-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FAHGITPWNAE1X4E22/3lOqxPkIJ9H+zXBD4EezT4ybsGXi0IlP6AW3WPV18GCuug 6SlLIfEXLxwdH9ulbAZhOA== 0001047469-99-012545.txt : 19990402 0001047469-99-012545.hdr.sgml : 19990402 ACCESSION NUMBER: 0001047469-99-012545 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 20 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990331 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PACIFICORP /OR/ CENTRAL INDEX KEY: 0000075594 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC & OTHER SERVICES COMBINED [4931] IRS NUMBER: 930246090 STATE OF INCORPORATION: OR FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 001-05152 FILM NUMBER: 99579607 BUSINESS ADDRESS: STREET 1: 825 NE MULTNOMAH STE 2000 CITY: PORTLAND STATE: OR ZIP: 97232 BUSINESS PHONE: 5037312000 FORMER COMPANY: FORMER CONFORMED NAME: PACIFICORP /ME/ DATE OF NAME CHANGE: 19890628 FORMER COMPANY: FORMER CONFORMED NAME: PC/UP&L MERGING CORP DATE OF NAME CHANGE: 19890628 10-K405 1 FORM 10-K405 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 -------------------------- 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 -------------------------- 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:
NAME OF EACH EXCHANGE TITLE OF EACH CLASS ON WHICH REGISTERED - ------------------------------------------------------------------------------------------- --------------------------- 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
Securities registered pursuant to Section 12(g) of the Act: TITLE OF EACH CLASS ------------------------------ 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. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- TABLE OF CONTENTS
PAGE NO. ----- 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
i DEFINITIONS When the following terms are used in the text they will have the meanings indicated:
TERM MEANING - --------------------------------------- ------------------------------------------------------------------------ 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
ii 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 1 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 2 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:
1998 1997 1996 --------------------- --------------------- -------------------- 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% --- --- --- --- --- --- Other Revenues.......................................... 65.7 82.4 76.5 ---------- ---------- --------- Total Operating Revenues.............................. $ 4,845.1 $ 3,706.9 $ 2,991.8 ---------- ---------- --------- ---------- ---------- --------- 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% ---------- --- ---------- --- --------- --- ---------- --- ---------- --- --------- ---
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 3 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 4 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. 5 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. 6 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 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 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 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 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 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.
ESTIMATED ACTUAL ------------------------------- TYPE OF FACILITY 1998 1999 2000 2001 - -------------------------------------------------------------- ----------- --------- --------- --------- (DOLLARS IN MILLIONS) 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 ----- --------- --------- --------- ----- --------- --------- ---------
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 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."
ELECTRICITY DISTRIBUTED BY THE YEAR ENDED YEAR ENDED DISTRIBUTION BUSINESS (KWH IN MILLIONS) DECEMBER 31, 1998 DECEMBER 31, 1997 - ------------------------------------------------------- ------------------- ------------------- Residential.......................................... 2,730 2,679 Commercial........................................... 1,634 1,550 Industrial........................................... 3,378 3,273 Other................................................ 545 536 ----- ----- Total................................................ 8,287 8,038 ----- ----- ----- -----
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 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:
CUSTOMER SITES ENERGY USAGE REVENUES -------------------- -------------------- ------------- 1998 NO. % % % - ----------------------------------------------- --------- --------- --- ------------- 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 --------- --------- --------- --- --- --------- --------- --------- --- ---
CUSTOMER SITES ENERGY USAGE REVENUES -------------------- -------------------- ------------- 1997 NO. % % % - ----------------------------------------------- --------- --------- --- ------------- 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 --------- --------- --------- --- --- --------- --------- --------- --- ---
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:
CUSTOMER SITES(1) ENERGY USAGE REVENUES -------------------- -------------------- ----------- NO. % % % --------- --------- --------- ----------- 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
- ------------------------ (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 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 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 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 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 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:
NAMEPLATE PLANT NET INSTALLATION RATING CAPABILITY LOCATION ENERGY SOURCE DATES (MW) (MW) ----------------------- ----------------------- ----------- ----------- ----------- 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 ----------- ----------- ----------- -----------
- ------------------------------ * Jointly owned plants; amount shown represents the Company's share only. NOTE: Hydroelectric project locations are stated by locality and river watershed. 19 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.
