (including without limitation interest on
any overdue payment).
7. AMENDMENT; TERMINATION
7.1 AMENDMENT
The Company may amend this plan at any time so long as the rights
preserved on termination under 7.2 are not reduced. No amendment may accelerate
the time of payment of benefits to persons participating in the plan at the time
of the amendment.
15
<PAGE>
7.2 TERMINATION
The Board of Directors of the Company may terminate the plan at any
time as follows:
(a) Termination shall be by notice to the Committee,
which shall notify participants of the termination. The
termination date shall not be earlier than the first day of
the month in which notice is given.
(b) After the effective date of termination no further
executive officers shall become participants and no further
benefits shall accrue for existing participants.
(c) The Accrued Benefit of each existing participant
shall be paid under the terms of the plan as in effect
before termination. The Accrued Benefit shall be calculated
as follows:
(1) Final Average Pay, Years of Service, and
Years of Participation shall be determined as
though the effective date of plan termination were
a termination of employment.
(2) The PacifiCorp Primary Insurance Amount
shall be estimated on the basis of the pay level
and the Social Security Act as in existence at the
time of plan termination.
(3) The Other Plan Offset shall be based on
the benefits accrued under the Basic Plan and
other qualified plans at the time of plan
termination.
8. GENERAL PROVISIONS
8.1 NONASSIGNABILITY
The rights of a participant under this plan are personal. No interest
of a participant or any beneficiary or representative of a participant may be
directly or indirectly transferred, encumbered, seized by legal process or in
any other way subjected to the claims of any creditor.
16
<PAGE>
8.2 FUNDING
The rights of the participants and beneficiaries under this plan shall
be an unfunded, unsecured promise of the Company to make future payments.
8.3 TRUST
The Company shall establish a trust with a financial institution for
payment of benefits under the plan, which shall be a grantor trust for tax
purposes. The trust shall provide that any assets contributed to the Trustee
shall be used exclusively for payment of benefits under this plan except in the
event the Company becomes insolvent, in which case the trust fund shall be held
for payment of the Company's obligations to its general creditors.
8.4 NOTICES
A notice under this plan shall be in writing and shall be effective
when actually delivered or, if mailed, when deposited postpaid as first class
mail. Mail shall be directed to the Company at the address stated in this plan,
to the participant at the address shown on the Company's employment records, or
to such other address as a party shall specify by notice to the other parties or
as the Committee may determine to be appropriate. Notices to the Committee
shall be sent to the Company's address.
8.5 ATTORNEYS' FEES
If suit or action is instituted to enforce any rights under this plan,
the prevailing party may recover from the other party reasonable attorneys' fees
at trial and on any appeal.
8.6 INDEMNITY
The Company shall indemnify and defend any member of the Committee or
any officer, director or employee of an Employer from any claim or liability
that arises from any action or inaction in connection with the plan subject to
the following rules:
(a) Coverage shall be limited to actions taken in good
faith that the fiduciary reasonably believed were not
opposed to the best interests of the plan;
(b) Negligence by the fiduciary shall be covered to
the fullest extent permitted by law; and
(c) Coverage shall be reduced to the extent of any
insurance coverage.
17
<PAGE>
8.7 APPLICABLE LAW
This plan shall be construed according to the laws of Oregon except as
preempted by federal law.
8.8 COMPANY OBLIGATION
Benefits payable under this plan shall be an obligation of the
Company, which may charge the cost back to the Employer of the participant. If
an Employer merges, consolidates, or otherwise reorganizes or if its business or
assets are acquired by another entity and it remains an Affiliate of the
Company, this plan shall continue with respect to those eligible individuals who
continue as employees of the successor company. The transition of Employers
shall not be considered a termination of employment for purposes of this plan.
If an Employer ceases to be an Affiliate of the Company, a participant employed
by that Employer shall cease accruing Years of Service and changes in Final
Average Pay. The participant shall receive benefits under this plan on a later
termination of employment with Employer if the participant had reached a
retirement date or become vested before the affiliation ceased.
8.9 PAYMENT FOR INDIVIDUAL'S BENEFIT
Payment for a person entitled to benefits shall be made to one of the
following if the recipient is court-appointed or the payment is ordered by a
court:
(a) To a parent or spouse or a child of legal age;
(b) To a legal guardian; or
(c) To one furnishing maintenance, support, or
hospitalization.
8.10 NOT CONTRACT OF EMPLOYMENT
Nothing in this plan shall give any employee the right to continue
employment. The plan shall not prevent discharge of any employee at any time
for any reason.
9. EFFECTIVE DATE
9.1 This Restatement shall be effective January 1, 1996.
9.2 The following transition rules shall apply at the effective date
provided in 9.1:
18
<PAGE>
(a) The benefit payable to a participant who was
covered by the plan before January 1, 1996, or to the
surviving spouse or dependent children of such a
participant, shall be no less than the participant's Accrued
Benefit determined under 3.6 of the plan, as in effect on
December 31, 1995, on the basis of the participant's Final
Average Pay, Projected Short Service Factor, and Career
Ratio calculated as of December 31, 1995 and on a Primary
Social Security Benefit and Qualified Plan Offset equal to
the participant's PacifiCorp Primary Insurance Amount and
Other Plan Offset, respectively, calculated as of the date
of benefit commencement. If the participant had attained
age 55 on or before December 31, 1995, the participant shall
have an Earliest Retirement Date upon attaining age 62 and
completing 30 Years of Service. The portion of the normal
retirement benefit of such a participant equal to the
Accrued Benefit described above shall be increased by
one-third of one percent for each month by which the
participant's Earliest Retirement Date precedes the
participant's actual benefit commencement date. No increase
shall be made for a month beginning after the participant's
65th birthday.
(b) An individual becoming a participant in the plan
as a result of the new eligibility standards in 2.1 of this
Restatement shall be credited with Years of Participation
for years before 1996 during which the individual was an
executive officer of an Employer and had an annual base
salary rate of over $125,000.
(c) For an individual who was a participant over age
50 on January 1, 1996 the 50 percent amount in the benefit
formulas in 3.2, 3.4 and 3.6 shall be increased by one
percent for each year of age at nearest birthday above age
50 at January 1, 1996.
Adopted: November 8, 1995.
1996 RESTATEMENT EXECUTED AS FOLLOWS EFFECTIVE AS PROVIDED IN ARTICLE 9:
- ------------------------------------------------------------------------
PACIFICORP
By FREDERICK W. BUCKMAN
-------------------------------
President
Executed: February 23, 1996
19
<PAGE>
AMENDMENT NO. 1 EXECUTED AS FOLLOWS EFFECTIVE AS IF INCLUDED IN THE 1996
RESTATEMENT:
- ------------------------------------------------------------------------
Company PACIFICORP
By FREDERICK W. BUCKMAN
----------------------------
President
Executed: July 9, 1996
AMENDMENT NO. 2 EXECUTED AS FOLLOWS EFFECTIVE MAY 21, 1997:
- ------------------------------------------------------------
Adopted: May 21, 1997
Company PACIFICORP
By FREDERICK W. BUCKMAN
-----------------------------
President
Executed: August 20, 1997
AMENDMENT NO. 3 EXECUTED AS FOLLOWS EFFECTIVE SEPTEMBER 1, 1997:
- ----------------------------------------------------------------
Adopted: August 13, 1997
Company PACIFICORP
By FREDERICK W. BUCKMAN
-------------------------
President
Executed: October 1, 1997
20
<PAGE>
AMENDMENT NO. 4 EXECUTED AS FOLLOWS EFFECTIVE JANUARY 1, 1997 AS IF INCLUDED IN
THE 1996 RESTATEMENT:
- -------------------------------------------------------------------------------
Company PACIFICORP
By FREDERICK W. BUCKMAN
------------------------------
Executed: November 19, 1997
AMENDMENT NO. 5 EXECUTED AS FOLLOWS EFFECTIVE MAY 21, 1997 AND SEPTEMBER 1,
1997:
- ---------------------------------------------------------------------------
Adopted: February 11, 1998
Company PACIFICORP
By MICHAEL J. PITTMAN
------------------------
Executed: September 13, 1998
AMENDMENT NO. 6 EXECUTED AS FOLLOWS EFFECTIVE JANUARY 1, 1999:
- --------------------------------------------------------------
Adopted: November 18, 1998
Company PACIFICORP
By KEITH McKENNON
--------------------
Executed: November 20, 1998
21
<PAGE>
PACIFICORP STOCK INCENTIVE PLAN
PacifiCorp, an Oregon corporation (the "Company"), amends and restates
its 1996 Stock Retention Plan, as adopted effective August 14, 1996, to
provide in its entirety as set forth herein. The 1996 Stock Retention Plan,
as amended and restated (the "Plan"), shall be renamed the PacifiCorp Stock
Incentive Plan and shall govern awards made on or after the date the Plan is
approved by the Company's board of directors (the "Board of Directors"). The
amendment and restatement of the Plan will not affect the terms of any
outstanding awards.
1. PURPOSE. The purpose of this Plan is to enable the Company to
attract and retain the services of and provide performance incentives to (1)
selected employees, officers and directors of the Company or of any
subsidiary of the Company ("Employees") and (2) selected nonemployee agents,
consultants, advisors and independent contractors of the Company or any
subsidiary.
2. SHARES SUBJECT TO THE PLAN. Subject to adjustment as provided
below and in paragraph 14, the shares to be offered under the Plan shall
consist of Common Stock of the Company, and the total number of shares of
Common Stock that may be issued under the Plan shall not exceed 14,500,000
shares, all of which may be issued pursuant to the exercise of options
granted pursuant to the Plan. The shares issued under the Plan may be
authorized and unissued shares or reacquired shares or shares acquired in the
market; provided, however, that the Company will not directly issue any
shares pursuant to the Plan or take any action pursuant to the Plan that
would require approval of the public utility regulatory authorities having
jurisdiction over issuances of securities by the Company until it has
received all such required approvals. Prior to receipt of such approvals,
any shares of Common Stock to be issued pursuant to the Plan will be acquired
in the market. Subject to the foregoing limitations, (a) if any award
granted under the Plan expires, terminates or is cancelled, the unissued
shares subject to such award shall again be available under the Plan and (b)
if shares sold or awarded under the Plan are forfeited to the Company or
repurchased by the Company, that number of shares shall again be available
under the Plan.
3. EFFECTIVE DATE AND DURATION OF PLAN.
(a) EFFECTIVE DATE. The Plan (as amended and restated) shall
become effective on the date adopted by the Board of Directors. Awards may
be granted and shares may be awarded or sold under the Plan at any time after
the effective date and before termination of the Plan.
(b) DURATION. The Plan shall continue in effect for a period of ten
years from the date adopted by the Board of Directors, subject to earlier
termination by the Board of Directors. The Board of Directors may suspend or
terminate the Plan at any
<PAGE>
time, except with respect to awards then outstanding under the Plan.
Termination shall not affect the terms of any outstanding awards.
4. ADMINISTRATION.
(a) BOARD OF DIRECTORS. The Plan shall be administered by the
Board of Directors of the Company, which shall determine and designate from
time to time the individuals to whom awards shall be made, the amount of the
awards and the other terms and conditions of the awards. Subject to the
provisions of the Plan, the Board of Directors may from time to time adopt
and amend rules and regulations relating to administration of the Plan,
advance the lapse of any waiting period, accelerate any exercise date, waive
or modify any restriction applicable to shares (except those restrictions
imposed by law) and make all other determinations in the judgment of the
Board of Directors necessary or desirable for the administration of the Plan.
The interpretation and construction of the provisions of the Plan and
related agreements by the Board of Directors shall be final and conclusive.
The Board of Directors may correct any defect or supply any omission or
reconcile any inconsistency in the Plan or in any related agreement in the
manner and to the extent it shall deem expedient to carry the Plan into
effect, and it shall be the sole and final judge of such expediency.
(b) COMMITTEE. The Board of Directors may delegate to a committee
of the Board of Directors (the "Committee") any or all authority for
administration of the Plan. If authority is delegated to a Committee, all
references to the Board of Directors in the Plan shall mean and relate to the
Committee except (i) as otherwise provided by the Board of Directors and (ii)
that only the Board of Directors may amend or terminate the Plan as provided
in paragraphs 3 and 15.
(c) OFFICER. The Board of Directors or the Committee, as
applicable, may delegate to an executive officer of the Company authority to
administer those aspects of the Plan that do not involve the designation of
individuals to receive awards or decisions concerning the timing, amounts or
other terms of awards. No officer to whom administrative authority has been
delegated pursuant to this provision may waive or modify any restriction
applicable to an award to such officer under the Plan.
5. TYPES OF AWARDS; ELIGIBILITY. The Board of Directors may, from
time to time, take the following actions, separately or in combination, under
the Plan: (i) grant Incentive Stock Options, as defined in Section 422 of
the Internal Revenue Code of 1986, as amended (the "Code"), as provided in
paragraph 6; (ii) grant options other than Incentive Stock Options
("Non-Statutory Stock Options") as provided in paragraph 6; (iii) award stock
as provided in paragraph 7; (iv) sell shares subject to restrictions as
provided in paragraph 8; (v) grant stock appreciation rights as provided in
paragraph 9; (vi) grant cash bonus rights as provided in paragraph 10; (vii)
grant dividend equivalent rights as provided in paragraph 11; (viii) grant
Performance-based Rights as provided in paragraph 12 and (ix) grant foreign
qualified awards as provided in paragraph 13. Any such awards may be made to
Employees, including Employees who are officers or
2
<PAGE>
directors, and to other individuals described in paragraph 1 whom the Board
of Directors believes have made or will make an important contribution to the
Company or any subsidiary of the Company; provided, however, that only
Employees shall be eligible to receive Incentive Stock Options under the
Plan. The Board of Directors shall select the individuals to whom awards
shall be made and shall specify the action taken with respect to each
individual to whom an award is made. Unless otherwise determined by the
Board of Directors with respect to an award, each option, stock appreciation
right, cash bonus right, dividend equivalent right or performance-based right
granted pursuant to the Plan by its terms shall be nonassignable and
nontransferable by the recipient, either voluntarily or by operation of law,
except by will or by the laws of descent and distribution of the state or
country of the recipient's domicile at the time of death. No fractional
shares shall be issued in connection with any award. In lieu of any
fractional shares, cash may be paid in an amount equal to the value of the
fraction or, if the Board of Directors shall determine, the number of shares
may be rounded downward to the next whole share. No Employee may be granted
options or stock appreciation rights under the Plan for more than an
aggregate of 3,000,000 shares of Common Stock in any consecutive three-year
period.
6. OPTION GRANTS. With respect to each option grant, the Board of
Directors shall determine the number of shares subject to the option, the
option price, the period of the option, the time or times at which the option
may be exercised and whether the option is an Incentive Stock Option or a
Non-Statutory Stock Option and any other terms of the grant, all of which
shall be set forth in an option agreement between the Company and the
optionee. In the case of Incentive Stock Options, all terms shall be
consistent with the requirements of the Code and applicable regulations.
Upon the exercise of an option, the number of shares reserved for issuance
under the Plan shall be reduced by the number of shares issued upon exercise
of the option less the number of shares surrendered or withheld in connection
with the exercise of the option and the number of shares surrendered or
withheld to satisfy withholding obligations in accordance with paragraph 18.
7. STOCK AWARDS. The Board of Directors may award shares under the
Plan as stock bonuses or otherwise. The aggregate number of shares that may
be awarded pursuant to this provision shall not exceed 1,500,000 shares.
Shares awarded pursuant to this paragraph shall be subject to the terms,
conditions, and restrictions determined by the Board of Directors. The Board
of Directors may require the recipient to sign an agreement as a condition of
the award, but may not require the recipient to pay any monetary
consideration other than amounts necessary to satisfy tax withholding
requirements. The agreement may contain any terms, conditions, restrictions,
representations and warranties required by the Board of Directors. The
certificates representing the shares awarded shall bear any legends required
by the Board of Directors. Upon the issuance of a stock award, the number of
shares available for issuance under the Plan shall be reduced by the number
of shares issued less the number of any shares surrendered to satisfy
withholding obligations in accordance with paragraph 18.
3
<PAGE>
8. PURCHASED STOCK. The Board of Directors may issue shares under the
Plan for such consideration (including promissory notes and services) as
determined by the Board of Directors. Shares issued under the Plan shall be
subject to the terms, conditions and restrictions determined by the Board of
Directors. All Common Stock issued pursuant to this paragraph 8 shall be
subject to a purchase agreement, which shall be executed by the Company and
the prospective recipient of the shares prior to the delivery of certificates
representing such shares to the recipient. The purchase agreement may
contain any terms, conditions, restrictions, representations and warranties
required by the Board of Directors. The certificates representing the shares
shall bear any legends required by the Board of Directors. Upon the issuance
of purchased stock, the number of shares available for issuance under the
Plan shall be reduced by the number of shares issued less the number of any
shares surrendered to satisfy withholding obligations in accordance with
paragraph 18.
9. STOCK APPRECIATION RIGHTS.
(a) GRANT. Stock appreciation rights may be granted under the
Plan by the Board of Directors, subject to such rules, terms, and conditions
as the Board of Directors prescribes.
(b) EXERCISE. Each stock appreciation right shall entitle the
holder, upon exercise, to receive from the Company in exchange therefor an
amount equal in value to the excess of the fair market value on the date of
exercise of one share of Common Stock of the Company over its fair market
value on the date of grant (or, in the case of a stock appreciation right
granted in connection with an option, the excess of the fair market value of
one share of Common Stock of the Company over the option price per share
under the option to which the stock appreciation right relates), multiplied
by the number of shares covered by the stock appreciation right or the
option, or portion thereof, that is surrendered. Payment by the Company upon
exercise of a stock appreciation right may be made in Common Stock valued at
fair market value, in cash, or partly in Common Stock and partly in cash, all
as determined by the Board of Directors. The Board of Directors may withdraw
any stock appreciation right granted under the Plan at any time and may
impose any conditions upon the exercise of a stock appreciation right or
adopt rules and regulations from time to time affecting the rights of holders
of stock appreciation rights. Such rules and regulations may govern the
right to exercise stock appreciation rights granted prior to adoption or
amendment of such rules and regulations as well as stock appreciation rights
granted thereafter. Upon the exercise of a stock appreciation right for
shares, the number of shares available for issuance under the Plan shall be
reduced by the number of shares issued less the number of any shares
surrendered or withheld to satisfy withholding obligations in accordance with
paragraph 18. Cash payments of stock appreciation rights shall not reduce
the number of shares of Common Stock available for issuance under the Plan.
