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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended DECEMBER 31, 1996 Commission File Number 1-8788
SIERRA PACIFIC RESOURCES
(Exact name of registrant as specified in its charter)
NEVADA 88-0198358
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
P.O. BOX 30150 (6100 NEIL ROAD)
RENO, NEVADA 89520-3150 (89511)
(Address of principal executive offices) (Zip Code)
(702) 689-5400
(Registrant's telephone number including area code)
Securities registered pursuant to Section 12(b) of the Act:
COMMON STOCK, $1.00 PAR VALUE NEW YORK STOCK EXCHANGE
COMMON STOCK, PURCHASE RIGHTS NEW YORK STOCK EXCHANGE
(Title of each class) (Name of each exchange on which registered)
Securities registered pursuant to Section 12(g) of the Act: None
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
---
State the aggregate market value of the voting stock held by non-affiliates. As
of March 20, 1997: $899,107,710
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.
<TABLE>
<S> <C>
Class Outstanding at March 20, 1996: 30,870,651 Shares
Common Stock, $1.00 par value
</TABLE>
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive proxy statement to be filed in
connection with the 1996 Annual meeting of shareholders, to be held May 16,
1997, are incorporated by reference into Part III hereof.
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<PAGE>
SIERRA PACIFIC RESOURCES
1996 ANNUAL REPORT FORM 10-K
CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I.
- -------
ITEM 1. BUSINESS
THE COMPANY......................................... 2
BUSINESS OUTLOOK AND OVERVIEW....................... 2
GENERAL ELECTRIC INDUSTRY TRENDS.................... 4
MERGER TERMINATION.................................. 5
GENERAL............................................. 5
ITEM 2. PROPERTIES............................................... 6
ITEM 3. LEGAL PROCEEDINGS........................................ 6
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS...... 6
PART II.
- ---------
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK
AND RELATED STOCKHOLDER MATTERS........................ 9
ITEM 6. SELECTED FINANCIAL DATA.................................. 10
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.................... 11
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.............. 20
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE................. 52
PART III.
- ---------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT....... 53
ITEM 11. EXECUTIVE COMPENSATION................................... 53
ITEM 12. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT....................... 53
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS........... 53
PART IV.
- --------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
AND REPORTS ON FORM 8-K................................ 54
APPENDIX........................................................... 59
APPENDIX E......................................................... 60
</TABLE>
<PAGE>
PART II
ITEM 1. BUSINESS
THE COMPANY
-----------
Sierra Pacific Resources hereafter known as the Company or SPR,
was incorporated under Nevada Law on December 12, 1983. The Company's mailing
address is P.O. Box 30150 (6100 Neil Road), Reno, NV 89520-3150.
The Company has four primary subsidiaries: Sierra Pacific Power
Company (SPPC), Tuscarora Gas Pipeline Company (TGPC), Sierra Energy
Company dba e.three (e.three) and Lands of Sierra, Inc. (LOS). SPPC provides
electric service to northern Nevada and northeastern California, and natural
gas and water service in the Reno/Sparks area of Nevada. The assets of SPPC
represented 99% of the consolidated assets of SPR at December 31, 1996. TGPC,
in partnership with a subsidiary of TransCanada PipeLines, USA Limited, of
Calgary, Alberta, Canada (TransCanada) operates a 229-mile pipeline, placed in
service in December 1995. Organized in October, 1996, e.three provides
comprehensive energy services in commercial and industrial markets on a
regional and national basis. LOS is a real estate management company.
BUSINESS OUTLOOK AND OVERVIEW (1)
-----------------------------
SIERRA PACIFIC POWER COMPANY
- ----------------------------
SPPC is a public utility primarily engaged in the generation, purchase,
transmission, distribution and sale of electric energy. It provides electricity
to approximately 278,000 customers in a 50,000 square mile service area
including western, central and northeastern parts of Nevada, including the
cities of Reno, Sparks, Carson City, and Elko and a portion of eastern
California, including the Lake Tahoe area. SPPC also provides natural gas
service in Nevada to approximately 95,000 customers in an area of about 600
square miles in Reno/Sparks and environs. SPPC supplies water service in Nevada
to about 63,000 customers in the Reno/Sparks metropolitan area.