RECOVERABLE TONS LOCATION PLANT SERVED (IN MILLIONS) - ----------------------------------------------- -------------------------- ----------------- 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)
- ------------------------ (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 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 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 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 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 EARNINGS OVERVIEW OF THE COMPANY
MILLIONS OF DOLLARS, EXCEPT PER SHARE INFORMATION 1998 1997 1996 - ------------------------------------------------------------------------------------- --------- --------- --------- 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 --------- --------- --------- --------- --------- ---------
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
1998 1997 ---------------------- ---------------------- MILLIONS OF DOLLARS, EXCEPT PER SHARE INFORMATION TOTAL PER SHARE TOTAL PER SHARE - ---------------------------------------------------------------------- --------- ----------- --------- ----------- 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) --------- ----------- --------- ----------- --------- ----------- --------- -----------
- ------------------------ (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 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 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
NET CASH PRETAX NET MILLIONS OF DOLLARS FROM SALES(A) GAINS INCOME EPS - ----------------------------------------------------------------------- ------------- --------- --------- --------- 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 ------ --------- --------- --------- ------ --------- --------- ---------
- ------------------------ (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
REVENUES ENERGY SALES MILLIONS OF DOLLARS 1998 1997 1996 MILLIONS OF KWH 1998 1997 1996 - --------------------------- --------- --------- --------- --------------------------- --------- --------- --------- 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 --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
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 ("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 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
MILLIONS OF DOLLARS 1998 1997 1996 - ------------------------------------------------------------------------------- --------- --------- --------- 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%
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 $4 million increase in purchased power costs in 1998. The Company expects a reduced level of power purchases in 1999 as a result of its decision to scale back short-term wholesale trading activities. 29 SHORT-TERM FIRM AND SPOT MARKET SALES AND PURCHASES
1998 1997 1996 --------- --------- --------- Total sales volume (thousands of MWh)............................................ 80,097 44,927 16,394 Average sales price ($/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 --------- --------- --------- --------- --------- ---------
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 SPECIAL CHARGES
NET MILLIONS OF DOLLARS PRETAX INCOME EPS - -------------------------------------------------------------------------------------- --------- --------- --------- 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 --------- --------- --------- --------- --------- ---------
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 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 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 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 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
CHANGE REVENUES DUE TO OPERATING MILLIONS OF DOLLARS 1998 1997 CURRENCY VARIANCE - ------------------------------------------------------------------------- --------- --------- ----------- ----------- 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 --------- --------- ----------- ----------- --------- --------- ----------- -----------
ENERGY SALES MILLIONS OF KWH 1998 1997 1996 - --------------------------------------------------------------------------------------- --------- --------- --------- 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 --------- --------- --------- --------- --------- ---------
35 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
CHANGE DUE TO OPERATING MILLIONS OF DOLLARS 1997 1996 CURRENCY VARIANCE - ------------------------------------------------------------------------ --------- --------- ----------- ----------- 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 --------- --------- ----------- ----------- --------- --------- ----------- -----------
36 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
CHANGE DUE TO OPERATING MILLIONS OF DOLLARS 1998 1997 CURRENCY VARIANCE - ------------------------------------------------------------------------ --------- --------- ----------- ----------- 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 --------- --------- ----------- ----- --------- --------- ----------- -----
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 1997 COMPARED TO 1996
CHANGE DUE TO OPERATING MILLIONS OF DOLLARS 1997 1996 CURRENCY VARIANCE - ------------------------------------------------------------------------ --------- --------- ----------- ----------- 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 --------- --------- ----------- ----- --------- --------- ----------- -----
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 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
EARNINGS CONTRIBUTION MILLIONS OF DOLLARS 1998 1997 1996 - --------------------------------------------------------------------- --------- --------- --------- 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 --------- --------- --------- --------- --------- ---------
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 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 LIQUIDITY AND CAPITAL RESOURCES CASH FLOW SUMMARY
FORECASTED ACTUAL ------------------------------- ------------------------------- FOR THE YEAR/MILLIONS OF DOLLARS 2001 2000 1999 1998 1996 1997 - ------------------------------------------------ --------- --------- --------- --------- --------- --------- 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 --------- --------- --------- --------- --------- ---------
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 $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 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
MILLIONS OF DOLLARS, EXCEPT PERCENTAGES 1998 1997 - ---------------------------------------------------------------- -------------------- -------------------- 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% --------- --- --------- --- --------- --- --------- ---
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 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
MILLIONS OF DOLLARS 1998 1997 - ----------------------------------------------------------------------------------------------- --------- --------- 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%
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 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 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.