4
<PAGE>
10. CASH BONUS RIGHTS. The Board of Directors may grant cash bonus
rights under the Plan in connection with (i) options granted or previously
granted, (ii) stock appreciation rights granted or previously granted, (iii)
stock awarded or previously awarded and (iv) shares sold or previously sold
under the Plan. Cash bonus rights will be subject to rules, terms and
conditions as the Board of Directors may prescribe. The payment of a cash
bonus shall not reduce the number of shares of Common Stock available for
issuance under the Plan. A cash bonus right granted in connection with an
option will entitle an optionee to a cash bonus when the related option is
exercised (or terminates in connection with the exercise of a stock
appreciation right related to the option) in whole or in part if, in the sole
discretion of the Board of Directors, the bonus right will result in a tax
deduction that the Company has sufficient taxable income to use. A cash
bonus right granted in connection with a stock award pursuant to paragraph 7
or purchase of stock pursuant to paragraph 8 will entitle the recipient to a
cash bonus payable when the stock award is awarded or the shares are
purchased or restrictions, if any, to which the stock is subject lapse. If
the stock awarded or the shares purchased are subject to restrictions and are
repurchased by the Company or forfeited by the holder, the cash bonus right
granted in connection with the stock awarded or shares purchased shall
terminate and may not be exercised.
11. DIVIDEND EQUIVALENT RIGHTS. The Board of Directors may grant
dividend equivalent rights under the Plan in connection with (i) options
granted or previously granted, (ii) stock appreciation rights granted or
previously granted, (iii) stock awarded or previously awarded, (iv) shares
sold or previously sold under the Plan or (v) as a freestanding award. The
terms and conditions of a dividend equivalent right shall be specified by the
Board of Directors at the time of grant. Each dividend equivalent right
shall entitle the recipient to receive an amount based on cash dividends that
would be payable with respect to the number of shares specified in connection
with the grant of the dividend equivalent right (or other award to which it
relates) if such shares had been held by the recipient during the period
specified in connection with such grant. Payment with respect to a dividend
equivalent right shall be made, subject to the limitations set forth in
paragraph 2, at the discretion of the Board of Directors, in cash or in
shares or in any combination thereof. Upon the exercise of a dividend
equivalent right for shares, the number of shares available for issuance
under the Plan shall be reduced by the number of shares issued less the
number of any shares surrendered to satisfy withholding obligations in
accordance with paragraph 18. Cash payments of dividend equivalent rights
shall not reduce the number of shares of Common Stock available for issuance
under the Plan.
12. PERFORMANCE-BASED AWARDS. The Board of Directors may grant awards
intended to qualify as performance-based compensation under Section 162(m) of
the Code and the regulations thereunder ("Performance-based Awards").
Performance-based Awards shall be denominated at the time of grant either in
shares of Common Stock ("Stock Performance Awards") or in dollar amounts
("Dollar Performance Awards"). Payment under a Stock Performance Award or a
Dollar Performance Award shall be made, at the discretion of the Board of
Directors, subject to the limitations set forth in paragraph 2, in shares of
Common Stock ("Performance Shares"), or in cash or in any
5
<PAGE>
combination thereof. Performance-based Awards shall be subject to the
following terms and conditions:
(a) AWARD PERIOD. The Board of Directors shall determine the
period of time for which a Performance-based Award is made (the "Award
Period").
(b) PERFORMANCE GOALS AND PAYMENT. The Board of Directors shall
establish in writing objectives ("Performance Goals") that must be met by the
Company or any subsidiary, division or other unit of the Company ("Business
Unit") during the Award Period as a condition to payment being made under the
Performance-based Award. The Performance Goals for each award shall be one
or more targeted levels of performance with respect to one or more of the
following objective measures with respect to the Company or any Business
Unit: earnings, earnings per share, stock price increase, total shareholder
return (stock price increase plus dividends), return on equity, return on
assets, return on capital, economic value added, revenues, operating income,
cash flows or any of the foregoing (determined according to criteria
established by the Board of Directors). The Board of Directors shall also
establish the number of Performance Shares or the amount of cash payment to
be made under a Performance-based Award if the Performance Goals are met or
exceeded, including the fixing of a maximum payment (subject to paragraph
12(d)). The Board of Directors may establish other restrictions to payment
under a Performance-based Award, such as a continued employment requirement,
in addition to satisfaction of the Performance Goals. Some or all of the
Performance Shares may be issued at the time of the award as restricted
shares subject to forfeiture in whole or in part if Performance Goals or, if
applicable, other restrictions are not satisfied.
(c) COMPUTATION OF PAYMENT. During or after an Award Period, the
performance of the Company or Business Unit, as applicable, during the period
shall be measured against the Performance Goals. If the Performance Goals
are not met, no payment shall be made under a Performance-based Award. If
the Performance Goals are met or exceeded, the Board of Directors shall
certify that fact in writing and certify the number of Performance Shares
earned or the amount of cash payment to be made under the terms of the
Performance-based Award.
(d) MAXIMUM AWARDS. No participant may receive Stock Performance
Awards in any fiscal year under which the maximum number of shares issuable
under the award, when aggregated with the shares issuable under any awards
made in the immediately preceding two fiscal years, exceeds 500,000 shares or
Dollar Performance Awards in any fiscal year under which the maximum amount
of cash payable under the award, when aggregated with the amount of cash
payable under awards made in the immediately preceding two fiscal years,
exceeds an aggregate of $3,000,000.
(e) EFFECT ON SHARES AVAILABLE. The payment of a
Performance-based Award in cash shall not reduce the number of shares of
Common Stock available for issuance under the Plan. The number of shares of
Common Stock available for issuance under the Plan shall be reduced by the
number of shares issued upon payment of an
6
<PAGE>
award, less the number of shares surrendered or withheld to satisfy
withholding obligations.
13. FOREIGN QUALIFIED GRANTS. Awards under the Plan may be granted to
such Employees and such other persons described in paragraph 1 residing in
foreign jurisdictions as the Board of Directors may determine from time to
time. The Board of Directors may adopt such supplements to the Plan as may be
necessary to comply with the applicable laws of such foreign jurisdictions
and to afford participants favorable treatment under such laws; provided,
however, that no award shall be granted under any such supplement with terms
that are more beneficial to the participants than the terms permitted by the
Plan.
14. CHANGES IN CAPITAL STRUCTURE.
(a) STOCK SPLITS; STOCK DIVIDENDS. If the outstanding Common
Stock of the Company is hereafter increased or decreased or changed into or
exchanged for a different number or kind of shares or other securities of the
Company by reason of any stock split, combination of shares or dividend
payable in shares, recapitalization or reclassification, appropriate
adjustment shall be made by the Board of Directors in the number and kind of
shares available for grants under the Plan. In addition, the Board of
Directors shall make appropriate adjustment in the number and kind of shares
as to which outstanding options, or portions thereof then unexercised, shall
be exercisable, so that the optionee's proportionate interest before and
after the occurrence of the event is maintained. Notwithstanding the
foregoing, the Board of Directors shall have no obligation to effect any
adjustment that would or might result in the issuance of fractional shares,
and any fractional shares resulting from any adjustment may be disregarded or
provided for in any manner determined by the Board of Directors. Any such
adjustments made by the Board of Directors shall be conclusive.
(b) MERGERS, REORGANIZATIONS, ETC. The Board of Directors may
include such terms and conditions, including without limitation, provisions
relating to acceleration in the event of a change in control, as it deems
appropriate in connection with any award under the Plan with respect to a
merger, consolidation, plan of exchange, acquisition of property or stock,
separation, reorganization or liquidation to which the Company or a
subsidiary is a party or a sale of all or substantially all of the Company's
assets (each, a "Transaction"). Notwithstanding the foregoing, in the event
of a Transaction, the Board of Directors shall, in its sole discretion and to
the extent possible under the structure of the Transaction, select one of the
following alternatives for treating outstanding Incentive Stock Options or
Non-Statutory Stock Options under the Plan:
(i) Outstanding options shall remain in effect in accordance
with their terms.
(ii) Outstanding options shall be converted into options to
purchase stock in the corporation that is the surviving or acquiring
corporation in the
7
<PAGE>
Transaction. The amount, type of securities subject thereto and exercise
price of the converted options shall be determined by the Board of
Directors of the Company, taking into account the relative values of the
companies involved in the Transaction and the exchange rate, if any, used
in determining shares of the surviving corporation to be issued to holders
of shares of the Company. Unless otherwise determined by the Board of
Directors, the converted options shall be vested only to the extent that
the vesting requirements relating to options granted hereunder have been
satisfied.
(iii) The Board of Directors shall provide a 30-day period prior
to the consummation of the Transaction during which outstanding options may
be exercised to the extent then exercisable, and upon the expiration of
such 30-day period, all unexercised options shall immediately terminate.
The Board of Directors may, in its sole discretion, accelerate the
exercisability of options so that they are exercisable in full during such
30-day period.
(c) DISSOLUTION OF THE COMPANY. In the event of the dissolution
of the Company, options shall be treated in accordance with paragraph
14(b)(iii).
(d) RIGHTS ISSUED BY ANOTHER CORPORATION. The Board of Directors
may also grant options, stock appreciation rights, performance units, stock
bonuses and cash bonuses and issue restricted stock under the Plan having
terms, conditions and provisions that vary from those specified in this Plan
provided that any such awards are granted in substitution for, or in
connection with the assumption of, existing options, stock appreciation
rights, stock bonuses, cash bonuses, restricted stock and performance units
granted, awarded or issued by another corporation and assumed or otherwise
agreed to be provided for by the Company pursuant to or by reason of a
Transaction.
15. AMENDMENT OF PLAN. The Board of Directors may at any time, and
from time to time, modify or amend the Plan in such respects as it shall deem
advisable because of changes in the law while the Plan is in effect or for
any other reason. Except as provided in paragraphs 9, 10 and 14, however, no
change in an award already granted shall be made without the written consent
of the holder of such award.
16. APPROVALS. The obligations of the Company under the Plan are
subject to the approval of state and federal authorities or agencies with
jurisdiction in the matter, including without limitation, public utility
regulatory authorities. The Company will use its best efforts to take steps
required by state or federal law or applicable regulations, including rules
and regulations of the Securities and Exchange Commission and any stock
exchange on which the Company's shares may then be listed, in connection with
the grants under the Plan. The foregoing notwithstanding, the Company shall
not be obligated to issue or deliver Common Stock under the Plan if such
issuance or delivery would violate applicable state or federal securities
laws or any applicable law relating to the issuance of securities by a public
utility.
8
<PAGE>
17. EMPLOYMENT AND SERVICE RIGHTS. Nothing in the Plan or any award
pursuant to the Plan shall (i) confer upon any employee any right to be
continued in the employment of the Company or any subsidiary or interfere in
any way with the right of the Company or any subsidiary by whom such employee
is employed to terminate such employee's employment at any time, for any
reason, with or without cause, or to decrease such employee's compensation or
benefits, or (ii) confer upon any person engaged by the Company any right to
be retained or employed by the Company or to the continuation, extension,
renewal, or modification of any compensation, contract, or arrangement with
or by the Company.
18. TAXES. Each participant who has received an award under the Plan
shall, upon notification of the amount due, pay to the Company in cash
amounts necessary to satisfy any applicable federal, state and local
withholding requirements. If the participant fails to pay the amount
demanded, the Company may withhold that amount from other amounts payable by
the Company to the participant including salary, subject to applicable law.
With the consent of the Board of Directors, a participant may satisfy this
withholding obligation, in whole or in part, by having the Company withhold
from any shares to be issued that number of shares that would satisfy the
amount due or by delivering Common Stock to the Company to satisfy the
withholding amount.
19. RIGHTS AS A SHAREHOLDER. The recipient of any award under the Plan
shall have no rights as a shareholder with respect to any Common Stock until
the date of issue to the recipient of a stock certificate for such shares.
Except as otherwise expressly provided in the Plan, no adjustment shall be
made for dividends or other rights for which the record date occurs prior to
the date such stock certificate is issued.
Approved by the Board of Directors: February 12, 1997
9
<PAGE>
PACIFICORP STOCK INCENTIVE PLAN
RESTRICTED STOCK AGREEMENT
(PERFORMANCE BASED)
This Restricted Stock Agreement ("Agreement") is made effective as
of February 10, 1998, between PacifiCorp, an Oregon corporation (the
"Company") and _______________________ (the "Employee").
In consideration of the agreements set forth below, the Company and
the Employee agree as follows:
1. STOCK AWARD. Pursuant to the Company's Stock Incentive Plan (the
"Plan"), which was approved by the Company's shareholders on May 14, 1997, the
Company hereby awards to the Employee ______ shares (the "Grant Shares") of the
Company's Common Stock for calendar year _____ (the "Grant Year"). The Grant
Shares shall be owned by the Employee subject to the terms and conditions of
this Agreement and the Plan, a copy of which has been provided to the Employee.
Capitalized terms not otherwise defined herein shall have the meanings ascribed
to them in the Plan.
2. SHARES PURCHASED ON OPEN MARKET; ESCROW.
2.1 MARKET PURCHASE. As soon as practicable after execution of this
Agreement by the Company and the Employee, the Company shall pay to a
securities broker or other third party an amount equal to the market price
of the Grant Shares, with instructions to purchase the Grant Shares on the
open market in the Employee's name and to deliver the certificates
representing the Grant Shares into escrow pursuant to Section 2.2 of this
Agreement. For purposes of administrative convenience, the Company shall
have the authority to determine the number of certificates to be issued in
the Employee's name and the denomination of each certificate.
2.2 ESCROW. For purposes of facilitating the enforcement of Sections
3 and 5 of this Agreement, the Grant Shares purchased pursuant to Section
2.1 shall be delivered to a person or persons designated by the Company to
serve as escrow holder (individually or jointly, as applicable, the "Escrow
Holder"). The Escrow Holder may be an employee of the Company. Upon
delivery into escrow of the certificates representing the Grant Shares, the
Employee shall deliver to the Escrow Holder duly executed stock powers with
respect to each certificate. The Escrow Holder shall hold the certificates
and associated stock powers in escrow and shall release the Grant Shares to
the Company or the Employee, as applicable, only in accordance with Section
7 of this Agreement. The Employee hereby acknowledges that the Company's
designee is appointed as the Escrow Holder with the foregoing authorities
as a material inducement to make this Agreement and that said appointment
is coupled with an interest and is irrevocable. The Employee agrees that
said Escrow Holder shall not be liable to any party to this Agreement (or
to any other party) for any actions or omissions unless the Escrow Holder
is grossly negligent with respect thereto.
<PAGE>
3. VESTING OF THE GRANT SHARES; FORFEITURE.
3.1 DEFINITION OF "TERMINATION OF EMPLOYMENT". A "Termination of
Employment" shall be deemed to occur on the date on which the Employee
ceases to be employed on a continuous full time basis by the Company or a
subsidiary of the Company for any reason or no reason, with or without
cause. The Employee shall not be treated as having a Termination of
Employment during the time the Employee is receiving long term disability
benefits provided by the Company or a subsidiary of the Company, unless the
Employee has received formal written notice of termination.
3.2 VESTING.
(a) REGULAR VESTING SCHEDULE. 25 percent of the Grant
Shares shall become non-forfeitable ("Vested") on each succeeding
February 15, starting with the February 15 following the end of the
Grant Year, if the following two conditions are satisfied:
(i) The Employee does not have a Termination of Employment
prior to such February 15; and
(ii) The Employee satisfies the Annual Purchase Requirement
described in Section 4 with respect to the calendar year that
ended on the December 31 immediately preceding such February 15.
(b) ACCELERATED VESTING. Any unvested Grant Shares shall
become fully Vested upon the occurrence of any of the following:
(i) Termination of Employment within two years after the
date on which any one of the events described in subparagraphs
(A), (B) or (C) below occur, or upon an "Employer Disposition"
described in subparagraph (D) below, unless the Employee becomes
employed by the Company or a subsidiary of the Company within 120
days after such Employer Disposition occurs:
(A) TENDER OR EXCHANGE OFFER. A tender or exchange
offer, other than one made by the Company, is made for
Common Stock (or securities convertible into Common Stock)
and such offer results in a portion of those securities
being purchased and the offeror after the consummation of
the offer is the beneficial owner (as determined pursuant to
Section 13 (d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act")), directly or indirectly, of at
least 20 percent of the outstanding Common Stock; or
(B) 20 PERCENT OWNER. The Company receives a report
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<PAGE>
on Schedule 13D under the Exchange Act reporting the
beneficial ownership by any person of 20 percent or more of
the Company's outstanding Common Stock; or
(C) BOARD OF DIRECTORS. During any period of 12
months or less, individuals who at the beginning of such
period constituted a majority of the Company's Board of
Directors cease for any reason to constitute a majority
thereof unless the nomination or election of such new
directors was approved by a vote of at least two-thirds of
the directors then still in office who were directors at the
beginning of such period; or
(D) EMPLOYER DISPOSITION. All the equity ownership of
the subsidiary of the Company employing the Employee is
disposed of and as a result, no part of such equity
ownership is held by the Company or one of its subsidiaries.