(1) WHEN USED ANYWHERE IN THIS FORM 10-K, OR THE FORM 10-K OF SPPC, ATTACHED AS
THE APPENDIX, AND IN FUTURE FILINGS BY THE COMPANY OR SPPC WITH THE
SECURITIES AND EXCHANGE COMMISSION, IN THE COMPANY'S PRESS RELEASES AND IN
ORAL STATEMENTS MADE WITH THE APPROVAL OF AN AUTHORIZED EXECUTIVE OFFICER,
THE WORDS OR PHRASES "WILL LIKELY RESULT", "ARE EXPECTED TO", "WILL
CONTINUE", "IS ANTICIPATED", "ESTIMATED", "PROJECT", OR "OUTLOOK" OR
SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY "FORWARD-LOOKING STATEMENTS"
WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995.
SUCH STATEMENTS ARE SUBJECT TO CERTAIN RISKS AND UNCERTAINTIES THAT COULD
CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM HISTORICAL EARNINGS AND
THOSE PRESENTLY ANTICIPATED OR PROJECTED. THE COMPANY WISHES TO CAUTION
READERS NOT TO PLACE UNDUE RELIANCE ON ANY SUCH FORWARD-LOOKING STATEMENTS,
WHICH SPEAK ONLY AS OF THE DATE MADE. THE COMPANY WISHES TO ADVISE READERS
THAT VARIOUS FACTORS DESCRIBED IN THESE FORMS 10-K COULD CAUSE THE
COMPANY'S ACTUAL RESULTS FOR FUTURE PERIODS TO DIFFER MATERIALLY FROM ANY
OPINIONS OR STATEMENTS EXPRESSED WITH RESPECT TO FUTURE PERIODS IN ANY
CURRENT STATEMENTS. THE COMPANY SPECIFICALLY DECLINES ANY OBLIGATION TO
PUBLICLY RELEASE THE RESULT OF ANY REVISIONS WHICH MAY BE MADE TO ANY
FORWARD-LOOKING STATEMENTS TO REFLECT EVENTS OR CIRCUMSTANCES AFTER THE
DATE OF SUCH STATEMENTS OR TO REFLECT THE OCCURRENCE OF ANTICIPATED OR
UNANTICIPATED EVENTS.
2
<PAGE>
During 1996 90.6% of the Company's revenues were from retail sales of
electricity, natural gas and water in Nevada; 6.8% from retail sales of
electricity in California and 2.6% from wholesale sales of electricity in Nevada
and California.
A complete description of SPPC is contained in its Annual Report on Form
10-K for the year ended December 31, 1996, attached hereto as an Appendix.
TUSCARORA GAS PIPELINE COMPANY
- ------------------------------
TGPC was formed as a wholly-owned subsidiary in 1993, for the purpose of
entering into a partnership (Tuscarora Gas Transmission Company or TGTC) with a
subsidiary of TransCanada PipeLines, USA Limited of Calgary, Alberta, Canada
(TransCanada) to develop, construct and operate a new natural gas pipeline
that serves an expanding gas market in Reno, northern Nevada and
northeastern California. To date, the Company has invested approximately $18
million in this subsidiary. In December 1995, TGTC completed construction and
began service through a 229-mile pipeline extending from Malin, Oregon
southeast to Reno. TGTC interconnects with the Pacific Gas Transmission
Company (PGT) at Malin, Oregon. PGT is a major interstate natural gas
pipeline extending from Oregon to the U.S./Canadian border. The PGT system
provides TGTC customers direct access to natural gas reserves in the Western
Canadian Sedimentary basin, one of the largest proven reserves basin in North
America.
As an interstate pipeline, TGTC provides only transportation service.
SPPC and SPR were the only customers of TGTC during most of 1996, contributing
99.5% and .5% of revenues, respectively. The cities of Susanville and
Alturas, California, and the Sierra Army Depot at Herlong may take service from
TGTC in 1997. These areas of northeastern California have access to natural
gas service for the first time as a result of the TGTC construction. Malin,
Oregon recently began taking service from TGTC.
E.THREE
- -------
Organized in October 1996, e.three is a wholly-owned subsidiary of Sierra
Pacific Resources. It provides comprehensive energy services in commercial and
industrial markets. Its principal focus is providing energy-related solutions
to increase customers' productivity and profits, including: efficiency
improvements to lighting, heating, ventilation and air conditioning equipment;
installation or improvement of controls and power quality systems; energy
procurement; and energy performance contracting. Through December 31, 1996,
e.three incurred expenses of $230,324 plus an additional $65,445 capitalized as
organizational costs to be amortized over five years. The Company anticipates
investing in e.three, through debt or equity, $1.4 million in 1997.