1998 1998 CONFIDENCE TIME QUARTERLY QUARTERLY MILLIONS OF DOLLARS INTERVAL HORIZON 12/31/97 HIGH LOW 12/31/98 - -------------------------------------------- ---------- ------- -------- --------- --------- -------- Interest Rate Sensitive Portfolio--FMV...... 95% 1 day $(21.1) $(22.4) $(18.4) $(18.4)
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.
1998 1998 CONFIDENCE TIME QUARTERLY QUARTERLY MILLIONS OF DOLLARS INTERVAL HORIZON 12/31/97 HIGH LOW 12/31/98 - ---------------------------------------- ---------- ------- -------- --------- --------- -------- Currency Rate Exposure--Cash Flow....... 95% 1 day $(2.3) $(2.1) $(0.9) $(0.9)
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 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:
ASSESSMENT REMEDIATION INVENTORY (% COMPLETED) AND TESTING ------------- ----------------- --------------- 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
47 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:
PERCENT OF ALL CRITICAL THIRD READINESS TARGET DATES (ON OR BEFORE) PARTIES READY - --------------------------------------------------------------------------------------- ------------------------------- 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
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 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 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 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
PAGE ----- 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
51 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 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 STATEMENTS OF CONSOLIDATED INCOME
FOR THE YEAR/MILLIONS OF DOLLARS, EXCEPT PER SHARE AMOUNTS 1998 1997 1996 - ------------------------------------------------------------------------------- --------- --------- --------- 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 --------- --------- --------- --------- --------- ---------
(See accompanying Notes to Consolidated Financial Statements) 54 STATEMENTS OF CONSOLIDATED CASH FLOWS
FOR THE YEAR/MILLIONS OF DOLLARS 1998 1997 1996 - ----------------------------------------------------------------------------------------- --------- --------- --------- 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 --------- --------- --------- --------- --------- ---------
(See accompanying Notes to Consolidated Financial Statements) 55 CONSOLIDATED BALANCE SHEETS
DECEMBER 31/MILLIONS OF DOLLARS 1998 1997 - ---------------------------------------------------------------------------------------- ---------- ---------- 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 ---------- ---------- ---------- ----------
(See accompanying Notes to Consolidated Financial Statements) 56 CONSOLIDATED BALANCE SHEETS
DECEMBER 31/MILLIONS OF DOLLARS 1998 1997 - ---------------------------------------------------------------------------------------- ---------- ---------- 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 ---------- ---------- ---------- ----------
(See accompanying Notes to Consolidated Financial Statements) 57 STATEMENTS OF CONSOLIDATED CHANGES IN COMMON SHAREHOLDERS' EQUITY
COMMON SHAREHOLDERS' ACCUMULATED CAPITAL OTHER TOTAL -------------------- RETAINED COMPREHENSIVE COMPREHENSIVE MILLIONS OF DOLLARS/THOUSANDS OF SHARES SHARES AMOUNT EARNINGS INCOME INCOME (LOSS) - ----------------------------------------------------- --------- --------- ----------- --------------- --------------- 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) --------- --------- ----------- ------ ------ --------- --------- ----------- ------ ------
(See accompanying Notes to Consolidated Financial Statements) 58 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 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 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 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 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 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 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.