(ii) January 1 following the death of the Employee;
(iii) January 1 following the Retirement of the Employee
after age 55 and completion of at least 5 "years of service"
within the meaning of the tax qualified defined benefit plan
maintained by the Employee's employer or, if no such defined
benefit plan exists, the Company's defined benefit plan; or
(iv) Receipt by the Employee of formal written notice of
termination following the permanent and total disability of the
Employee, which shall mean any medically determinable physical or
mental impairment that renders the Employee unable to engage in
any substantial gainful activity and can be expected to result in
death or which has lasted or can be expected to last for a
continuous period of not less than 12 months.
3.3 FORFEITURE. An Employee shall forfeit to the Company all or a
portion of the Grant Shares upon any of the following:
(a) TERMINATION OF EMPLOYMENT. If the Employee has a
Termination of Employment that is not described in 3.2(b), the
Employee shall forfeit any portion of the Grant Shares that is not
Vested under 3.2(a).
(b) FAILURE TO MEET ANNUAL PURCHASE REQUIREMENT. If the
Employee fails to meet the Annual Purchase Requirement described in
Section 4 for a calendar year, the Employee shall forfeit the Grant
Shares that would have become Vested on the February 15 following the
end of that year under 3.2(a). In the calendar year in which the
Employee has a Retirement as described in 3.2(b) (iii), the Employee
shall forfeit the Grant Shares that would have become vested
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<PAGE>
on the February 15 following the end of that year unless the Employee
meets a prorated Annual Purchase Requirement based on the number of
days in the calendar year elapsed on the Retirement date.
(c) ATTEMPTED TRANSFER OF SHARES NOT VESTED. If an attempt is
made to assign, encumber, pledge or otherwise transfer any Grant
Shares before they are Vested, in violation of Section 5, the Employee
shall forfeit all of the Grant Shares with respect to which the
attempt was made.
4. ANNUAL PURCHASE REQUIREMENT.
4.1 DEFINITIONS.
(a) TARGET SHARES. The term "Target Shares" shall mean shares
of PacifiCorp Common Stock "beneficially owned" by the Employee within
the meaning of Rule 16a-1 (a) (2) promulgated under the Securities
Exchange Act of 1934. All shares granted under the Plan shall
constitute Target Shares, whether or not Vested.
(b) BASE SALARY. The term "Base Salary" shall mean, with
respect to each calendar year commencing with the Grant Year, the
Employee's annual regular salary as in effect on January 1 of such
calendar year.
(c) STOCK OWNERSHIP TARGET. The term "Stock Ownership Target"
shall mean, with respect to each calendar year commencing with the
Grant Year, a dollar amount equal to _______ times the Employee's Base
Salary for such calendar year.
(d) ANNUAL PURCHASE PERCENTAGE. The term "Annual Purchase
Percentage" shall mean, with respect to each calendar year commencing
with the Grant Year, the number equal to the total value of all of the
Target Shares purchased by or at the direction of the Employee on the
open market or under the Company's K Plus Employee Savings and Stock
Ownership Plan (the "K Plus Plan") or under the Company's Compensation
Reduction Plan during the calendar year, less the total value of all
of the Target Shares with respect to which the Employee disposed of
beneficial ownership during the calendar year, divided by the
Employee's Base Salary for the calendar year:
Annual Value of Target Value of Target
Purchase = Shares Purchased - Shares Disposed
Percentage -------------------------------------
Base Salary
; PROVIDED that for purposes of this calculation each Target Share
purchased or disposed of during the calendar year shall be valued at
the purchase or disposition price thereof.
4
<PAGE>
(e) MINIMUM OWNERSHIP TARGET. The term "Minimum Ownership
Target" shall mean, with respect to each calendar year commencing with
the Grant Year, a dollar amount equal to ______ times the Employee's
Base Salary for such calendar year.
4.2 ANNUAL PURCHASE REQUIREMENT.
(a) VALUATION. As soon as practicable following January 1 of
each of the four calendar years commencing with the year following the
Grant Year, the Company shall conduct a valuation of all the Target
Shares held by the Employee on such January 1. For purposes of this
valuation, each share of PacifiCorp Common Stock shall be deemed to
have a value equal to the average closing price of such stock on the
New York Stock Exchange over the 20 trading days immediately preceding
the January 1 of the year in which the valuation is being conducted.
(b) STOCK OWNERSHIP TARGET NOT MET. If the Target Shares held
by the Employee as of January 1 of a calendar year, when valued in
accordance with Section 4.2 (a), have a value less than the employee's
Stock Ownership Target for that year, the Employee shall purchase on
the open market or acquire under the K Plus Plan or under the
Company's Compensation Reduction Plan (such obligation being referred
to in this Agreement as the "Annual Purchase Requirement") such number
of Target Shares as may be necessary to cause the Employee's Annual
Purchase Percentage (calculated pursuant to paragraph 4.1 (d) above),
to equal or exceed ______ percent; PROVIDED, HOWEVER, that the value
of Target Shares to be purchased under the Annual Purchase
Requirement, when reduced by the value of Target Shares disposed of
during the year, shall not exceed the difference between the value of
the Employee's holdings of Target Shares as of January 1 of the
calendar year and the Stock Ownership Target.
(c) STOCK OWNERSHIP TARGET MET. If the Target Shares held by
the Employee as of January 1 of a calendar year, when valued in
accordance with Section 4.2 (a), have a value that equals or exceeds
the Employee's Stock Ownership Target for that year, the Annual
Purchase Requirement for such year shall be deemed to be satisfied and
the Employee shall have no obligation to purchase additional Target
Shares during the year.
(d) INFORMATION REQUESTED FROM EMPLOYEE. The Employee shall
provide the Company with such information, including evidence of
beneficial ownership of Target Shares and of purchases and
dispositions of Target Shares, as the Company may reasonably request
to administer the Annual Purchase Requirement.
4.3 WAIVER OF ANNUAL PURCHASE REQUIREMENT BY BOARD OF DIRECTORS. The
Board of Directors of the Company, or a committee thereof to which the
Board of Directors has delegated authority to administer the Plan (the
"Plan Administrator"), may
5
<PAGE>
waive the Annual Purchase Requirement for a given calendar year if the
Plan Administrator finds, in its absolute discretion, that compliance with
the Annual Purchase Requirement would result in extraordinary hardship for
the Employee.
4.4 WAIVER OF ANNUAL PURCHASE REQUIREMENT BY EXECUTIVE OFFICER. Any
executive officer to whom appropriate authority has been delegated pursuant
to Section 4 (c) of the Plan may waive the Annual Purchase Requirement for
a given calendar year if (i) such officer finds, in his or her absolute
discretion, that compliance with the Annual Purchase Requirement would
result in extraordinary hardship for the Employee AND (ii) the value of the
Target Shares held by the Employee on January 1 of the year exceeded the
Minimum Ownership Target.
5. RESTRICTION ON TRANSFER. The Employee shall not assign, encumber,
pledge or otherwise transfer, voluntarily or involuntarily, any Grant Shares
that are not Vested.
6. MERGERS, CONSOLIDATIONS OR CHANGES IN CAPITAL STRUCTURE. If, after
the date of this Agreement, the outstanding Common Stock of the Company is
increased or decreased or changed into or exchanged for a different number or
kind of shares or other securities of the Company or of another corporation by
reason of any reorganization, merger, consolidation, plan of exchange,
recapitalization, reclassification, stock split-up, combination of shares or
dividend payable in shares, or in the event of any consolidation, merger or plan
of exchange involving the Company pursuant to which the Company's Common Stock
is converted into cash, any Common Stock, other securities or other
consideration issued or distributed with respect to the Grant Shares in any such
transaction shall be subject to the restrictions and conditions set forth
herein, including the escrow requirements of Sections 2 and 7.
7. ESCROW. The certificates and associated stock powers delivered to the
Escrow Holder pursuant to Section 2.2 of this Agreement shall be held in escrow
until (i) receipt by the Escrow Holder of a certificate of the Company
certifying that some or all of the Grant Shares have Vested, or (ii) receipt by
the Escrow Holder of a certificate of the Company certifying that some or all of
the Grant Shares have been forfeited to the company pursuant to Section 3.3.
Upon receipt by the Escrow Holder of one of the foregoing certificates, the
Escrow Holder shall deliver to the Employee or the Company, as appropriate,
certificates representing all of the Grant Shares to which the Employee or the
Company, as applicable, is entitled.
8. NO RIGHT TO EMPLOYMENT. Nothing in this Agreement or the Plan shall
(i) confer upon the Employee any right to be continued in the employment of the
Employee's employer or interfere in any way with the right of such employer to
terminate the Employee's employment at any time, for any reason or no reason,
with or without cause, or to decrease the Employee's compensation or benefits,
or (ii) confer upon the Employee any right to the continuation, extension,
renewal, or modification of any compensation, contract or arrangement with or by
the Company.
9. RIGHTS AS SHAREHOLDER. Subject to Section 2.2 and the other
provisions of this Agreement, the Employee shall be entitled to all of the
rights of a shareholder with respect to the Grant Shares, including the right to
vote such shares and to receive ordinary dividends payable
6
<PAGE>
with respect to such shares from the date of grant. Until the Grant Shares
become Vested, they will be treated for federal income tax purposes as owned
by the Company and dividends paid to the Employee with respect to the Grant
Shares will be treated for federal income tax purposes as additional
compensation. The Employee acknowledges that the certificates representing
the Grant Shares may bear such legends as may be required by law with respect
to the rights and restrictions applicable to the shares.
10. WITHHOLDING TAXES. The Company shall have the right to require the
Employee to remit to the Company, or to withhold from other amounts payable to
the Employee, as compensation or otherwise, an amount sufficient to satisfy all
federal, state and local withholding tax requirements.
11. APPROVALS. The obligations of the Company under this Agreement and
the Plan are subject to the approval of state and federal authorities or
agencies with jurisdiction in the matter. The Company will use its best efforts
to take steps required by state or federal law or applicable regulations,
including rules and regulations of the Securities and Exchange Commission and
any stock exchange on which the Company's shares may then be listed, in
connection with the grant evidenced by this Agreement. The foregoing
notwithstanding, the Company shall not be obligated to issue or deliver the
Grant Shares if such issuance or delivery would violate or result in a violation
of applicable state or federal securities laws.
12. MISCELLANEOUS.
12.1 GOVERNING LAW. This Agreement shall be governed by and construed
under the laws of the State of Oregon, without regard to the choice of law
principles applied in the courts of such state.
12.2 SEVERABILITY. If any provision or provisions of this Agreement
are found to be unenforceable, the remaining provisions shall nevertheless
be enforceable and shall be construed as if the unenforceable provisions
were deleted.
12.3 ENTIRE AGREEMENT. This Agreement and the Plan constitute the
entire agreement between the parties with respect to the subject matter
hereof and supersede all prior and contemporaneous oral or written
agreements between the Company and the Employee relating to the subject
matter hereof.
12.4 AMENDMENT. This Agreement may be amended or modified only
pursuant to the Plan or by written consent of the Company and the Employee.
12.5 SUCCESSORS. This Agreement shall inure to the benefit of and be
binding upon the Company and its successors.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.
7
<PAGE>
COMPANY: PACIFICORP, an Oregon corporation
By:
--------------------------------
Title: Senior Vice President
--------------------------------
EMPLOYEE:
--------------------------------
[signature]
--------------------------------
[type or print name]
8
<PAGE>
PACIFICORP
1998 RESTRICTED STOCK PROGRAM
OBJECTIVE
To provide recognition and rewards over the long term to PacifiCorp officers
who:
- - Contribute to the accomplishment of a strong total return performance for
PacifiCorp relative to peer companies, and
- - Drive the organizations for which they are responsible to "Best-in-Class"
levels of performance.
- - Achieve long term strategic goals and objectives.
GOVERNING PLAN
The 1998 Executive Restricted Stock Program (Program) has been created under
the shareholder-approved 1996 PacifiCorp Stock Incentive Plan.
ELIGIBILITY
Executive officers of PacifiCorp are eligible to participate in the Program.
Other key management employees may be eligible to participate if they are
nominated by the CEO and approved by the PacifiCorp Board Personnel Committee.
RESTRICTED SHARES POOL
A pool of restricted shares will be determined considering three factors.
One factor is the competitive level of restricted stock awards for each
eligible participant. These individual restricted stock awards will be
summed together and then adjusted by the second and third factors as
described below. The competitive level of restricted stock will be derived
by taking the total competitive long-term incentive award and reducing this
by the targeted value of stock option grants to be provided to the eligible
participant.
The second factor is PacifiCorp's performance relative to a peer group of
companies. The peer companies shall be defined as Standard and Poor's 500
Utilities - Electric Companies. PacifiCorp's three-year (1996-1998) total
shareholder return (stock price plus dividends) will be compared to the peer
group's total shareholder return performance for the same three-year period
to determine PacifiCorp's percentile ranking and the corresponding TSR Pool
Adjustment Factor using the following:
Page 1
<PAGE>
<TABLE>
<CAPTION>
PacifiCorp's TSR Pool
Percentile Adjustment
Rank Factor
------------- -----------
<S> <C>
Highest 200%
90th 175%
75th 150%
60th 125%
50th 100%
40th 50%
30th 25%
Less Than 30th 0%
</TABLE>
The third factor is a subjective assessment to be made by the Board Personnel
Committee or a subgroup of this Committee which will assess PacifiCorp's
actual performance against the approved strategic objectives. The Committee
will assign a Subjective Pool Adjustment Factor of 0-200%.
The Restricted Share Pool will be calculated using the following formula:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Sum of Each [ (75% x TSR (25% X Subjective ] Restricted
Participant's x Pool Adjustment + Pool Adjustment = Shares
Competitive Factor Factor Pool
Restricted Stock
Award
</TABLE>
POOL ALLOCATION
For restricted stock awards to be granted in February 1999, the CEO will
subjectively assess each eligible participant's performance (with the
exception of the CEO) and develop a recommended allocation from the
Restricted Shares Pool. The CEO's evaluation of individual performance for
the period will include consideration of the following performance criteria:
- - Actions taken to position the participant's responsibility area to become
"Best-in-Class".
- - Contributions made to changing the Company's business practices to improve
productivity, customer service, quality, and the employee.
In the case of officers who are not direct reports to the CEO, the CEO may
consult with his direct reports prior to making his performance assessment.
Following this assessment, the CEO will prepare recommendations to the
PacifiCorp Board Personnel Committee regarding the size of each eligible
participant's restricted stock grant. The Personnel Committee will evaluate
this recommendation and take action as appropriate.
With regard to the CEO's restricted stock award, the CEO's competitive award
level will be adjusted in the same manner as described above, considering TSR
and subjective performance. The Board Personnel Committee may then adjust
this award as appropriate considering individual performance. The Committee
will recommend the award to the Board for approval.
Page 2
<PAGE>
In future years, beginning in February 2000, the performance assessment by
the CEO will focus on specific "Best-in-Class" performance measures as
established for each participant.
RESTRICTED STOCK AGREEMENT
Each eligible participant will be asked to enter into an agreement with the
Company. This agreement will govern the provisions of the restricted stock
award once granted. These provisions are summarized below:
VESTING REQUIREMENT
The full details of vesting will be defined in a Restricted Stock Agreement
with each eligible participant. The following summarizes the key vesting
provisions:
- Restricted shares will vest at 25% per year beginning one year from
the anniversary date of the grant.
- Upon termination for any reason except death, permanent disability and
normal retirement, the unvested portions of grants are forfeited.
- At the time of death or permanent disability, all restrictions on
unvested shares will lapse.
- All restrictions will lapse on the January 1 following the year of the
employee's normal retirement.
- All restrictions will lapse on the January 1 following the year of an
involuntary termination of employment within two years following a
change-in-control (as defined in the Restricted Stock Agreement.)
- The participant shall forfeit shares otherwise vesting in a calendar
year if the participant does not meet the ownership or purchase
requirements set forth below and further detailed in the Restricted
Stock Agreement.
OWNERSHIP AND PURCHASE REQUIREMENTS
Each participant will be assigned a target PacifiCorp stock ownership
guideline which will range from 1.5 to 4 times the participant's January 1
annualized base salary as identified in the Restricted Stock Agreement.
Until this ownership requirement is met, the participant must meet an
annual net purchase requirement equal to 10% of January 1 annualized base
salary, except for the Chief Executive Officer whose requirement is 15%.
This purchase requirement is satisfied by all shares purchased by the
executive, including: 401(k) deferrals in the PacifiCorp Stock Account;
direct purchases; dividend reinvestment; and salary or bonus deferrals in
the Stock Account under the Compensation Reduction Plan.
The ownership requirement is satisfied by all shares owned including:
restricted shares (vested and unvested); 401(k) shares; ESOP shares; shares
owned in the Compensation Reduction Plan; and all other share ownership.
Page 3
<PAGE>
Exceptions to meet the annual purchase requirement may be granted in some
hardship situations if approved by the CEO or Board Personnel Committee.
The Committee must approve the hardship request if the holdings are less
than the minimum guideline. The CEO may approve if holdings are between
minimum and target.
As previously stated, any participant who does not meet the ownership and
the annual purchase requirement for the year will forfeit all shares which
would otherwise vest based upon these actions being taken in that year.
Page 4
<PAGE>
PACIFICORP STOCK INCENTIVE PLAN
NONSTATUTORY STOCK OPTION AGREEMENT
-----------------------------------
(Grant by Personnel Committee)
GRANT DATE: February 10, 1998
BETWEEN: PACIFICORP,
an Oregon corporation the "Company"
AND: _______________________ the "Optionee"
To attract and retain the services of and to provide performance
incentives to selected employees, officers and directors and selected
nonemployee agents, consultants, advisors and independent contractors of the
Company and its subsidiaries, the Board of Directors of the Company (the
"Board") adopted and the shareholders of the Company approved the Company's
Stock Incentive Plan (the "Plan"). Pursuant to the Plan, the Board has
granted to the Optionee an option to purchase the number of shares of the
Company's Common Stock (the "Stock") indicated below.