LANDS OF SIERRA, INC.
- ---------------------
LOS was organized in 1964 to develop SPPC non-utility property. LOS is
engaged in the development and management of land and real estate properties in
Nevada and California. These properties include retail, industrial, office and
residential sites, and timberland and properties in the Lake Tahoe region. SPR
has decided to focus on its core energy
3
<PAGE>
businesses and, in keeping with this business strategy, LOS continues to sell
its remaining properties. Properties sold in 1996 include an industrial site in
Nevada and several Lake Tahoe area properties for a total sales volume of
approximately $3.4 million. Properties remaining include only vacant land in
Nevada and land leases in the Tahoe region. Management continues to focus on
selling most of these remaining properties in 1997.
GENERAL ELECTRIC INDUSTRY TRENDS
--------------------------------
There are many different views concerning the electric utility industry and
the changes it is experiencing now and will face in the future. Some changes
will be regulatory and others may be legislative.
To meet the challenges such changes may bring to the industry, SPPC has
down-sized and reorganized to cut costs, better serve its customers and prepare
for competition. SPPC has also negotiated long-term contracts with six of its
largest mining customers.
Nevada electric prices were last increased in 1993; and were subsequently
reduced in March 1995, following suspension of deferred energy accounting rules.
Natural gas prices were last increased in April 1994, and the last increase in
water prices occurred in September 1994. SPPC currently has frozen its Nevada
electric and natural gas rates until December 31, 1999 and electric rates in
California until December 31, 2000.
A recent rate plan in Nevada also provides a 50/50 sharing between
customers and shareholders of electric and natural gas earnings in excess of a
12 percent return on equity. The plan also provides the opportunity for SPPC,
subject to certain conditions, to apply such excess to buying down, or buying
out of, higher cost long-term fuel and purchased power contracts. This should
reduce future costs in what SPPC expects will be a more competitive environment.
SPPC continues to be the sole provider in its certificated service
territories, however, the Company will continue to closely monitor the changes,
both locally and nationally, to prepare for competition.
SPR's investment in the transmission pipeline business will continue to
provide competitive alternatives and greater reliability to new and expanding
markets along its routes in Northern California and Nevada. It also provides
competitive alternatives for delivery of natural gas used as fuel for power
generation.
Like most companies in the world, SPPC is facing the year 2000 problem.
The Company plans to have its problem resolved by December 31, 1998.
For information regarding regulatory changes affecting SPPC, see Item 7,
Nevada Matters, California Matters, FERC Matters and Note 2 of the Company's
- -------------- ------------------ ------------
consolidated financial statements.
4
<PAGE>
MERGER TERMINATION
------------------
In June 1994, the Company, SPPC, and The Washington Water Power Company
(WWP) entered into an agreement (Merger Agreement) which provided for the
merger of the parties into an entity named Resources West Energy Corporation.
(That name was later changed to Altus Corporation). Under the terms of the
Merger Agreement, if the merger was not consummated on or before June 27, 1996,
either party, by providing written notice to the other, could terminate the
Merger Agreement provided that party was not then in breach of any obligation
under the Agreement which caused or resulted in the failure of the Merger
Agreement to be consummated by that date.
On June 28, 1996, WWP provided written notice to the Company and SPPC that
it was terminating the Merger Agreement. Since that time, petitions to withdraw
merger applications have been filed by one or more parties in all jurisdictions
having approval jurisdiction over the merger.
As a result of the termination of the merger, the Company plans to continue
to operate SPPC as a separate utility and expand the TGPC and e.three
businesses.
As a result of the termination of the merger certain filings were made in
various regulatory jurisdictions by SPPC. See Note 2 to the Company's
consolidated financial statements.
GENERAL
-------
NUMBER OF EMPLOYEES
- -------------------
The aggregate number of employees for SPR and its subsidiaries at December
31, 1996, was 1,491. Of that number, 21 were considered part-time. In
addition, the Company had 44 temporary employees. SPPC's current contract with
the International Brotherhood of Electrical Workers, which represents 61% of
the workforce, is in effect until December 31, 1997. The three-year contract
provides for a 2.5% general wage increase for all bargaining unit employees
beginning January 1, 1995, with 3% increases in both 1996 and 1997.
Negotiations on the renewal of the contract will begin in 1997. Nevada is a
"right-to-work" state.
RESEARCH, DEVELOPMENT AND DEMONSTRATION
- ---------------------------------------
SPR is a holding company which operates through its subsidiaries.