AT SEPTEMBER 30 AT DECEMBER 31 MILLIONS OF DOLLARS 1998 1998 - -------------------------------------------------------------------------------- --------------- --------------- 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 ------ ------ ------ ------
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 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:
FOR THE YEAR ENDED DECEMBER 31/MILLIONS OF DOLLARS 1998 1997 1996 - ----------------------------------------------------------------------- ------------ ------------- ------------- 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) ------------ ------------- ------
Summarized operating results for PTI were as follows:
FOR THE ELEVEN FOR THE YEAR ENDED MONTHS ENDED YEAR ENDED DECEMBER 31 NOVEMBER 30 DECEMBER 31 MILLIONS OF DOLLARS 1998 1997 1996 - ----------------------------------------------------------------------- ------------ ------------- ------------- 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 ------------ ------------- ------ ------------ ------------- ------
Net assets of the discontinued operations of the energy trading segment and assets held for sale consisted of the following:
DECEMBER 31/MILLIONS OF DOLLARS 1998 1997 - ----------------------------------------------------------------------------------------------- --------- --------- 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 --------- --------- --------- ---------
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 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:
DECEMBER 31/MILLIONS OF DOLLARS 1998 1997 - ----------------------------------------------------------------------------------------------- --------- --------- 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 --------- --------- --------- ---------
- ------------------------ (a) Excludes $125 million in 1998 and $135 million in 1997 of investment tax credit regulatory liabilities. 67 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 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.
RETIREMENT SEVERANCE MILLIONS OF DOLLARS TOTAL BENEFITS AND OTHER - ------------------------------------------------------------------------------- --------- ----------- ----------- 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 --------- ----------- ----- --------- ----------- -----
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 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:
AVERAGE INTEREST DECEMBER 31/MILLIONS OF DOLLARS BALANCE RATE(A) - ----------------------------------------------------------------------------------------------- --------- ----------- 1998 PacifiCorp..................................................................................... $ 253.0 5.2% Subsidiaries................................................................................... 7.6 5.4 1997 PacifiCorp..................................................................................... $ 182.2 6.5% Subsidiaries................................................................................... 7.0 5.4
- ------------------------ (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 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:
DECEMBER 31/MILLIONS OF DOLLARS 1998 1997 - ------------------------------------------------------------------------------------------- --------- --------- 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 --------- --------- --------- ---------
- ------------------------ (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 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:
THOUSANDS OF PREFERRED SECURITIES/MILLIONS OF DOLLARS 1998 1997 - ------------------------------------------------------------------------------------------------- --------- --------- 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 --------- --------- --------- ---------
72 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.
WEIGHTED AVERAGE NUMBER OF PRICE SHARES ----------- ---------- 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 ---------- ----------
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 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:
FOR THE YEAR/MILLIONS OF DOLLARS 1998 1997 - ----------------------------------------------------------------------------------------------- --------- --------- 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
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:
FOR THE YEAR 1998 1997 - ---------------------------------------------------------------------------------------------------- ----- ----- 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
Preferred Stock
THOUSANDS OF SHARES - ------------------------------------------------------------------------------------------------------- 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 ----------- -----------
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 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.
PREFERRED STOCK OUTSTANDING THOUSANDS OF SHARES/MILLIONS OF DOLLARS 1998 AND 1997 DECEMBER 31 -------------------- SERIES SHARES AMOUNT - -------------------------------------------------------------------------------------------- --------- --------- 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 --------- --------- --------- ---------
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 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:
NOTIONAL AMOUNT -------------------- DECEMBER 31/MILLIONS OF DOLLARS 1998 1997 - -------------------------------------------------------------------------------------------- --------- --------- Interest rate swaps......................................................................... $ 759.4 $ 707.5 Interest rate collars purchased............................................................. 39.7 42.3 Interest rate futures and forwards.......................................................... 351.4 --
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 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.