1. GRANT. The Company grants to the Optionee upon the terms and
conditions set forth below the right and option (the "Option"), subject to
the vesting schedule set forth in paragraph 3, to purchase any part of an
aggregate of ________ shares of the Company's authorized but unissued Common
Stock at a purchase price of $24.00 per share, this price being the closing
price of the Company's Common Stock on the New York Stock Exchange on
February 9, 1998, and the fair market value of the Shares on February 10,
1998 (the "Grant Date"). It is the intent of the Board that this Option be a
nonstatutory Stock Option and that it not qualify as an Incentive Stock
Option pursuant to Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code").
2. OPTION TERM. Subject to reduction in the Option term as provided
in subparagraphs 4, 6 and 7 below, the Option shall continue in effect until
ten years from the date hereof (the "Expiration Date").
3. RIGHT TO EXERCISE. The Option may be exercised from time to time in
the following amounts: (a) none before the first anniversary of the Grant Date;
(b) one-third of the total number of shares covered by the Option shall become
exercisable after the first anniversary of the Grant Date; (c) an additional
one-third of the total number of shares covered by the Option shall become
exercisable after the second anniversary of the Grant Date; and (d) the
remaining one-third of the total number of shares covered by the Option shall
become exercisable after the third anniversary of the Grant Date. The Option
shall not be exercised for any fractional shares. If the Optionee does not
exercise the Option in any one year with respect to the full number of shares to
which
<PAGE>
the Optionee is entitled in that year, the Optionee's rights shall be
cumulative and the Optionee may purchase those shares in any subsequent year
during the term of the Option.
4. LIMITATIONS ON RIGHT TO EXERCISE. Except as provided in
subparagraphs 6 and 7 hereof, the Option shall not be exercised unless at the
time of such exercise the Optionee is in the employ of the Company or a
subsidiary of the Company and shall have been so employed continuously since
the date the Option was granted, and then only to the extent specified in
Section 9. Absence on leave or on account of illness under rules established
by the Board or by the Personnel Committee of the Board (the "Committee")
shall not be deemed an interruption of employment for purposes of the Option.
5. NONTRANSFERABILITY. The Option shall not be assignable or
transferable by the Optionee, either voluntarily or by operation of law,
except by will or by the laws of descent and distribution of the state or
country of the Optionee's domicile at the time of death. The Option shall be
exercisable during the Optionee's lifetime only by the Optionee.
6. TERMINATION OF EMPLOYMENT. In the event the employment of the
Optionee by the Company or a parent or subsidiary of the Company shall terminate
for any reason other than because of death, disability within the meaning of
Section 22(e)(3) of the Code, or Retirement (as defined below), the Option may
be exercised by the Optionee at any time prior to the Expiration Date or the
expiration of 30 days after the date of such termination of employment,
whichever is the shorter period, but only to the extent that the Optionee was
entitled to exercise the Option on the date of termination; provided, however,
that if (i) the employment of the Optionee is terminated by the Company within
two years following a Change in Control (as defined below) or (ii) an Employer
Disposition (as defined below) occurs and either (a) the Optionee is not
employed by the Company or a parent or subsidiary of the Company within 120 days
after such Employer Disposition or (b) the Optionee is employed by the Company
or a parent or subsidiary of the Company within 120 days after such Employer
Disposition but leaves such employment on or before the 120th day, the vesting
of the Option shall be accelerated so that the Option is fully exercisable. If
the Optionee's employment is terminated because of physical disability within
the meaning of Section 22(e)(3) of the Code, the vesting of the Option shall be
accelerated so that the Option is fully exercisable and the Option may be
exercised by the Optionee at any time prior to the Expiration Date or the
expiration of 12 months after the date of such termination, whichever is the
shorter period. If the Optionee dies while in the employ of the Company or a
subsidiary of the Company, the vesting of the Option shall be accelerated so
that the Option is fully exercisable and the option may be exercised at any time
prior to the Expiration Date or the expiration of 12 months after the date of
the Optionee's death, whichever is the shorter period, but only by the persons
to whom such Optionee's rights under the Option pass by the Optionee's will or
by the laws of descent and distribution of the state or country of the
Optionee's domicile at the time of death. If the Optionee's employment is
terminated because of Retirement, the vesting of the Option shall be accelerated
so that the Option is fully exercisable and the Option may be exercised at any
time prior to the Expiration Date or the expiration of 36 months after the date
of such Retirement, whichever is the shorter period. For
<PAGE>
purposes of this Agreement, "Retirement" shall mean voluntary retirement
after age 55 and completion of at least five "years of service" within the
meaning of the tax qualified defined benefit plan maintained by the Company;
provided, however, that "Retirement" shall not include any retirement or
termination of employment under the terms of the Company's 1998 Enhanced
Early Retirement and Workforce Reduction Programs. For purposes of this
Agreement "Employer Disposition" shall mean a disposition of all the equity
ownership of the subsidiary employing the Optionee that results in no part of
such equity ownership being held by the Company or any of its subsidiaries.
For purposes of this Agreement, "Change in Control" shall mean the occurrence
of any one of the following events:
(a) A tender or exchange offer, other than one made by the
Company, is made for Common Stock (or securities convertible into Common
Stock) and such offer results in a portion of those securities being
purchased and the offeror after the consummation of the offer is the
beneficial owner (as determined pursuant to Section 13(d) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act")), directly or
indirectly, of at least 20 percent of the outstanding Common Stock of the
Company; or
(b) The Company receives a report on Schedule 13D under the
Exchange Act reporting the beneficial ownership by any person of 20 percent
or more of the Company's outstanding Common Stock; or
(c) During any period of 12 months or less, individuals who at the
beginning of such period constituted a majority of the Board of Directors
cease for any reason to constitute a majority thereof unless the nomination
or election of such new directors was approved by a vote of at least
two-thirds of the directors then still in office who were directors at the
beginning of such period.
7. PURCHASE OF SHARES. Shares may be purchased pursuant to the Option
only upon receipt by the Company of written notice from the Optionee of the
Optionee's desire to purchase, specifying the number of shares the Optionee
desires to purchase and the date on which the Optionee desires to complete
the purchase, which shall not be more than 30 days after receipt of the
notice. On or before the date specified for completion of the purchase of
the shares, the Optionee shall pay the Company the full purchase price of the
shares in cash or, with the consent of the Committee, in whole or in part in
Common Stock of the Company valued at fair market value, restricted stock,
performance units or other contingent awards denominated in either stock or
cash, promissory notes or other consideration. No shares shall be issued
until full payment has been made, and the Optionee shall have none of the
rights of a shareholder until shares are issued. Upon notification of the
amount due and prior to or concurrently with delivery of the certificate
representing the shares, the Optionee shall pay to the Company any amounts
necessary to satisfy applicable federal, state, and local withholding tax
requirements. If the Optionee fails to pay the amount demanded, the Company
may withhold that amount from other amounts payable by the Company to the
Optionee, including salary, subject to applicable law.
8. STOCK SPLITS; COMBINATIONS; MERGERS, REORGANIZATIONS, ETC. Except
as provided in the final sentence of this Section 8, if the outstanding
shares of Stock are
<PAGE>
increased or decreased or changed into or exchanged for a different number or
kind of shares or other securities of the Company or of another corporation,
by reason of any reorganization, merger, consolidation, reclassification,
stock split-up, combination of shares, or dividend payable in shares, the
Board or the Committee shall make appropriate adjustment in the number and
kind of shares as to which the Option, or portion thereof then unexercised,
shall be exercisable, in order that the Optionee's proportionate interest
shall be maintained as before the occurrence of such event. Such adjustment
in the Option shall be made without change in the total price applicable to
the unexercised portion of the Option and with a corresponding adjustment in
the option price per share. The Company shall have no obligation to effect
any adjustment that would or might result in the issuance of fractional
shares, and any fractional shares resulting from any adjustment may be
disregarded or provided for in any manner determined by the Board or the
Committee. Any such adjustment made by the Board or the Committee shall be
conclusive. In the event of the dissolution or liquidation of the Company or
a merger or other reorganization in which the Company is not the surviving
corporation (each a "Transaction"), in lieu of adjusting the Option as
described above, the Board or the Committee may, in its sole discretion,
provide a 30-day period immediately prior to consummation of the Transaction
during which the Optionee shall have the right to exercise the Option to the
extent shares subject to the Option are or would be vested as of the date of
consummation of the Transaction. Upon the expiration of such 30-day period
all further rights to purchase shares pursuant to the Option shall
immediately terminate.
9. CONDITIONS. The obligations of the Company under this Agreement
shall be subject to the approval of such state or federal authorities or
agencies as may have jurisdiction in the matter, including without limitation
the public utility regulatory authorities having jurisdiction over issuances
of securities by the Company. The Company will use its best efforts to take
such steps as may be required by state or federal law or applicable
regulations, including rules and regulations of the public utility regulatory
authorities, the Securities and Exchange Commission and any stock exchange on
which the Company's shares may then be listed, in connection with the
issuance or sale of any shares acquired pursuant to this Agreement or the
listing of such shares on any such exchange. Notwithstanding the foregoing,
the Company shall not be obligated to issue or deliver shares under this
Agreement if, upon advice of its legal counsel, such issuance or delivery
would violate state or federal securities laws or state or federal laws
governing the issuance of securities by a public utility.
10. LEGENDS. Certificates representing the shares subject to this
Agreement shall bear such legends as the Company shall deem appropriate to
reflect any restrictions on transfer imposed by federal or applicable state
securities laws.
11. EMPLOYMENT. Nothing in the Plan or in this Agreement shall confer
upon the Optionee any right to be continued in the employment of the Company
or any subsidiary or interfere in any way with the right of the Company or
any subsidiary to terminate the Optionee's employment at any time for any
reason, with or without cause, or to decrease such employee's compensation or
benefits.
<PAGE>
12. BINDING EFFECT. This Agreement shall be binding upon and shall
inure to the benefit of any successor of the Company, but except as provided
above, the Option granted shall not be assigned or otherwise disposed of by
the Optionee.
13. THE PLAN. In addition to the provisions hereof, this Agreement and
the option granted hereby are governed by, and subject to the terms and
conditions of the Plan. The Optionee acknowledges receipt of a copy of the
Plan. The Optionee represents that the Optionee is familiar with the terms
and conditions of the Plan, and hereby accepts the Option subject to all of
the terms and conditions thereof, which terms and conditions shall control to
the extent inconsistent in any respect with the provisions of this Agreement.
14. BOARD DETERMINATIONS. The Optionee hereby agrees to accept as
binding, conclusive and final all decisions and interpretations of the Board,
the Committee, or other administrator of the Plan, as to any questions
arising under the Plan or this Agreement. This Agreement, as supplemented by
the Plan, shall bind and inure to the benefit of the Company and its
successors and assigns, and the Optionee and the Optionee's estate in the
event of death.
15. INDEPENDENT TAX ADVICE. The Optionee agrees that the Optionee has
or will obtain the advice of independent tax counsel regarding the federal
and state income tax consequences of the receipt and exercise of the Option
granted hereby and of the disposition of the Stock acquired upon exercise
hereof. The Optionee acknowledges that the Optionee has not relied and will
not rely upon any advice or representations by the Company or by its
employees or representatives with respect to the tax treatment of the Option
granted hereunder.
16. GOVERNING LAW. The interpretation, performance, and enforcement of
this Agreement shall be governed by the laws of the State of Oregon.
PACIFICORP
By_____________________________________
Its_____________________________________
________________________________________
[signature]
Address:
SSN:
<PAGE>
1998 RESTATEMENT
PACIFICORP
EXECUTIVE SEVERANCE PLAN
DECEMBER 1, 1996
(AS AMENDED AND RESTATED EFFECTIVE DECEMBER 1, 1998)
PACIFICORP
AN OREGON CORPORATION
700 NE MULTNOMAH
PORTLAND, OR 97232 COMPANY
<PAGE>
PACIFICORP
EXECUTIVE SEVERANCE PLAN
DECEMBER 1, 1996
(AS AMENDED AND RESTATED DECEMBER 1, 1998)
PACIFICORP
AN OREGON CORPORATION
700 NE MULTNOMAH
PORTLAND, OR 97232 COMPANY
Effective December 1, 1996, the Company adopted the PacifiCorp
Executive Severance Plan (the Plan) as an executive severance program to
supersede and replace the prior PacifiCorp Executive Severance Plan that
terminated by its terms December 31, 1995. The Plan, as amended and restated
December 1, 1998, also supersedes and replaces any prior executive severance pay
policy or other policy, plan or practice under which severance benefits have
been provided to executives of the Company and adopting affiliates except
benefits provided pursuant to any individual separation agreement entered into
in writing prior to December 1, 1998 between any executive and the Company.
ARTICLE I
EFFECTIVE DATE; PLAN YEAR; ERISA
1.01 EFFECTIVE DATE
The effective date of the Plan is December 1, 1996. The 1998
Restatement is effective December 1, 1998.
1.02 PLAN YEAR
The plan year shall be a calendar year.
1.03 ERISA
The Plan is intended to be and shall be administered and maintained
primarily for the purpose of providing benefits for a select group of management
or highly compensated employees. Severance pay and benefits under the Plan
shall be paid as needed solely from the general assets of Employer, in
accordance with Department of Labor regulation Section 2520.104-24.
<PAGE>
The Plan is intended to qualify for the alternative method of compliance in
Department of Labor Regulation Section 2520.104-23.
ARTICLE II
APPLICATION TO COMPANY AND AFFILIATES
2.01 EMPLOYERS
2.01-1 The Company maintains the Plan, and any affiliate approved
by the Company may adopt and maintain the Plan for its employees.
"Affiliate" means a corporation, person or other entity that is designated as
an affiliate by the Company.
2.01-2 "Employer" means the Company, with respect to its employees,
and any adopting affiliate, with respect to its employees. The Plan is a
single plan maintained by the Company and any adopting affiliate.
2.02 ADOPTION PROCEDURE
An affiliate may adopt the Plan by a written statement signed by the
affiliate, subject to approval and revocation by the Company. The statement
shall include the effective date of adoption and any special provisions that are
to be applicable only to employees of the affiliate.
ARTICLE III
ELIGIBILITY AND PARTICIPATION
3.01 ELIGIBLE EMPLOYEES
Eligible employees are key employees of any Employer selected by the
Personnel Committee of the Company's Board of Directors (Committee) and
designated as Level 1 eligible employees or Level 2 eligible employees.
3.02 PARTICIPANT
An eligible employee must satisfy the requirements of 3.03 and 3.04 to
be entitled to severance benefits under the Plan and upon satisfying those
requirements shall be a participant in the Plan.
2
<PAGE>
3.03 REQUIREMENTS OF PARTICIPATION AND BENEFITS
3.03-1 Subject to meeting the additional conditions set forth in
3.04, an eligible employee will participate and be entitled to severance
benefits upon satisfaction of the following conditions:
(a) The eligible employee's employment terminates under
any of the following circumstances:
(i) When there is no Change in Control, the
eligible employee has resigned within 30 days after
a material alteration in the eligible employee's
position (as determined according to 3.03-2) that
has a detrimental impact on the eligible employee
(as determined according to 3.03-4).
(ii) Following a Change in Control, the eligible
employee has tendered resignation within two months
after a material alteration of position (as determined
according to 3.03-3).
(iii) There has been an Employer-initiated termination.
An Employer-initiated termination is any termination of
the eligible employee's employment by Employer (including
a request for resignation that is agreed to by the eligible
employee) for any reason other than cause under 3.04.
3.03-2 Where there is no Change in Control, a material alteration
in position occurs when there is either a material alteration in assignment
or compensation, as defined in this Section.
(a) A material alteration in assignment occurs when:
3
<PAGE>
(i) There is material reduction in the scope of
the eligible employee's duties and responsibilities; and
(ii) There is a material reduction in the eligible
employee's authority; and
(iii) The new assignment has not been designated by
the Chief Executive Officer of the Company as a position
with unique strategic importance for the Company; and
(iv) The assignment is not reasonably expected to
provide the eligible employee with a meaningful training
opportunity to enhance the eligible employee's opportunities
for future advancement.
(b) A material alteration in compensation occurs when:
(i) An eligible employee's annualized base salary
is reduced by any amount or the annualized base salary
and target bonus opportunity combined is reduced by at
least 15 percent of the employee's base salary and target
bonus opportunity before the change in compensation; and
(ii) the change in compensation is not the result of a
general reduction in executive compensation for reasons
unrelated to the particular employee's assignment.
3.03-3 During the 24-month period following a Change in Control of
the Company (as determined according to 3.03-6), a material alteration in
position occurs in any of the following events:
4
<PAGE>
(a) The eligible employee's reporting level in the
Company has been changed and is lower after the change than
it was before.
(b) There is a material reduction in the scope of the
eligible employee's duties and responsibilities.
(c) There is a material reduction in the eligible
employee's authority.
(d) There is a material alteration in compensation
(as defined in 3.03-2(b)).
(e) The eligible employee is relocated (or informed
of a relocation) within 24 months following a Change in
Control. (For purposes of this provision, relocation shall
mean reassignment to a position in an office located more
than 100 miles from the eligible employee's then-current
office or 60 miles from the eligible employee's residence).
3.03-4 Where there is no Change in Control, a material alteration
in position shall be deemed to have a detrimental impact on the eligible
employee:
(a) When the alteration is a material alteration in
compensation (as defined in 3.03-2); or
(b) An eligible employee is required to relocate by
the Company to a new geographic area and that employee has
been relocated by the Company within the past year. For
purposes of this provision, relocation shall mean reassignment
to a position in an office located more than 100 miles from
the eligible employee's then-current office or 60 miles from
the eligible employee's residence; however, this provision
shall not apply to any eligible employee in the first year of
employment with the Company.
3.03-5 Determinations concerning whether a material alteration in
position and a detrimental impact has occurred shall be subject to the
following:
5
<PAGE>
(a) Where there is no Change in Control, all questions
concerning whether a material alteration in position that has
a detrimental impact on the eligible employee has occurred shall
be determined by the Company exercising full discretion when
acting under 5.04-1 through 5.04-3 and, in the case of the review
of a denied claim, by the Committee exercising full discretion
when acting under 5.04-4 and 5.04-5.