DECEMBER 31 1998 1997 - ------------------------------------------------------------------------------------------------- ----- ----- PAY-FIXED SWAPS Average pay rate............................................................................... 7.3% 7.7% Average receive rate........................................................................... 4.9 6.5
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 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:
DECEMBER 31 1998 1997 - ----------------------------------------------------------------------------------------- --------- ---------- 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)
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
DECEMBER 31, 1998 DECEMBER 31, 1997 -------------------- -------------------- CARRYING FAIR CARRYING FAIR MILLIONS OF DOLLARS AMOUNT VALUE AMOUNT VALUE - ------------------------------------------------------------------- --------- --------- --------- --------- 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)
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 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 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:
ELECTRIC PLANT CONSTRUCTION OPERATIONS' IN ACCUMULATED WORK IN MILLIONS OF DOLLARS SHARE SERVICE DEPRECIATION PROGRESS - ---------------------------------------- ----------- ------- ----------- ------------ 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 --
- ------------------------ (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 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:
YEAR CONTRACT CAPACITY PERCENTAGE ANNUAL GENERATING FACILITY EXPIRES (KW) OF OUTPUT COSTS(A) - ------------------------------------------------------------------ ------------- --------- ------------- ----------- 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 --------- ----- --------- -----
- ------------------------ (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 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:
FOR THE YEAR/MILLIONS OF DOLLARS 1998 1997 1996 - -------------------------------------------------------------------------------------- --------- --------- --------- 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 --------- --------- --------- --------- --------- ---------
The provision for income taxes is summarized as follows:
FOR THE YEAR/MILLIONS OF DOLLARS 1998 1997 1996 - -------------------------------------------------------------------------------------- --------- --------- --------- 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 --------- --------- --------- --------- --------- ---------
82 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:
DECEMBER 31/MILLIONS OF DOLLARS 1998 1997 - ------------------------------------------------------------------------------------------- --------- --------- 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 --------- --------- --------- ---------
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 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:
FOR THE YEAR/MILLIONS OF DOLLARS 1998 1997 1996 - ----------------------------------------------------------------------------- ----------- ----------- ----------- 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%
The change in the projected benefit obligation, change in plan assets and funded status are as follows:
FOR THE YEAR/MILLIONS OF DOLLARS 1998 1997 - ------------------------------------------------------------------------------------------- --------- --------- 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 --------- --------- --------- ---------
84 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 NOTE 15 EMPLOYMENT BENEFIT PLANS (CONTINUED)
FOR THE YEAR/MILLIONS OF DOLLARS 1998 1997 - ------------------------------------------------------------------------------------------- --------- --------- 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) --------- --------- --------- ---------
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 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:
FOR THE YEAR/MILLIONS OF DOLLARS 1998 1997 1996 - --------------------------------------------------------------------------------------- --------- --------- --------- 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%
The change in the accumulated postretirement benefit obligation, change in plan assets, funded status and significant assumptions are as follows:
FOR THE YEAR/MILLIONS OF DOLLARS 1998 1997 - --------------------------------------------------------------------------------------------- --------- --------- 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 --------- --------- --------- ---------
86 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 NOTE 15 EMPLOYMENT BENEFIT PLANS (CONTINUED)
FOR THE YEAR/MILLIONS OF DOLLARS 1998 1997 - --------------------------------------------------------------------------------------------- --------- --------- 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) --------- --------- --------- ---------
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 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 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.
DOMESTIC AUSTRALIAN OTHER TOTAL ELECTRIC ELECTRIC DISCONTINUED OPERATIONS & MILLIONS OF DOLLARS COMPANY OPERATIONS OPERATIONS OPERATIONS ELIMINATIONS - ------------------------------------------------ --------- ----------- ----------- ------------ ------------ 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
89 SELECTED FINANICAL INFORMATION (UNAUDITED)
FOR THE YEAR/MILLIONS OF DOLLARS, EXCEPT PER SHARE INFORMATION 1998 1997 1996 1995 1994 - ------------------------------------------------------------ --------- --------- --------- --------- --------- 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 --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
- -------------------------- (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 DOMESTIC ELECTRIC OPERATIONS (UNAUDITED)
5-YEAR 1998 TO 1997 COMPOUND FOR THE YEAR/MILLIONS OF DOLLARS, EXCEPT PERCENTAGE ANNUAL AS NOTED 1998 1997 1996 1995 1994 COMPARISON GROWTH - ---------------------------------------- -------- -------- -------- -------- -------- ------------ -------- 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)
- -------------------------- * 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 DOMESTIC ELECTRIC OPERATIONS STATISTICS (UNAUDITED)
5-YEAR 1998 TO 1997 COMPOUND PERCENTAGE ANNUAL FOR THE YEAR/MILLIONS OF DOLLARS, EXCEPT AS NOTED 1998 1997 1996 1995 1994 COMPARISON GROWTH - --------------------------------------------------- ------- ------- ------ ------ ------ ------------ -------- 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
- ------------------------------ (a) Excludes off-system sales. (b) Includes firm off-system sales. (c) Generating capability and firm purchases at time of firm peak. 92 AUSTRALIAN ELECTRIC OPERATIONS (UNAUDITED)(A)
1998 TO 1997 PERCENTAGE FOR THE YEAR/MILLIONS OF DOLLARS, EXCEPT AS NOTED 1998 1997 1996 1995 COMPARISON(B) - ------------------------------------------------------- --------- --------- --------- --------- ------------------- 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 --------- --------- --------- --------- --------- --------- --------- ---------
- ------------------------------ * 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 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.