(b) During the 24 months following a Change in Control, the
eligible employee exercising full discretion shall determine
whether a material alteration in position has occurred, subject
to 3.03-7.
3.03-6 A "Change in Control" shall mean the occurrence of any of
the following events:
(a) The consummation of:
(i) any consolidation, merger or plan of share
exchange involving the Company (a "Merger") as a result
of which the holders of outstanding securities of the
Company ordinarily having the right to vote for the election
of directors ("Voting Securities") immediately prior to the
Merger do not continue to hold at least 50 percent of the
combined voting power of the outstanding Voting Securities
of the surviving or continuing corporation immediately after
the Merger, disregarding any Voting Securities issued or
retained by such holders in respect of securities of any other
party to the Merger; or
(ii) any sale, lease, exchange or other transfer (in
one transaction or a series of related transactions) of all,
or substantially all, the assets of the Company.
6
<PAGE>
(b) At any time during a period of two consecutive years,
individuals who at the beginning of such period constituted the
Board ("Incumbent Directors") shall cease for any reason to
constitute at least a majority thereof; provided, however, that
the term "Incumbent Director" shall also include each new director
elected during such two-year period whose nomination or election
was approved by two-thirds of the Incumbent Directors then in office.
(c) Any "person" or "group" (within the meaning of Sections 13(d)
and 14(d)(2) of the Securities Exchange Act of 1934, as amended (the
"Act")) shall, as a result of a tender or exchange offer, open market
purchases or privately negotiated purchases from anyone other than
the Company, have become the beneficial owner (within the meaning
of Rule 13d-3 under the Act), directly or indirectly, of Voting
Securities representing 20 percent or more of the combined voting
power of the then outstanding Voting Securities.
3.03-7 If there is an alteration to the eligible employee's
position during the 24 months following a Change in Control, the employee may
tender resignation from employment if in the employee's judgment a material
alteration in position has occurred. The resignation shall be contingent
upon the Company's acknowledgment that it will not challenge the employee's
determination and the employee will participate and be entitled to severance
benefits upon resignation. The Company will have five business days to
inform the employee whether it intends to challenge the employee's
determination that a material alteration of position has occurred. If the
Company notifies the employee that it will challenge the employee's
determination that a material alteration of position has occurred, the
employee may treat that notice as denial of the employee's claim for benefits
and seek review of that decision under 5.04-4. Alternately, the employee may
refer the claim for benefits to arbitration. Both the employee and the
Company will be expected to reasonably cooperate in good faith in the
arbitration process to ensure timely resolution. The employee will continue
to be paid until the issue is resolved in arbitration.
3.03-8 An eligible employee who holds the office of Chief Executive
Officer, President, Chief Operating Officer or Chief Financial Officer
immediately before Change in Control shall have a "walk-away right". If such
eligible employee resigns effective on a date no less than 12 months and no
more than 14 months after a Change in Control, the employee
7
<PAGE>
shall be entitled to severance benefits provided in 4.01 whether or not the
eligible employee experiences a material alteration in position.
3.04 ADDITIONAL CONDITIONS FOR RECEIPT OF BENEFITS AND DISQUALIFICATION
FROM PARTICIPATION
3.04-1 An eligible employee must execute the following within the
time period specified by Employer in order to be entitled to severance
benefits:
(a) A waiver and release of claims against the Company
and affiliates in the form provided by Employer.
(b) Any agreement to repay severance benefits under
circumstances required by 4.06.
(c) An agreement to forego any severance rights or benefits
under any other severance plan maintained by or agreement with
Employer or any affiliate.
(d) Any other agreement required by Employer, including but
not limited to, confidentiality, noncompetition, nonsolicitation,
nondisparagement, assistance to Employer and assistance in defense
of litigation agreements. Except as provided in Exhibit A or B,
the Employer shall determine the terms of any agreement on a
discretionary basis with respect to each individual participant.
3.04-2 A disqualified participant shall not receive benefits under
the Plan. If the disqualification occurs after receipt of some or all
benefits, the participant shall repay such benefit(s) as set forth in 4.06-1.
The eligible employee or participant will be disqualified from participation
and ineligible for any severance benefits in the event of any of the
circumstances specified below.
(a) The eligible employee is terminated "for cause,"
as defined below:
(i) Where there is no Change in Control, a
termination for cause is any termination of employment
determined
8
<PAGE>
according to 3.04-3 to have been for cause.
(ii) During the 24-month period following a
Change in Control, a termination for cause is a
termination of employment for either of the following
reasons determined according to 3.04-3:
a. The eligible employee's gross
misconduct; or
b. The eligible employee's gross
negligence or conduct which indicates a
reckless disregard for the consequences and
has a material adverse effect on the Company
or its affiliates.
(b) The eligible employee fails to execute and deliver
to Employer within the Designated Acceptance Period any of
the agreements required under 3.04-1.
(c) The eligible employee revokes or breaches any of
the required agreements under 3.04-1.
3.04-3 All questions concerning whether a termination was for cause
under 3.04-2(a)(1) or for a reason stated in 3.04-2(b) or (c) shall be
determined by the Company exercising full discretion when acting under 5.04-1
through 5.04-3 and, in the case of the review of a denied claim, by the
Committee exercising full discretion when acting under 5.04-4 and 5.04-5. All
questions concerning whether a termination was for gross misconduct or gross
negligence shall be determined by the Company based upon the preponderance of
the evidence when acting under 5.04-1 through 5.04-2 and, in the case of the
review of a denied claim, by the Committee exercising full discretion when
acting under 5.04-4 and 5.04-5.
9
<PAGE>
ARTICLE IV
SEVERANCE BENEFITS
4.01 SEVERANCE BENEFITS
4.01-1 A participant entitled to severance benefits shall receive
severance pay and other benefits as provided in Exhibit A, provided however,
that if the participant's termination of employment is within 24 months
following a Change in Control (as defined in Section 3.03-6), the participant
entitled to severance benefits shall receive severance pay and other benefits
as provided in Exhibit B.
4.01-2 Group health continuation benefits and outplacement provided
under 4.01-1 shall be subject to 4.02 and 4.03.
4.02 GROUP HEALTH CONTINUATION BENEFITS
4.02-1 Participants who are awarded severance benefits under 4.01,
and their covered dependents, shall receive continued Employer-subsidized
coverage under one of the following group health plans:
(a) The group health plans in which they were enrolled
at the time of termination.
(b) If the plans in (a) are not available to active
employees, the similar group health plans provided to active
employees, as determined by Employer.
4.02-2 The coverage provided under 4.02-1 shall continue until the
earlier of (a), (b) or (c) below:
(a) Three months after coverage would otherwise end due
to the participant's termination of employment; provided,
however, if the termination of employment is within 24 months
following a Change in Control the duration of coverage shall
be the period of time set forth in Exhibit B.
(b) The date of eligibility for comparable group health
coverage obtained through other employment of the participant
after the participant's termination date with Employer.
10
<PAGE>
(c) The last day of the month for which the participant
fails to make any contribution toward the cost of such coverage
that is required by Employer of similarly situated active employees.
4.02-3 Employer shall continue its contributions for the
continuation coverage provided under 4.02-1. The amount of such contribution
with respect to each participant shall be Employer's cost to provide such
coverage to similarly situated active employees.
4.02-4 After termination of coverage under 4.02-1, participants and
covered dependents may elect to continue their group health coverage on a
self-pay basis as allowed by law. The group health plan continuation
benefits provided under 4.03-1 shall reduce a participant's, and any other
affected person's, maximum continuation period for any continuation coverage
required by law. For the purposes of 4.03, "group health plans" include the
Employer-sponsored medical, dental and vision plans but exclude any health
care spending account under any cafeteria plan maintained by Employer
pursuant to Section 125 of the Internal Revenue Code of 1986 and related
regulations.
4.03 OUTPLACEMENT BENEFITS
Employer shall provide a minimum of 12 months of executive level
outplacement benefits to participants entitled to severance benefits following
termination of employment in accordance with Employer's policy on outplacement
benefits as in effect from time to time.
4.04 TIME AND MANNER OF PAYMENT
4.04-1 Employer shall determine, in its sole discretion, the time
and manner of payment of any severance pay. The Employer may, in its sole
discretion, deliver the approximate value of severance benefits provided by
Exhibit A or B, as applicable, in a form acceptable to the participant other
than the form prescribed in the applicable schedule. Subject to the
exercise of such discretion to pay in installments (and assuming the
participant has not been disqualified), severance pay shall be paid in a lump
sum cash payment within a reasonable time after the date the participant may
no longer revoke a waiver and release of claims required under 3.04-3.
4.04-2 Employer shall withhold from any amounts paid under this
Plan any income tax or other amounts as allowed or required by law, including
any Excise Tax determined under 4.07.
4.04-3 Severance pay shall not be included as eligible compensation
under any retirement plan maintained by Employer or any affiliate.
11
<PAGE>
4.05 NOTICE OF ACCEPTANCE PERIOD
4.05-1 Employer shall give eligible employees written notice of the
time period within which they must meet any conditions required in order to
receive the benefits offered under this Plan (the Designated Acceptance
Period). If an eligible employee fails to meet the conditions within the
Designated Acceptance Period, the eligible employee shall not be entitled to
participation and severance benefits under this Plan.
4.05-2 All eligible employees over the age of 40 shall be notified
of the right to consult with an attorney before accepting benefits under this
Plan and before executing any required waiver and release of claims forms.
4.06 REPAYMENT OF SEVERANCE
4.06-1 Employer shall require a participant to repay severance
benefits if the participant is rehired by Employer or an affiliate or in the
event of a disqualification under 3.04.
4.06-2 If repayment is required under 4.06-1, the Company shall
determine the amount, timing and manner of repayment on a discretionary basis
with respect to each individual participant, subject to the following:
(a) If repayment is made in a lump sum, the lump sum
shall be repaid before the participant begins work with Employer
or an affiliate.
(b) If repayment is made in periodic installments, the
repayment shall be made in accordance with both of the following
requirements:
(i) The participant shall sign and execute a promissory
note furnished by Employer before the participant begins work with
Employer or an affiliate.
(ii) The terms of the promissory note shall be
commercially reasonable as determined by Employer.
12
<PAGE>
4.07 EXCISE TAX PAYMENT
4.07-1 If any of the payments provided for in 4.01, 4.02 or any
other payment or benefit received or to be received by a participant in
connection with a Change in Control of the Company or a termination of
employment (collectively, the "Severance Payments") will be subject to the
tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended
(the "Code"), or any similar tax that may hereafter be imposed (the "Excise
Tax"), the Company shall pay to the participant an additional amount (the
"Gross-Up Payment"). The Gross-Up Payment shall compensate the participant
any Excise Tax related to Section 4999 and any federal, state and local taxes
paid by the participant due to the Gross-Up Payment. The amount of the
Gross-Up Payment shall be calculated by the Company such that the net amount
retained by the participant shall be the Severance Payments less any
applicable federal, state and local income taxes on the Severance Payments.
4.07-2 For purposes of determining the amount of the Gross-Up
Payment, the participant shall be deemed to pay federal income taxes at the
highest stated marginal rate of federal income taxation in the calendar year
in which the Gross-Up Payment is to be made and state and local income taxes
at the highest marginal rate of taxation in the state and locality of
residence on the Date of Termination, net of the maximum reduction in federal
income taxes which could be obtained from deduction of such state and local
taxes. In the event that the Excise Tax is subsequently determined to be
less than the amount taken into account hereunder at the time of termination
of employment, the participant shall repay to the Company at the time that
the amount of such reduction in Excise Tax is finally determined the portion
of the Gross-Up Payment directly and indirectly attributable to such
reduction plus interest on the amount of such repayment at the rate provided
for in Section 1274(d) of the Code. In the event that the Excise Tax is
determined to exceed the amount taken into account hereunder at the time of
the termination of employment (including by reason of any Severance Payment
the existence or amount of which cannot be determined at the time of the
Gross-Up Payment), the Company shall make an additional Gross-Up Payment in
respect of such excess (plus any interest payable to the taxing authorities
with respect to such excess) at the time that the amount of such excess is
finally determined.
ARTICLE V
ADMINISTRATION
5.01 ADMINISTRATOR
The Plan shall be administered by the Committee.
13
<PAGE>
5.02 COMMITTEE'S POWERS AND DUTIES
5.02-1 Except as expressly provided herein, the Committee shall
interpret the Plan, decide any questions about the rights of participants and
in general administer the Plan. Unless timely submitted to arbitration, any
decision by the Committee shall be final and bind all parties. The Committee
shall have discretion to carry out its responsibilities, except as provided
in 3.03-5(b), 3.03-7 and 3.04-3.
5.02-2 The Committee may delegate all or part of the administrative
duties except in connection with review under 5.04-4 and 5.04-5 to one or
more agents and may retain advisors for assistance. The Committee may
consult with and rely upon the advice of counsel who may be counsel for the
Company or any affiliate.
5.02-3 The Committee shall be the plan administrator under federal
laws and regulations applicable to plan administration and shall comply with
such laws and regulations. The Committee shall be the agent for service of
process on the Plan at the Company's address.
5.03 COMPANY AND EMPLOYER FUNCTIONS
5.03-1 All authority of the Company or an Employer shall be
exercised by the chief executive officer of the Company or the Employer, who
may delegate some or all of the authority to any officer or manager of the
Company or the Employer.
5.03-2 The power to amend or terminate this Plan may be exercised
only by the Company's chief executive officer, who may delegate some or all
of the authority to any officer of the Company.
5.03-3 The Board of Directors of the Company or any Employer shall
have no administrative authority or function with respect to the Plan. Being
a member of the Board shall not, in and of itself, make a person a plan
fiduciary.
5.04 CLAIMS AND REVIEW PROCEDURES
5.04-1 Any person claiming a benefit or requesting information, an
interpretation or a ruling under the Plan shall present the request in
writing to the person designated by the Company; provided, however, that
during the 24 months following a Change in Control an eligible employee may
initiate arbitration and seek a declaratory order as to whether a material
alteration in the employee's position has occurred. The employee is not
required to complete the claims and review procedure set forth in Section
5.04 prior to requesting such declaratory order.
14
<PAGE>
5.04-2 The decision on a claim shall be made by the Company and
shall normally be made within 90 days. If special circumstances require an
extension of time for processing the claim, the claimant shall be so notified
and the time limit shall be 180 days. If the claimant has not been notified
of a decision on a claim within the time limit, the claim shall be deemed
denied.
5.04-3 If the claim or request is denied, the written notice of
denial shall state:
(a) The reasons for denial, with specific reference to
the terms of the Plan on which denial is based.
(b) A description of any additional material or information
required for review of the claim and an explanation of why it is
necessary.
(c) An explanation of the Plan's claims review procedure.
5.04-4 Any person whose claim or request is denied, or who has not
received a response within 90 days, or within 180 days if special
circumstances require an extension of time, may request review by notice in
writing to the Committee. The original decision will be reviewed by the
Committee or the Committee's delegate, who may, but shall not be required to,
grant the claimant a hearing. On review, whether or not there is a hearing,
the claimant may have representation, examine pertinent documents and submit
issues and comments in writing.
5.04-5 The decision on review shall normally be made within 60
days. If an extension of time is required for a hearing or other special
circumstances, the claimant shall be so notified and the time limit shall be
120 days. The decision shall be in writing and shall state the reasons and
the relevant Plan provisions. All decisions on review shall be final and
binding on all parties concerned. If the participant does not receive a
decision within the time limit, the claim shall be considered wholly denied
on review.
5.04-6 Interpretations of the plan shall be determined based on the
following:
(a) Where there is no Change in Control, the Company, when
acting on a claim under 5.04-2 and 5.04-3, and the Committee,
when acting on a review of a
15
<PAGE>
claim under 5.04-4 and 5.04-5, shall have full and absolute
discretion to determine all questions concerning eligibility
and participation and whether or not the conditions for payment
of severance benefits have been made, including questions of
interpretation of the Plan.
(b) During the 24 months following a Change in Control,
(i) the Company and Committee shall apply the standard
of review set forth in 3.04-3 to all questions concerning
whether a termination was for gross misconduct or gross
negligence; and
(ii) the Company shall give deference to the eligible
employee's determination as to whether the employee has
experienced an alteration under 3.03-3.
5.04-7 Decisions by the Company on claims shall have no binding
effect on the Committee and no precedential value when the Committee is
acting on a review of a claim within 24 months of a Change in Control.
5.05 INDEMNITY AND BONDING
5.05-1 Subject to the indemnification provisions in the Articles
and Bylaws of the Company and any provisions and procedures in the corporate
resolutions of the Company, the Company shall indemnify and defend any Plan
fiduciary who is an officer, director or employee of the Company against any
claim or liability that arises from any action or inaction in connection with
the Plan, subject to the following rules:
(a) Coverage shall be limited to actions taken in good
faith that the fiduciary reasonably believed were not opposed
to the best interest of the Plan.
(b) Negligence by the fiduciary shall be covered to the
fullest extent permitted by law.
16
<PAGE>
(c) Coverage shall be reduced to the extent of any insurance
coverage.
5.05-2 Plan fiduciaries shall be bonded to the extent required by
applicable law.
5.06 EXPENSES
5.06-1 A Committee member who is employed full-time by an Employer
shall not be separately compensated for services as Administrator. The
Committee shall be reimbursed by the Company for all expenses incurred while
acting as Committee.
5.06-2 The Company may elect to pay any administrative fees or
expenses and may allocate the cost among the Employers. Otherwise, the
expenses and fees shall be paid from Company assets.
ARTICLE VI
GENERAL PROVISIONS
6.01 ENFORCEABILITY AND EXCLUSIVE BENEFIT
The Company and Employers intend the terms of this Plan, including
those relating to the coverage and benefits, to be legally enforceable. The
Company and Employers further intend that the Plan be maintained for the
exclusive benefit of eligible employees of Employers.