FOR THE YEAR/MILLIONS OF DOLLARS 1998 1997 1996 1995 1994 - ----------------------------------------------------------------- --------- --------- --------- --------- --------- 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
- ------------------------ (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 SUPPLEMENTAL INFORMATION QUARTERLY FINANCIAL DATA (UNAUDITED)
QUARTER ENDED/MILLIONS OF DOLLARS, EXCEPT PER SHARE AMOUNTS MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31 - ----------------------------------- ------------- ------------- ------------- ------------- 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
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 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 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: *(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.
97 *(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).
98 *(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).
- ------------------------ * 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 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.
SIGNATURE TITLE DATE - ------------------------------ -------------------------- ------------------- /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
100
SIGNATURE TITLE DATE - ------------------------------ -------------------------- ------------------- /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
*By: /s/ NANCY WILGENBUSCH ------------------------- Nancy Wilgenbusch 101 EX-2.B 2 AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER 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 TABLE OF CONTENTS This Table of Contents is not part of the Agreement to which it is attached but is inserted for convenience only.
Page No. ---- 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 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 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
iii 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 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: "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 "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 "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 "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)
viii 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 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 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 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 (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 (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 6 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 7 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 8 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 9 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 10 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). 11 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 12 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 13 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 14 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 15 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. 16 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 17 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 18 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 19 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. 20 (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 21 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 22 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. 23 (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. 24 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 25 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 26 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 27 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 28 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. 29 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 30 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. 31 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 32 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 33 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 34 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). 35 (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 36 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 37 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 38 (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 39 (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, 40 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 41 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 42 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 43 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 44 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. 45 (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 46 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 47 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 48 (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. 49 (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: 50 (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 51 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 52 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 53 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 54 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 55 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' 56 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 57 ("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 58 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 59 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. 60 (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 61 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 62 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. 63 (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. 64 (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, 65 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 66 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 67 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. 68 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 69 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; 70 (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 71 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. 72 (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 73 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 74 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, 75 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 76 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); 77 (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 78 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. 79 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 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. 80 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. 81 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. 82 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 83 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. 84 (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. 85 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; 86 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 87 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 88 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 89 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. 90 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 91 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: 92 EXHIBIT B
Column A Column B -------- -------- 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%
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. 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." 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: EX-3.B 3 BYLAWS OF THE COMPANY AS AMENDED 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 1 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 (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. 3 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 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 5 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. 6 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. 7 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 (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 9 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. 10 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. 11 EX-4.B 4 THIRTEENTH SUPPLEMENTAL INDENTURE - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- 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 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- 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 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:
AGGREGATE PRINCIPAL AGGREGATE PRINCIPAL SERIES DUE DATE AMOUNT ISSUED AMOUNT OUTSTANDING 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
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 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 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; 5 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 6 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 7 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. 8 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 9 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 10 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 11 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. 12 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 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 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 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 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 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 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: 19 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. 20 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 21 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. 22 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. 23 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 24 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. 25 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: 26 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; 27 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 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 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. 30 428.46 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. 31 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. 32 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 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 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 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. 36 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 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 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 EX-10.B 5 COMPENSATION REDUCTION PLAN 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] TABLE OF CONTENTS