6.02 AMENDMENT
The Company may amend this Plan at any time only by written
instrument. No purported oral amendment shall have any effect.
6.03 TERMINATION
The Company may terminate this Plan at any time; provided, however,
that the Plan may not be altered, amended or terminated within the 24 months
following a Change in Control.
6.04 GOVERNING LAW
This Plan shall be construed according to the laws of Oregon, except
as preempted by federal law.
17
<PAGE>
6.05 NOT CONTRACT OF EMPLOYMENT
Nothing in this Plan shall give any employee the right to continue
employment. The Plan shall not prevent discharge of any employee at any time
for any reason.
6.06 ATTORNEYS' FEES
In any suit or action arising out of or in any way pertaining to this
Plan, the prevailing party may recover from the other party reasonable
attorneys' fees at trial and on any appeal.
6.07 UNFUNDED
All benefits payable under this Plan shall be unfunded and shall be
payable only from the general assets of Employer. The participants shall have
no interest in any assets of Employer and shall have no rights greater than the
rights of any unsecured general creditor of Employer.
6.08 NONASSIGNMENT
6.08-1 The rights of a participant under this Plan are personal;
provided however, following a Change in Control, an eligible employee
participant's spouse or estate (as determined by the Company) will receive
any unpaid severance pay to the extent that the circumstances set forth in
6.08-2 are met.
6.08-2 If an eligible employee or participant dies prior to
receiving payment of severance pay, the Company shall pay the employee's
spouse or estate any unpaid severance pay if (1) the employee or participant
had been notified of a Company-initiated termination or material alteration
in position that would have made the employee eligible for severance pay but
for the employee's death; and (2) such termination, notice of termination,
material alteration in position or notice of material alteration occurred
following a Change in Control and within 24 months of such Change in Control.
6.08-3 No interest of a participant under this Plan may be
assigned, transferred, seized by legal process or subjected to the claims of
creditors in any way. A participant's rights under this Plan are not subject
in any manner to anticipation, alienation, sale, transfer, assignment, pledge
or encumbrance.
18
<PAGE>
6.09 CONDITIONS
The waiver of a condition of benefits on any occasion shall not
constitute a waiver of any other condition on the same occasion or a waiver of
the same or any other condition on any other occasion.
6.10 OBLIGATIONS OF EMPLOYERS
The obligations of the Employers under this Plan are obligations to
their own employees alone and the Company assumes no obligations to employees of
any other Employer.
6.11 ARBITRATION
6.11-1 Any dispute arising out of or in any way pertaining to the
interpretation or administration of this Plan shall be submitted to binding
arbitration. Except as provided in 5.04-1, no claim may be submitted to
arbitration until exhaustion of the claims and review procedure under 5.04.
Claims must be submitted to arbitration within six months of the date the
claim accrues. Except as specifically provided herein, the arbitration shall
be governed under Federal Arbitration Act. The parties shall select a
mutually agreeable arbitrator. If the parties are unable to agree on the
selection of an arbitrator within thirty days, each party shall designate one
arbitrator from the list of Oregon and Washington arbitrators maintained by
the Judicial Arbitration and Mediation Services (J.A.M.S) office in Portland,
Oregon. The arbitrators so selected shall select a third arbitrator. The
arbitration shall be conducted in Portland, Oregon with no attorneys' fees or
costs to be awarded to either side; provided however, that in the event of a
dispute concerning whether an employee has experienced a material alteration
in position following a Change in Control, a prevailing employee shall be
entitled to an award of reasonable attorneys fees and costs (including
without limitation interest on any overdue payment).
6.11-2 Any claim involving a challenge to the exercise of
discretion shall be determined by the arbitrator based upon substantial
evidence on the record. Any claim involving
19
<PAGE>
a decision by the Company or Committee that is to be based upon the
preponderance of the evidence (see 3.04-3) shall be determined by the
arbitrator based upon the preponderance of the evidence.
Effective Date: December 1, 1998
Adopted: December 1, 1998
COMPANY PACIFICORP
By /s/ Michael J. Pittman
------------------------------
Michael J. Pittman
Date: December 1, 1998
20
<PAGE>
EXHIBIT A
SEVERANCE PAY
1. Participants entitled to severance benefits shall receive
severance pay as follows:
Level 1: Two times annual cash compensation
Level 2: One times annual cash compensation
2. "Annual cash compensation" shall mean the sum of the following:
(a) The eligible employee's annualized base salary rate in
effect at the time of material alteration in the position or
termination, whichever is greater.
(b) The eligible employee's guideline incentive award in effect
at the time of material alteration in the position or termination,
whichever is greater, as determined by Employer in accordance with the
applicable incentive program.
(c) The eligible employee's annualized vehicle allowance in
effect at the time of material alteration in the position or
termination, whichever is greater.
3. A noncompetition agreement required by Employer as a condition
for severance benefits shall be for a period of two years for
participants entitled to Level 1 severance benefits and for a period
of one year for participants entitled to Level 2 severance benefits.
<PAGE>
EXHIBIT B
CHANGE IN CONTROL SEVERANCE BENEFITS
1. Participants entitled to severance benefits in the 24 months
following a Change in Control as defined in 3.03-6 will be designated
by the Personnel Committee Board into one of the following three
categories for severance benefits.
- 3 times annual cash compensation
- 2.5 times annual cash compensation
- 2 times annual cash compensation
2. During the 24 months following the Change in Control, the Company
shall not change the designation of employees in effect at the time of
the Change in Control. The Personnel Committee may change the
designation of employees from 2 times annual cash compensation to 2.5
times annual cash compensation at any time in the 24 months following
a Change in Control (as defined in Section 3.03-6) but cannot reduce
the benefit during this 24 month period.
3. "Annual cash compensation" shall mean the sum of the following:
(a) The eligible employee's annualized base salary rate in
effect immediately prior to the material alteration in the position or
at the time of termination, whichever is greater.
(b) The eligible employee's guideline incentive award in effect
immediately prior to the material alteration in the position or at the
time of termination, whichever is greater.
(c) The eligible employee's annualized vehicle allowance in
effect immediately prior to the material alteration in the position or
at the time of termination, whichever is greater.
4. Subject to 4.02 of the Plan, participants entitled to severance
benefits in the 24 months following a Change in Control (as defined in
Section 3.03-6) shall receive Group Health Continuation Benefits as
follows:
<PAGE>
<TABLE>
<CAPTION>
YEARS OF SERVICE MONTHS OF CONTINUED BENEFITS
---------------- ----------------------------
<S> <C>
0-5 6
6-10 12
11-15 18
16 or more 24
</TABLE>
5. A noncompetition agreement required by Employer as a condition
for severance benefits following a Change in Control shall be for a
period of one year for all participants.
2
<PAGE>
September 18, 1998
[REVISED OCTOBER 15, 1998]
PERSONAL & CONFIDENTIAL
Mr. Frederick W. Buckman
c/o Brian Booth, Esq.
Tonkon Torp LLP, Suite 1600
888 SW 5th Avenue
Portland, OR 97204
RE: LETTER AGREEMENT REGARDING SEVERANCE BENEFITS
UNDER PACIFICORP EXECUTIVE SEVERANCE PLAN
Dear Fred:
You are a Level One eligible employee under the PacifiCorp Executive
Severance Plan dated December 1, 1996 ("the Plan"). As a result of the
Company's and your agreement concerning your resignation from your position as
President and Chief Executive Officer of PacifiCorp, you qualify for benefits
under Section 3.03-1(a) of the Plan. Consequently, if you timely resign your
employment and satisfy the remaining conditions of Section 3.03 of the Plan you
will become a Plan participant and receive benefits thereunder. This Letter
Agreement is governed by and subject to the terms of the Plan, including the
claims review and dispute resolution procedures identified therein. Terms
defined herein shall have the same meaning in the Plan. A copy of the Plan is
attached as Exhibit A.
A. CONDITIONS FOR BENEFITS INCLUDE:
1. RESIGNATION. Based upon our discussions, your resignation as an
officer and director will be effective September 1, 1998. Pursuant to this
Letter Agreement, September 25, 1998 will be the effective date of your
employment separation (the "Separation Date").
2. CONSIDERATION PERIOD. You must execute this Letter Agreement at or
before 12:00 PM (NOON), OCTOBER 16, 1998 (the "Consideration Period"). You may,
of course, execute the Letter Agreement earlier if you wish.
<PAGE>
3. WAIVER OF PARTICIPATION IN OTHER COMPENSATION OR EMPLOYEE BENEFIT
PLANS. Section 3.03-1(b) of the Plan requires that you agree in writing to
forego any severance rights or benefits under any other severance plan
maintained by or agreement with PacifiCorp or any affiliate. You also
understand that consistent with Section 3.04-4 of the Plan, you will not receive
any other compensation or employee benefits except (1) as provided in this
Letter Agreement; (2) your final pay; and (3) any Restricted Stock Award
Agreement between you and the Company. You agree to waive the right to
participate in any Company compensation or benefit plans to which you might
otherwise be entitled, except those specified in this Letter Agreement. You
acknowledge and agree that the severance pay and benefits provided to you under
this Letter Agreement are in lieu of, and not in addition to, the benefits
offered under any other plan, policy or practice that otherwise might be
applicable to you as a result of your current or former positions with the
Company and its affiliates. You may indicate your acceptance of these
conditions by countersigning this Letter Agreement where indicated below.
4. WAIVER AND RELEASE OF CLAIMS AGAINST THE COMPANY. Section 3.04-4 of
the Plan requires that you execute and deliver a waiver and release of claims
against the Company and affiliates in the form provided by Employer ("Release").
The Release must be signed on your last day of employment, or by the end of the
Consideration Period, whichever is later. That form is attached as Exhibit B
and incorporated herein by reference.
5. CONFIDENTIALITY, NONCOMPETITION AND NONSOLICITATION AGREEMENT.
Section 3.04-4 of the Plan requires that you execute any confidentiality,
noncompetition, and nonsolicitation agreement required by Employer. That
agreement is attached as Exhibit C and incorporated herein by reference.
6. ASSISTANCE IN DEFENSE OF LITIGATION OR CLAIMS. In the event
PacifiCorp or its Affiliates requests your assistance, you agree to assist in
the defense of litigation or claims about which you have knowledge without
additional compensation during the two-year period covered by your severance pay
and benefits ("Separation Period"). After your Separation Period expires, you
agree to assist in the defense of such litigation or claims for additional
compensation at your base rate of salary on your Separation Date. You will be
paid an hourly rate for up to seven (7) hours in one day or a per diem rate for
any day in which more than seven (7) hours are worked. You will be reimbursed
for any reasonable expenses incidental to this assistance approved in advance by
the Company. The Company will reasonably accommodate your scheduling needs and
will not make unreasonable demands on your time. You may indicate your
acceptance of this condition by countersigning this Letter Agreement below.
7. REPAYMENT OF SEVERANCE. You agree to repay severance benefits if you
are rehired by PacifiCorp or an affiliate or disqualified under the Plan as
provided in Section 4.06-1.
<PAGE>
8. BREACH. You must not breach any of the terms of this Letter
Agreement, including without limitation Exhibits B and C. If you breach any
material term of this Letter Agreement, you will immediately forfeit all
remaining pay and benefits. You acknowledge that the terms of Exhibits B and C
are material terms.
B. SEVERANCE PAY AND BENEFITS
1. SEVERANCE PAY. In consideration for your execution of this Letter
Agreement and fulfilling the other terms and conditions provided under the Plan,
the Company will provide you with severance pay in an amount equal to two times
the annual cash compensation (as defined in Section 2 of Exhibit A to the Plan),
less applicable state and federal tax withholding. Payment of severance
benefits will be in twenty-four (24) monthly installments as follows: four (4)
payments each in the amount of $104,900 covering the months September through
December, 1998; twelve payments each in the amount of $91,500 covering the
months of January through December 1999; and eight (8) payments each in the
amount of $125,000 covering the months of January through August, 2000. The
first payment (less deduction for amounts owing in connection with spousal
travel on the corporate aircraft to be calculated consistent with past practice)
will be made as soon as practicable following the date you may no longer revoke
your Release of Claims, provided you have not revoked the Release of Claims;
thereafter, the monthly payments will be made by the end of the month in which
they are scheduled. Please refer to C.3., below for information about your
revocation period and the Plan for additional information.
2. SEVERANCE BENEFITS. The Company will also provide you and your
covered dependents with three months' group health continuation benefits.
Additionally, the Company will provide you with executive outplacement
assistance. Please refer to the Plan for additional information.
3. LUMP SUM PAYMENT. As additional consideration for your execution of
Exhibits B and C and in addition to severance benefits provided for under the
Plan, the Company will pay you the amount of Five Hundred Twenty Thousand
Dollars ($520,000), subject to applicable state and federal tax withholding.
Payment will be made as soon as practicable after October 24, 1998, provided you
have not revoked the Release of Claims.
4. EFFECT OF AGREEMENT ON COMPENSATION AND BENEFITS.
4.1 HEALTH AND LIFE INSURANCE PLANS. By executing this Letter
Agreement you are not waiving any rights you may have as a terminated employee
under the Company's group health and life insurance plans.
<PAGE>
4.2 RETIREMENT PLANS. This Letter Agreement shall not affect your
vested rights to benefits in the PacifiCorp K Plus Plan. You will be eligible
to receive a distribution of your entire K Plus account after you terminate
employment according to the provisions of the plan.
4.2.1 SERP. You acknowledge that you are not vested in the
Supplemental Executive Retirement Plan ("SERP") and therefore are not entitled
to any benefits under this plan.
4.2.2 PACIFICORP RETIREMENT PLAN. You acknowledge that you are
not vested in the PacifiCorp Retirement Plan and therefore are not entitled to
any benefits under this plan.
4.3 DEFERRED COMPENSATION. You will be eligible to receive any
deferred compensation you have accrued after you terminate employment with the
Company according to the provisions of the Compensation Reduction Plan. Timing
of such payments is governed by your prior timely elections and subject to plan
provisions.
4.4 LONG-TERM INCENTIVE PLAN ("LTIP") AND PACIFICORP STOCK INCENTIVE
PLAN. To the extent that option grants have vested prior to your employment
separation, you will retain those options as provided for in the Stock Incentive
Plan and any Nonstatutory Stock Option Agreement issued under the authority of
the aforementioned plans, including without limitation stock awards pursuant to
your Incentive Compensation Agreement dated February 1, 1994. Pursuant to the
Company's Nonstatutory Stock Option Agreement, vested options may be exercised
prior to the expiration of thirty (30) days after the date of employment
termination, that is within thirty (30) days of September 25, 1998. You
acknowledge that the Company has transferred to you or your account in the
Compensation Reduction Plan, any stock vested prior to your resignation under
the LTIP, and related agreements. Your Restricted Stock Agreements under the
LTIP and Stock Incentive Plan will be amended to vest the 51,963 unvested shares
granted prior to your termination. Distributions of stock will be made as soon
as practicable after October 24, 1998, provided you have not revoked the Release
of Claims.
C. OTHER
1. PLAN DOCUMENT. The Plan is attached as Exhibit A. The Plan is
governed by Employee Retirement Income Security Act ("ERISA"), and is
administered and maintained primarily for the purpose of providing benefits for
a select group of management or highly-compensated employees.
2. RESPONSIBILITY FOR EVALUATION OF TAX CONSEQUENCES. You have sole
responsibility for evaluation of any tax issues arising from or related to this
Letter Agreement. The Company takes no responsibility for any tax consequences
to you and
<PAGE>
makes no representation regarding the tax treatment of your pay or benefits
described in Section B of this Letter Agreement or otherwise.
3. OLDER WORKERS' BENEFIT PROTECTION ACT NOTICE. The Older Workers'
Benefit Protection Act contains specific conditions for "knowing and willing"
release of certain claims by employees over age forty (40). The Company's
understanding of these requirements and conditions is as follows:
(a) CONSULTATION WITH ATTORNEY. You have the right to consult with
an attorney of your choice before you sign this Letter Agreement
and the Release. No one in the Company is authorized to give you
advice on whether or not to consult with an attorney or whether
or not to sign this Letter Agreement or the Release. The
decision whether to consult an attorney or not is yours alone.
The Company does not pay for legal fees.
(b) CONSIDERATION PERIOD. The Company is providing you a
Consideration Period of at least twenty-one (21) calendar days
(Section A.2) to consider this Letter Agreement and the Release
and decide whether to accept severance pay and benefits and sign
this Letter Agreement and the Release. However, if you do not
sign and return this Letter Agreement within the Consideration
Period and the Release by the end of the Consideration Period or
on your last day of employment, whichever is later, you will not
be eligible for the severance pay and benefits.
(c) PERIOD OF REVOCATION. After you have signed the Release, you
have seven (7) calendar days to revoke your acceptance of
benefits as indicated on this Letter Agreement and the Release
(Section A.4). By revoking this Letter Agreement and the
Release, you are exercising your right to change your mind. If
you revoke this Letter Agreement and the Release, though, you
will not be eligible to receive the severance pay and benefits.
(d) EXCHANGE FOR CONSIDERATION. The Release is in exchange for
"consideration" (benefits), which exceeds anything to which you
otherwise may have been entitled. This means that you will
receive severance benefits that you would not otherwise receive
from the Company. Severance benefits are extra, in part, because
you signed the Release.
4. CONFIDENTIALITY OF NEGOTIATIONS AND LETTER AGREEMENT. You agree not
to disclose to any person, agency or court the terms and conditions of this
Letter Agreement and our discussions concerning your separation from employment
unless
<PAGE>
compelled to do so pursuant to legal process (e.g., a summons or subpoena) or
otherwise required by law. You may discuss the Letter Agreement with your
attorney, financial adviser, certified public accountant or immediate family
members on a confidential basis.
5. PAYMENT UPON DEATH. In the event of your death, any remaining
payments or distribution of stock provided for herein shall be made to your
estate or designated beneficiary at the time specified in this Letter Agreement.
6. ENTIRE AGREEMENT. All agreements between the parties are embodied and
expressed in this Letter Agreement including its attachments. You acknowledge
that no representations have been made to you by the Company other than those
set forth herein. The terms of this Letter Agreement are contractual and not
mere recitals.
Please read this Letter Agreement carefully. If it meets with your
acceptance, please sign and return it to me no later than 12:00 p.m. (noon)
(Pacific Standard Time), OCTOBER 16, 1998.
Sincerely,
Nolan E. Karras
Chairman, Personnel Committee
PacifiCorp Board of Directors
Attachments: Exhibit A: PacifiCorp Executive Severance Plan
Exhibit B: Release of Claims
Exhibit C: Confidentiality, Noncompetition and Nonsolicitation
Agreement
ACKNOWLEDGMENT AND AGREEMENT:
I have read this Letter Agreement including its Attachments. I understand that
by signing below I am entering a legal agreement and releasing legal rights. I
have chosen voluntarily to enter this Letter Agreement after careful
consideration.
- --------------------------------------- -----------------------------------
Frederick W. Buckman Date
<PAGE>
EXHIBIT B
RELEASE OF CLAIMS
This Release of Claims (the "Release") is made and executed by me, the
undersigned employee, in connection with my separation from employment with
PacifiCorp, an Oregon corporation and in consideration of my receiving severance
pay and benefits of value as provided for under that certain Letter Agreement
dated September 18, 1998 [revised October 15, 1998] (the "Agreement"). These
benefits are substantial consideration to which I am not otherwise entitled.
I hereby release PacifiCorp and its related corporations, affiliates, joint
ventures, and partnerships, all predecessor and successor organizations for all
entities referred to in this paragraph and all current and former partners,
joint ventures, officers, directors, employees, agents, insurers, shareholders,
representatives and assigns of all of the aforementioned and all other persons
who might be claimed as liable (collectively the "Company") from any and all
liability, damages or causes of action, direct or indirect, whether known or
unknown, which have been or could have been asserted by me relating to my
employment with the Company or the termination of that employment, including but
not limited to any claims for additional compensation or benefits in any form,
or damages. This Release specifically includes, but is not limited to, all
claims for relief or remedy under any state or federal laws, including but not
limited to the Employee Retirement Income Security Act (ERISA), Title VII of the
Civil Rights Act of 1964, the Post-Civil War Civil Rights Acts (42 USC Sections
1981-88), the Civil Rights Act of 1991, the Equal Pay Act, sections 503 and 504
of the Vocational Rehabilitation Act, the Age Discrimination in Employment Act,
the Americans With Disabilities Act, the Older Workers' Benefit Protection Act,
the Federal Family and Medical Leave Act, the Worker Adjustment and Retraining
Notification Act, the Rehabilitation Act of 1973, the Uniformed Services
Employment and Reemployment Rights Act of 1994, the Fair Labor Standards Act,
Executive Order 11246, all as amended, and any other regulations under such
authorities and all other civil rights, employment and labor laws of any state
or the United States, and all applicable contract, tort or other common or
statutory law theories.
This Release shall not affect any rights which I may have under any Company
health insurance plans or vested rights under the retirement plan(s) maintained
by the Company.
I acknowledge that I have been given a specified period of time, as set
forth in the Agreement, to consider my election to accept benefits under the
Agreement and to sign this Release and that the Release must be signed on the
later of my last day of active employment or the end of the consideration
period; that I am being provided with a period of seven (7) days following
execution of this Release in which I may revoke, at my sole election, my
Agreement and my Release; and that unless I so revoke, my Agreement will be
effective the date it is signed and my Release will be fully effective
<PAGE>
and irrevocable on the eighth (8th) day after it is signed. I further
understand I must execute this Release in order to be entitled to receive the
benefits offered under the Agreement and that the Company is not obligated to
give me any benefits under the Agreement until the revocation period has
passed without my exercising the right to revoke.
I acknowledge that I have had time to consider the alternatives and
consequences of my signing the Agreement and the Release; that I am aware of my
right to consult an attorney or financial advisor at my own expense; and that,
in consideration for executing this Release and my Agreement, I have received
additional benefits and compensation of value to which I would not otherwise be
entitled.
Every provision of this Release is intended to be severable. In the event
a court or agency of competent jurisdiction determines that any term or
provision contained in this Release is illegal, invalid or unenforceable, such
illegality, invalidity or unenforceability shall not affect the other terms and
provisions of this Release which shall continue in full force and effect.
I HAVE READ THE FOREGOING RELEASE AND UNDERSTAND THE EFFECT OF THIS RELEASE. I
UNDERSTAND THAT I AM RELEASING LEGAL RIGHTS AND VOLUNTARILY ENTER INTO THIS
RELEASE.
Dated: , 1998
-------------------------
-----------------------------------
Frederick W. Buckman
<PAGE>
EXHIBIT C
CONFIDENTIALITY, NONCOMPETITION
AND NONSOLICITATION AGREEMENT
In consideration of benefits provided to me pursuant to the PacifiCorp
Executive Severance Plan ("Plan"), I agree to the following terms:
1. CONFIDENTIALITY. I acknowledge that in the course of my employment I
had access to proprietary information, trade secrets, and other information
treated by PacifiCorp, an Oregon corporation, and its affiliates (collectively
referred to as "Employer") as confidential (hereinafter collectively referred to
as "Confidential Information"), that such information is a valuable asset of
Employer and that its disclosure or unauthorized use will cause Employer
irreparable harm. As used in this Agreement, the term "Confidential
Information" means: (a) proprietary information of Employer; (b) information
marked or designated by Employer as confidential; (c) information that is known
to me to be treated by Employer as confidential and (d) information provided to
Employer by third parties which Employer is obligated to keep confidential.
Confidential Information includes but is not limited to trade secrets as defined
under the Uniform Trade Secrets Act, all information relating to Employer's
business strategies, pricing, customers, technology, products, costs, employee
compensation, marketing plans, computer programs or systems, inventions,
developments, and trade secrets of every kind and character. I agree that I
will not disclose any Confidential Information to any person, agency or court
unless compelled to do so pursuant to legal process (E.G., a summons or
subpoena) or otherwise required by law and then only after providing the
Employer with prior notice and a copy of the legal process, nor will I use such
Confidential Information for my own benefit or that of any other person,
corporation, government or other entity except as is required by law. I agree
that upon my separation from employment (or earlier if requested by Employer), I
will return to Employer all originals and copies of documents and other
materials relating to Employer or containing or derived from Confidential
Information that are in my possession or control, accompanied, if requested, by
written certification signed by me and satisfactory to Employer to the effect
that all such documents and materials have been returned.
<PAGE>
2. AGREEMENT NOT TO DISCUSS PACIFICORP MATTERS. I acknowledge and
understand that my knowledge of the Company's business, its relationships or
prospective relationships with other businesses or entities, information about
its executives, board of directors, or their thinking about business strategy
could benefit others and harm PacifiCorp. Consequently, I agree not to discuss
nor provide information to anyone about PacifiCorp or its executives or board of
directors. To the extent that there is information about PacifiCorp, its
executives or board of directors that I desire to share with potential
employers, I agree to discuss such information in advance with the Chief
Executive Officer and/or Chief Operating Officer of PacifiCorp and agree not to
disclose such information without consent from PacifiCorp.
3. NONCOMPETITION AND NONSOLICITATION OF EMPLOYEES. In order for
PacifiCorp to reasonably protect its interests in the competitive use of any
Confidential Information, knowledge or relationships concerning the business of
Employer to which I have had access to because of the special nature of my
employment by Employer, I agree that I will not for a period of two (2) years
after I qualify for benefits under the Plan, directly or indirectly, whether as
officer, director, employee, stockholder, agent, partner, consultant, paid or
unpaid advisor, or otherwise work for, engage in, or have any interest in or
connection with any of the following without prior written approval of the Chief
Executive Officer or Chief Operating Officer of the Company: (1) any business
(including without limitation utilities or marketers), agency, cooperative,
governmental entity or publicly-owned energy provider within the Western United
States (defined below) which competes with Employer's wholesale or retail
electricity marketing efforts (including without limitation competition from
alternate fuel providers) or (2) businesses within the Western United States in
which Employer was actually engaged or preparing to engage as of the time my
employment ended, or (3) businesses within the Western United States in which
the Employer is engaged or are contemplated within Employer's strategic planning
efforts as of the date of execution of this Agreement. For the purposes of this
Agreement, the Western United States shall mean the states of Montana, Wyoming,
Colorado, Idaho, Utah, New Mexico, Washington, Oregon, Nevada, Arizona and
California. Nor will I solicit, divert or take away the employment of any
employees or customers of the Employer for a period of two (2) years after my
employment with Employer ends. The noncompetition restriction is not applicable
to: (a) ownership of not more than ten percent of the stock of any publicly
traded corporation; (b) employment in or for PG&E's non-regulated gas
transmission business; (c) work for a business which competes with Employer,
where the work is for a division or section of such entity which is in a
business not competitive with Employer's ongoing or planned business; or
(d) work for a competitor where the job assignment is not one where Employer's
Confidential Information would be of a potential benefit; provided however, that
exclusions (c) and (d) are applicable only upon the condition that I notify
Employer prior to commencing such work and provide reasonable assurance to
Employer that Employer's Confidential Information will be protected against
unauthorized disclosure or use. I specifically acknowledge and agree that the
terms of this provision are reasonable in every respect and, in
<PAGE>
particular, because of the competitive and specialized nature of the
Employer's business, including without limitation the changing
power-marketing environment and increased competition resulting from open
access of transmission in the electric power market, and changes in the
international energy market, that it is reasonable to include all of the
Western United States and other geographic areas where the Company has or
plans investments, as the geographic limitation in this provision. If a
court holds that any portion of this paragraph is unenforceable, the maximum
restrictions of time, scope of activities, and geographic area reasonable
under the circumstances will be substituted for any such restrictions held
unenforceable.
4. DISPUTES. The rights and obligations under this Agreement shall in
all respects be governed by federal law or the laws of the state of Oregon, as
applicable, without regard to the choice of law rules. Venue in any legal
action shall exist exclusively in state or federal courts in Oregon. The
prevailing party in any such litigation will be entitled to recover all
reasonable attorneys' fees and other expenses, including attorneys' fees and
expenses in connection with any trial, appeal, or petition for review.
5. INJUNCTIVE RELIEF. It is understood and agreed that money damages
would not be a sufficient remedy for any breach of this Agreement by me and that
Employer shall be entitled to specific performance and injunctive relief as
remedies for any such breach. I understand that such remedies shall not be
deemed to be the exclusive remedies in the event of my breach of this Agreement,
but shall be in addition to all other remedies available at law or in equity to
Employer.
6. SEVERABILITY. IF ANY PROVISION OF THIS AGREEMENT IS OR BECOMES
UNENFORCEABLE, ALL REMAINING PROVISIONS SHALL REMAIN VALID AND ENFORCEABLE.
Frederick W. Buckman Date
<PAGE>
EMPLOYMENT AGREEMENT
DATED: December 4, 1998
BETWEEN: PacifiCorp, an Oregon corporation,
700 NE Multnomah Street
Suite 1600
Portland, Oregon 97232 "Company"
AND: Keith R. McKennon
1540 SW Vista, No. 3000
Portland, OR 97201 "Executive"
The parties agree as follows:
1. GENERAL. This Agreement sets forth the terms upon which the Executive
shall be employed by the Company. The Company hereby enters into this Agreement
with the Executive and offers the compensation and benefits identified for the
term specified herein. In consideration of the Executive's acceptance of
employment with the Company under the terms and conditions set forth in this
Agreement, this Agreement shall replace the provisions addressing annual
compensation received by the Executive for service as a Director and Chairman of
the Board of Directors of the Company ("Board") set forth in the Compensation
Agreement effective February 9, 1994, as amended, between Executive and the
Company. The Executive acknowledges that the compensation provided under this
Agreement is in lieu of and not in addition to annual compensation under the
Compensation Agreement and hereby waives any right to compensation thereunder
during the term of this Agreement.
2. TERM OF AGREEMENT.
The term of this Agreement shall be for three (3) years from
September 2, 1998 unless the Agreement is terminated earlier in accordance with
the following:
2.1 At any time after September 1, 1999, this Agreement may be
terminated by either party for any reason upon written notice to the other
party.
2.2 This Agreement shall automatically terminate in the event of
the Executive's disability or death. For purposes of this Agreement,
"disability" shall mean inability to perform all or substantially all of the
Executive's responsibilities for a continuous period of at least six (6)
months.
<PAGE>
2.3 This Agreement shall automatically terminate upon expiration
of its term.
3. EMPLOYMENT.
3.1 EMPLOYMENT AND POSITION. The Executive commenced employment
with the Company September 2, 1998 upon his election to the office of Chief
Executive Officer by the Board. The Executive shall be employed by the
Company on a full-time basis to perform duties of the Chief Executive
Officer, unless removed by the Board. The Executive agrees to comply with all
applicable policies and procedures of PacifiCorp, and if applicable, its
affiliates, and to devote his full-time efforts, energy and skill to his
employment as the Company considers reasonably necessary for the performance
of the Executive's duties.
3.2 WORK LOCATION. During the term of this Agreement, the
principal work location for the Executive shall be Portland, Oregon.
3.3 EFFECT OF EMPLOYMENT TERMINATION UPON POSITION AS CHAIRMAN OF
THE BOARD. The parties acknowledge that Executive currently serves a
Chairman of the Board. The parties contemplate that, at the conclusion of his
term, Executive may terminate his employment with the Company but continue in
his role as Chairman of the Board. The termination of this Agreement shall
have no effect upon his service as Chairman, provided, however, the Board
retains the right to remove Executive from the office of Chairman (or any
other office) at any time.
4. PAYMENTS UPON TERMINATION OF EMPLOYMENT. In the event the
Executive's employment is terminated by the Company for any reason, the
Company shall pay the Executive amounts due for services rendered through the
date the Agreement terminated. The Company shall have no liability to the
Executive after the date this Agreement terminates pursuant to Section 2.
The Executive hereby waives any right to participate in the Company's
Executive Severance Plan and any claim to benefits thereunder.
5. COMPENSATION.
5.1 SALARY. For services performed during the term of the
Executive's employment with the Company during the term of this Agreement,
the Company shall pay the Executive an annualized salary (prorated for any
portion of a year), payable in equal monthly installments, not less than
$780,000, subject to annual review by the Board.
5.2 EMPLOYEE BENEFITS. In addition to the Executive's base
compensation, the Executive will be eligible to receive employee benefits on
the same basis as Company executives generally, except as expressly provided
for herein. The Executive will be subject to the policies concerning
holidays and vacation as applicable to other executives. All
2
<PAGE>
employee benefits are provided subject to the terms and conditions of any
applicable plans or policies and in accordance with applicable law.
5.3 INCENTIVE BONUS. The Executive's annual guideline-bonus
opportunity under the Executive Incentive Program or its successor shall be
set at the following percentage of base salary for each of the following
calendar years:
1998 20%
1999 40%
2000 50%
2001 60%
Any bonus award is subject to the terms of the Executive Incentive Plan. This
provision is not intended to establish a guideline bonus for the Executive for
any time period after the term of this Agreement.
6. OTHER BENEFITS.
6.1 THE SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN. The Executive
shall not participate in PacifiCorp's Supplemental the Executive Retirement
Plan established for certain executives, effective October 1, 1998.
6.2 COMPENSATION REDUCTION PLAN. The Executive will be eligible to
participate in the Company's deferred compensation plan, known as the
Compensation Reduction Plan.
6.3 STOCK INCENTIVE PLAN. The Executive will be eligible to
participate in PacifiCorp's Stock Incentive Plan under which he may be
provided grants of restricted stock, stock options or other awards under
conditions specified in the plan and subject to Board approval. Any
restricted stock, stock option or other awards will be determined
periodically by the Board and memorialized in an Employee Stock Option
Agreement between the Executive and the Company.
6.4 AUTOMOBILE. The Company will provide the Executive at the
Company's expense with an automobile allowance of not be less than $900 per
month.
3
<PAGE>
7. CONFIDENTIALITY, NON-SOLICITATION AND NON-COMPETITION; RETURN OF
PROPERTY.
7.1 NON-COMPETITION AGREEMENT. The Executive agrees not to compete
with the Company through the term of this Agreement and to sign the Company's
the Executive Confidentiality/Invention Ownership Non-Competition Agreement.
7.2 PRESERVATION AND NON-USE OF CONFIDENTIAL INFORMATION. The
Executive acknowledges that upon execution of this Agreement and thereafter
the Executive will have a fiduciary duty as an officer and employee of the
Company not to discuss Confidential Information obtained during the
Executive's employment with the Company.
7.3 RETURN OF PROPERTY. On or before the Executive's last day of
employment with PacifiCorp, except as agreed to by the Company, the Executive
will return all property belonging to the Company, including, but not limited
to, all documents, business machines, computers, computer hardware and
software programs, computer data, equipment, keys, card keys, credit cards
and other Company-owned property.
8. SUCCESSORS AND ASSIGNS; ENTIRE AGREEMENT.
8.1 The rights and benefits of the Executive under this Agreement
are personal to him and, except as may be set forth herein, may not be
transferred or assigned voluntarily or involuntarily.
8.2 This Agreement shall be binding on the Company, its successors
and assigns, including any person acquiring control of the Company's business
and operations.
8.3 In the event any provision of this Agreement shall be held
invalid or unenforceable by reason of law, such invalidity or inability to
enforce shall attach only to such provision(s) and shall not affect or render
invalid or unenforceable any other provision of this Agreement.
8.4 This Agreement contains the entire agreement and understanding
by and between the Executive and the Company with respect to the employment
of the Executive and supersedes and replaces any earlier understandings or
agreements, written or oral. The payments provided for in this Agreement
shall be in lieu of any other claims of the Executive relating to his
employment or benefits, including claims relating to termination of
employment.