PAGE ---- 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
i INDEX OF TERMS
SECTION PAGE ------- ---- 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
ii 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. 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 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 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 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 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 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 (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 (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 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 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 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 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 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 (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 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 EX-10.E 6 STOCK & LONG TERM INCENTIVE PLAN 1993 AMENDED 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 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 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) 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 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 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 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 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 EX-10.G 7 SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN 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] TABLE OF CONTENTS
PAGE 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 i 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
ii INDEX OF TERMS
SECTION PAGE 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
iii 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 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 (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 (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 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 (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 (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 (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 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 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 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 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 12 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 13 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. 14 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 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 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 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 (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 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 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 EX-10.K 8 STOCK INCENTIVE PLAN 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 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 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 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 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 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 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 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 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 EX-10.L 9 RESTRICTED STOCK AGREEMENT 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. 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 2 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 3 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 (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 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 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 COMPANY: PACIFICORP, an Oregon corporation By: -------------------------------- Title: Senior Vice President -------------------------------- EMPLOYEE: -------------------------------- [signature] -------------------------------- [type or print name] 8 EX-10.M 10 1998 RESTRICTED STOCK PROGRAM 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
PacifiCorp's TSR Pool Percentile Adjustment Rank Factor ------------- ----------- Highest 200% 90th 175% 75th 150% 60th 125% 50th 100% 40th 50% 30th 25% Less Than 30th 0%
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: 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
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 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 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 EX-10.N 11 NONSTATUTORY STOCK OPTION AGREEMENT 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 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 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 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. 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: EX-10.O 12 EXCECUTIVE SEVERANCE PLAN 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 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. 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 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 (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 (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 (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 (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 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 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 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 (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 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 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 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 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 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 (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 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 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 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 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. 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:
YEARS OF SERVICE MONTHS OF CONTINUED BENEFITS ---------------- ---------------------------- 0-5 6 6-10 12 11-15 18 16 or more 24
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 EX-10.P 13 LETTER AGREEMENT REGARDING SEVERANCE 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. 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. 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. 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 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 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 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 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 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. 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 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 EX-10.Q 14 EMPLOYMENT AGREEMENT 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. 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 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 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 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 EX-12.A 15 STATEMENT OF COMPUTATION OF RATIO EARNINGS TO FIXE EXHIBIT (12)(a) PACIFICORP STATEMENTS OF COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
1994 1995 1996 1997 1998 --------- --------- --------- --------- --------- (IN MILLIONS OF DOLLARS) 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 --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
- ------------------------ * "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 EX-12.B 16 STATEMENT OF COMPUTATION OF RATIO EARNINGS TO COMB EXHIBIT (12)(b) PACIFICORP STATEMENTS OF COMPUTATION OF RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
1994 1995 1996 1997 1998 --------- --------- --------- --------- --------- (IN MILLIONS OF DOLLARS) 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 --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
- ------------------------ * "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 EX-21 17 SUBSIDIARIES 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:
APPROXIMATE STATE OR PERCENTAGE JURISDICTION OF OF VOTING INCORPORATION OR NAME OF SUBSIDIARY SECURITIES OWNED ORGANIZATION - -------------------------------------------------- -------------------- ------------------ 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
- ------------------------ * Remaining 20% owned by Eastern Investment Company. S-3 EX-23 18 CONSENT OF DELOITTE & TOUCHE 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 EX-24 19 POWERS OF ATTORNEY 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 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 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 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 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 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 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 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 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 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 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 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 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 EX-27 20 FINANCIAL DATA SCHEDULE
UT 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. 1,000 12-MOS DEC-31-1998 JAN-01-1998 DEC-31-1998 PER-BOOK 7,905,700 1,648,000 1,742,400 378,300 1,314,100 12,988,500 3,224,300 0 732,000 3,956,300 175,000 66,400 4,536,500 7,600 0 253,000 298,500 0 22,800 1,000 3,671,400 12,988,500 5,580,400 59,100 4,899,600 4,958,700 621,700 (139,500) 482,200 371,600 (36,100) 19,300 (55,400) 320,700 220,200 251,200 (0.19) (0.19) 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.
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