4
<PAGE>
9. APPLICABLE LAW.
This Agreement shall be governed and construed in all respects in
accordance with the laws of the State of Oregon (without regard to the conflicts
of laws provisions thereof). Each of the parties hereby submits to the
jurisdiction of the courts of Oregon as regards any claim or matter arising
under it and agree that venue shall lie in the United States District Court for
the District of Oregon.
PACIFICORP
By /s/ Nolan Karras
-------------------------------------------
Nolan Karras
Chairman, Personnel Committee of the Board
Date 12/21/98
----------------------------------------
/s/ Keith R. McKennon
- ---------------------------------------------
Keith R. McKennon
Date 12/18/98
----------------------------------------
5
<PAGE>
EXHIBIT (12)(a)
PACIFICORP
STATEMENTS OF COMPUTATION OF RATIO
OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998
--------- --------- --------- --------- ---------
(IN MILLIONS OF DOLLARS)
<S> <C> <C> <C> <C> <C>
Fixed Charges, as defined:*
Interest expense............................................. $ 302.0 $ 336.4 $ 415.0 $ 438.1 $ 371.7
Estimated interest portion of rentals charged to expense..... 5.6 4.5 4.1 6.6 5.7
Preferred dividends of wholly owned subsidiary............... -- -- 15.3 32.9 42.9
--------- --------- --------- --------- ---------
Total fixed charges...................................... $ 307.6 $ 340.9 $ 434.4 $ 477.6 $ 420.3
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Earnings, as defined:*
Income from continuing operations............................ $ 397.5 $ 402.4 $ 430.3 $ 232.8 $ 169.7
Add (deduct):
Provision for income taxes................................. 209.0 192.1 236.5 111.8 59.1
Minority interest.......................................... 1.3 1.4 1.8 1.9 (0.7)
Undistributed income of less than 50% owned affiliates..... (14.7) (15.0) (18.2) (11.1) 10.3
Fixed charges as above..................................... 307.6 340.9 434.4 477.6 420.3
--------- --------- --------- --------- ---------
Total earnings........................................... $ 900.7 $ 921.8 $ 1,084.8 $ 813.0 $ 658.7
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Ratio of Earnings to Fixed Charges............................. 2.9x 2.7x 2.5x 1.7x 1.6x
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
- ------------------------
* "Fixed charges" represent consolidated interest charges, an estimated amount
representing the interest factor in rents and preferred dividend
requirements of majority-owned subsidiaries. "Earnings" represent the
aggregate of (a) income from continuing operations, (b) taxes based on
income from continuing operations, (c) minority interest in the income of
majority-owned subsidiaries that have fixed charges, (d) fixed charges and
(e) undistributed income of less than 50% owned affiliates without loan
guarantees.
S-1
<PAGE>
EXHIBIT (12)(b)
PACIFICORP
STATEMENTS OF COMPUTATION OF RATIO
OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998
--------- --------- --------- --------- ---------
(IN MILLIONS OF DOLLARS)
<S> <C> <C> <C> <C> <C>
Fixed Charges, as defined:*
Interest expense............................................. $ 302.0 $ 336.4 $ 415.0 $ 438.1 $ 371.7
Estimated interest portion of rentals charged to expense..... 5.6 4.5 4.1 6.6 5.7
Preferred dividends of wholly owned subsidiary............... -- -- 15.3 32.9 42.9
--------- --------- --------- --------- ---------
Total fixed charges...................................... $ 307.6 $ 340.9 $ 434.4 $ 477.6 $ 420.3
Preferred Stock Dividends, as defined:*...................... 60.8 57.2 46.2 33.8 29.5
--------- --------- --------- --------- ---------
Total fixed charges and preferred dividends.............. $ 368.4 $ 398.1 $ 480.6 $ 511.4 $ 449.8
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Earnings, as defined:*
Income from continuing operations............................ $ 397.5 $ 402.4 $ 430.3 $ 232.8 $ 169.7
Add (deduct):
Provision for income taxes................................. 209.0 192.1 236.5 111.8 59.1
Minority interest.......................................... 1.3 1.4 1.8 1.9 (0.7)
Undistributed income of less than 50% owned affiliates..... (14.7) (15.0) (18.2) (11.1) 10.3
Fixed charges as above..................................... 307.6 340.9 434.4 477.6 420.3
--------- --------- --------- --------- ---------
Total earnings........................................... $ 900.7 $ 921.8 $ 1,084.8 $ 813.0 $ 658.7
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Ratio of Earnings to Combined Fixed
Charges and Preferred Stock Dividends........................ 2.4x 2.3x 2.3x 1.6x 1.5x
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
- ------------------------
* "Fixed charges" represent consolidated interest charges, an estimated amount
representing the interest factor in rents and preferred dividend
requirements of majority-owned subsidiaries. "Preferred Stock Dividends"
represent preferred dividend requirements multiplied by the ratio which pre-
tax income from continuing operations bears to income from continuing
operations. "Earnings" represent the aggregate of (a) income from continuing
operations, (b) taxes based on income from continuing operations, (c)
minority interest in the income of majority-owned subsidiaries that have
fixed charges, (d) fixed charges and (e) undistributed income of less than
50% owned affiliates without loan guarantees.
S-2
<PAGE>
EXHIBIT (21)
SUBSIDIARIES OF THE COMPANY
PacifiCorp Group Holdings Company, a wholly-owned subsidiary of the Company
and a Delaware corporation, has the following subsidiaries:
<TABLE>
<CAPTION>
APPROXIMATE STATE OR
PERCENTAGE JURISDICTION OF
OF VOTING INCORPORATION OR
NAME OF SUBSIDIARY SECURITIES OWNED ORGANIZATION
- -------------------------------------------------- -------------------- ------------------
<S> <C> <C>
PacifiCorp Financial Services, Inc................ 100% Oregon
Pacific Harbor Capital, Inc..................... 100% Delaware
PacifiCorp International Group Holdings Company... 100% Oregon
Pan Pacific Global Corporation.................. 100% Oregon
PacifiCorp Australia LLC.................... 80%* Oregon
PacifiCorp Australia Holdings Pty. Ltd.... 100% Australia
Powercor Australia Limited............ 100% Australia
Eastern Investment Company...................... 100% Oregon
</TABLE>
- ------------------------
* Remaining 20% owned by Eastern Investment Company.
S-3
<PAGE>
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
PacifiCorp:
We consent to the incorporation by reference in Registration Statement Nos.
33-51277, 33-54169, 33-57043, 33-58461, 333-10885, and 333-45851, all on Form
S-8, Registration Statement Nos. 33-62095 and 333-09115 on Form S-3, and
Registration Statement No. 33-36239 on Form S-4, of our report dated March 5,
1999, appearing in the Annual Report on Form 10-K of PacifiCorp and
subsidiaries for the year ended December 31, 1998.
DELOITTE & TOUCHE LLP
Portland, Oregon
March 26, 1999
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned constitutes and
appoints Nancy Wilgenbusch, Chair of the Audit Committee, his or her true and
lawful attorney and agent, with full power of substitution and resubstitution
for her and her name, place and stead, in any and all capacities, to sign the
Annual Report of PacifiCorp on Form 10-K for the year ended December 31, 1998
and any and all amendments thereto, and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorney and agent, full power and
authority to do any and all acts and things necessary or advisable to be
done, as fully and to all intents and purposes as he or she might or could do
in person, hereby ratifying and confirming all that said attorney and agent
or her substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
Dated: February 10, 1999.
/s/ W. Charles Armstrong
---------------------------------------
W. Charles Armstrong
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned constitutes and
appoints Nancy Wilgenbusch, Chair of the Audit Committee, his or her true and
lawful attorney and agent, with full power of substitution and resubstitution
for her and her name, place and stead, in any and all capacities, to sign the
Annual Report of PacifiCorp on Form 10-K for the year ended December 31, 1998
and any and all amendments thereto, and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorney and agent, full power and
authority to do any and all acts and things necessary or advisable to be
done, as fully and to all intents and purposes as he or she might or could do
in person, hereby ratifying and confirming all that said attorney and agent
or her substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
Dated: February 10, 1999.
/s/ C. Todd Conover
---------------------------------------
C. Todd Conover
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned constitutes and
appoints Nancy Wilgenbusch, Chair of the Audit Committee, his or her true and
lawful attorney and agent, with full power of substitution and resubstitution
for her and her name, place and stead, in any and all capacities, to sign the
Annual Report of PacifiCorp on Form 10-K for the year ended December 31, 1998
and any and all amendments thereto, and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorney and agent, full power and
authority to do any and all acts and things necessary or advisable to be
done, as fully and to all intents and purposes as he or she might or could do
in person, hereby ratifying and confirming all that said attorney and agent
or her substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
Dated: February 10, 1999.
/s/ Nolan E. Karras
---------------------------------------
Nolan E. Karras
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned constitutes and
appoints Nancy Wilgenbusch, Chair of the Audit Committee, his or her true and
lawful attorney and agent, with full power of substitution and resubstitution
for her and her name, place and stead, in any and all capacities, to sign the
Annual Report of PacifiCorp on Form 10-K for the year ended December 31, 1998
and any and all amendments thereto, and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorney and agent, full power and
authority to do any and all acts and things necessary or advisable to be
done, as fully and to all intents and purposes as he or she might or could do
in person, hereby ratifying and confirming all that said attorney and agent
or her substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
Dated: February 10, 1999.
/s/ Kathryn Braun Lewis
---------------------------------------
Kathryn Braun Lewis
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned constitutes and
appoints Nancy Wilgenbusch, Chair of the Audit Committee, his or her true and
lawful attorney and agent, with full power of substitution and resubstitution
for her and her name, place and stead, in any and all capacities, to sign the
Annual Report of PacifiCorp on Form 10-K for the year ended December 31, 1998
and any and all amendments thereto, and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorney and agent, full power and
authority to do any and all acts and things necessary or advisable to be
done, as fully and to all intents and purposes as he or she might or could do
in person, hereby ratifying and confirming all that said attorney and agent
or her substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
Dated: February 10, 1999.
/s/ Keith R. McKennon
---------------------------------------
Keith R. McKennon
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned constitutes and
appoints Nancy Wilgenbusch, Chair of the Audit Committee, his or her true and
lawful attorney and agent, with full power of substitution and resubstitution
for her and her name, place and stead, in any and all capacities, to sign the
Annual Report of PacifiCorp on Form 10-K for the year ended December 31, 1998
and any and all amendments thereto, and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorney and agent, full power and
authority to do any and all acts and things necessary or advisable to be
done, as fully and to all intents and purposes as he or she might or could do
in person, hereby ratifying and confirming all that said attorney and agent
or her substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
Dated: February 12, 1999.
/s/ Robert G. Miller
---------------------------------------
Robert G. Miller
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned constitutes and
appoints Nancy Wilgenbusch, Chair of the Audit Committee, his or her true and
lawful attorney and agent, with full power of substitution and resubstitution
for her and her name, place and stead, in any and all capacities, to sign the
Annual Report of PacifiCorp on Form 10-K for the year ended December 31, 1998
and any and all amendments thereto, and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorney and agent, full power and
authority to do any and all acts and things necessary or advisable to be
done, as fully and to all intents and purposes as he or she might or could do
in person, hereby ratifying and confirming all that said attorney and agent
or her substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
Dated: February 12, 1999.
/s/ Alan K. Simpson
---------------------------------------
Alan K. Simpson
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned constitutes and
appoints Nancy Wilgenbusch, Chair of the Audit Committee, his or her true and
lawful attorney and agent, with full power of substitution and resubstitution
for her and her name, place and stead, in any and all capacities, to sign the
Annual Report of PacifiCorp on Form 10-K for the year ended December 31, 1998
and any and all amendments thereto, and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorney and agent, full power and
authority to do any and all acts and things necessary or advisable to be
done, as fully and to all intents and purposes as he or she might or could do
in person, hereby ratifying and confirming all that said attorney and agent
or her substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
Dated: February 10, 1999.
/s/ Verl R. Topham
---------------------------------------
Verl R. Topham
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned constitutes and
appoints Nancy Wilgenbusch, Chair of the Audit Committee, his or her true and
lawful attorney and agent, with full power of substitution and resubstitution
for her and her name, place and stead, in any and all capacities, to sign the
Annual Report of PacifiCorp on Form 10-K for the year ended December 31, 1998
and any and all amendments thereto, and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorney and agent, full power and
authority to do any and all acts and things necessary or advisable to be
done, as fully and to all intents and purposes as he or she might or could do
in person, hereby ratifying and confirming all that said attorney and agent
or her substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
Dated: February 10, 1999.
/s/ Don M. Wheeler
---------------------------------------
Don M. Wheeler
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned constitutes and
appoints Nancy Wilgenbusch, Chair of the Audit Committee, his or her true and
lawful attorney and agent, with full power of substitution and resubstitution
for her and her name, place and stead, in any and all capacities, to sign the
Annual Report of PacifiCorp on Form 10-K for the year ended December 31, 1998
and any and all amendments thereto, and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorney and agent, full power and
authority to do any and all acts and things necessary or advisable to be
done, as fully and to all intents and purposes as he or she might or could do
in person, hereby ratifying and confirming all that said attorney and agent
or her substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
Dated: February 10, 1999.
/s/ Nancy Wilgenbusch
---------------------------------------
Nancy Wilgenbusch
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned constitutes and
appoints Nancy Wilgenbusch, Chair of the Audit Committee, his or her true and
lawful attorney and agent, with full power of substitution and resubstitution
for her and her name, place and stead, in any and all capacities, to sign the
Annual Report of PacifiCorp on Form 10-K for the year ended December 31, 1998
and any and all amendments thereto, and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorney and agent, full power and
authority to do any and all acts and things necessary or advisable to be
done, as fully and to all intents and purposes as he or she might or could do
in person, hereby ratifying and confirming all that said attorney and agent
or her substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
Dated: February 10, 1999.
/s/ Peter I. Wold
---------------------------------------
Peter I. Wold
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned constitutes and
appoints Nancy Wilgenbusch, Chair of the Audit Committee, his or her true and
lawful attorney and agent, with full power of substitution and resubstitution
for her and her name, place and stead, in any and all capacities, to sign the
Annual Report of PacifiCorp on Form 10-K for the year ended December 31, 1998
and any and all amendments thereto, and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorney and agent, full power and
authority to do any and all acts and things necessary or advisable to be
done, as fully and to all intents and purposes as he or she might or could do
in person, hereby ratifying and confirming all that said attorney and agent
or her substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
Dated: February __, 1999.
/s/ Richard T. O'Brien
---------------------------------------
Richard T. O'Brien
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned constitutes and
appoints Nancy Wilgenbusch, Chair of the Audit Committee, his or her true and
lawful attorney and agent, with full power of substitution and resubstitution
for her and her name, place and stead, in any and all capacities, to sign the
Annual Report of PacifiCorp on Form 10-K for the year ended December 31, 1998
and any and all amendments thereto, and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorney and agent, full power and
authority to do any and all acts and things necessary or advisable to be
done, as fully and to all intents and purposes as he or she might or could do
in person, hereby ratifying and confirming all that said attorney and agent
or her substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
Dated: February 11, 1999.
/s/ Robert R. Dalley
---------------------------------------
Robert R. Dalley
<TABLE> <S> <C>
<PAGE>
<ARTICLE> UT
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM PACIFICORP'S
FORM 10-K DATED DECEMBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 7,905,700
<OTHER-PROPERTY-AND-INVEST> 1,648,000
<TOTAL-CURRENT-ASSETS> 1,742,400<F1>
<TOTAL-DEFERRED-CHARGES> 378,300
<OTHER-ASSETS> 1,314,100
<TOTAL-ASSETS> 12,988,500
<COMMON> 3,224,300
<CAPITAL-SURPLUS-PAID-IN> 0
<RETAINED-EARNINGS> 732,000
<TOTAL-COMMON-STOCKHOLDERS-EQ> 3,956,300
175,000
66,400
<LONG-TERM-DEBT-NET> 4,536,500
<SHORT-TERM-NOTES> 7,600
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 253,000
<LONG-TERM-DEBT-CURRENT-PORT> 298,500
0
<CAPITAL-LEASE-OBLIGATIONS> 22,800
<LEASES-CURRENT> 1,000
<OTHER-ITEMS-CAPITAL-AND-LIAB> 3,671,400
<TOT-CAPITALIZATION-AND-LIAB> 12,988,500
<GROSS-OPERATING-REVENUE> 5,580,400
<INCOME-TAX-EXPENSE> 59,100
<OTHER-OPERATING-EXPENSES> 4,899,600
<TOTAL-OPERATING-EXPENSES> 4,958,700
<OPERATING-INCOME-LOSS> 621,700
<OTHER-INCOME-NET> (139,500)
<INCOME-BEFORE-INTEREST-EXPEN> 482,200
<TOTAL-INTEREST-EXPENSE> 371,600
<NET-INCOME> (36,100)<F1>
19,300
<EARNINGS-AVAILABLE-FOR-COMM> (55,400)<F1>
<COMMON-STOCK-DIVIDENDS> 320,700
<TOTAL-INTEREST-ON-BONDS> 220,200
<CASH-FLOW-OPERATIONS> 251,200
<EPS-PRIMARY> (0.19)<F1>
<EPS-DILUTED> (0.19)<F1>
<FN>
<F1>CURRENT ASSETS INCLUDE NET ASSETS OF DISCONTINUED OPERATIONS OF $175,000. NET
INCOME AND EARNINGS AVAILABLE FOR COMMON INCLUDE LOSS FROM DISCONTINUED OPERATIONS
OF $146,700. EPS INCLUDES LOSS PER COMMON SHARE FROM DISCONTINUED OPERATIONS OF
$0.49.
</FN>
</TABLE>