Disclosure with respect to funds expended on research and development and the
effect of pollution control regulation, seasonality, competition and estimated
capital expenditures in connection therewith is contained in the SPPC Annual
Report on Form 10-K for the year ended December 31, 1996, attached hereto as
an Appendix.
5
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ITEM 2. PROPERTIES
The information required by this item is included in Item 1 hereof. A
complete description of SPPC's property is included in SPPC's Annual Report on
Form 10-K for the year ended December 31, 1996, attached hereto as an Appendix.
ITEM 3. LEGAL PROCEEDINGS
The Company, through the course of its normal business operations, is
currently involved in a number of legal actions, none of which has had or, in
the opinion of management, is expected to have a significant impact on its
financial position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
6
<PAGE>
Pursuant to General Instruction G, the following information is included
as an additional item in Part I, as of December 31, 1996:
EXECUTIVE OFFICERS OF THE REGISTRANT
Walter M. Higgins, 52, Chairman, President and Chief Executive Officer
Mr. Higgins continues to serve as Chairman, President and Chief
Executive Officer of Sierra Pacific Resources since January 1994.
He has been President and Chief Executive Officer of Sierra Pacific Power
Company since February 1994. Prior to assuming his current duties, Mr.
Higgins was President and Chief Operating Officer of the Company from
November 1993 to January 1994. He served as President and Chief Operating
Officer of Louisville Gas and Electric Company from 1991 to November 1993.
Mr. Higgins held various executive positions with Portland General
Electric from 1977 to 1991. Mr. Higgins is also a director of Aegis
Insurance Services, Inc.
William E. Peterson, 49, Senior Vice President, General Counsel and Corporate
Secretary
Mr. Peterson was elected to his present position in January 1994. Mr.
Peterson holds the same position with Sierra Pacific Power Company. He was
previously Senior Vice President, Corporate Counsel from July 1993 to
January 1994. Prior to joining the Company in 1993, he served as general
counsel and resident agent for Sierra Pacific Resources since 1992. Mr.
Peterson was a partner in the Woodburn and Wedge Law Firm from 1982 to
1993.
Malyn K. Malquist, 44, Senior Vice President - Distribution Services Business
Group; Principal Operations Officer; Acting Chief Financial
Officer and Treasurer
Mr. Malquist was elected to his present position in August 1996 and
holds the same position with Sierra Pacific Power Company. Mr. Malquist
was Senior Vice President and Acting Chief Financial Officer and Treasurer
for the Company and Sierra Pacific Power Company from August 1996 to
February 1997. Mr. Malquist was elected Senior Vice President and Chief
Financial Officer of the Company and SPPC when he joined the Company in
April 1994. He was previously with San Diego Gas and Electric Company,
where since 1978, he held various financial positions, including Treasurer
in 1990 and Vice President in 1993.
7
<PAGE>
Mark A. Ruelle, 35, Senior Vice President, Chief Financial Officer
and Treasurer
Mr. Ruelle was elected to his present position effective March 1, 1997
and holds the same position with Sierra Pacific Power Company. Prior to
joining the Company, Mr. Ruelle was with Western Resources, Inc., where he
held the positions of President, Westar Energy in 1996; Vice President,
Corporate Development in 1995; and numerous positions in finance, treasury,
strategic planning, and regulatory affairs. Mr. Ruelle had been with
Western Resources, Inc., since 1986.
Victor H. Pena, 48, Vice President - Business Development
Mr. Pena was elected to his current position with the Company in
December 1995. Since February 1995, he has served as President of Lands of
Sierra, Inc. He holds the title Vice President Technology, Information
Services and Business Development with Sierra Pacific Power Company. Prior
to joining the Company, he was Director of Financial Planning and Budget
with Louisville Gas and Electric Company from April 1991 to May 1994. From
early 1990 to mid 1991, Mr. Pena was President and owner of his own
business, and from 1986 to 1990, was the Director of Planning and Analysis
of Kentucky Fried Chicken, a division of Pepsico.
8
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
SPR's Common Stock is traded on the New York Stock Exchange (symbol SRP).
The dividends paid per share and the high and low sale prices of the Common
Stock in the consolidated transaction reporting system as reported in "The Dow
Jones News Retrieval Service" for 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
Dividends Paid Price Range
1996 Per Share High Low
--------- ---- ---
<S> <C> <C> <C>
First Quarter .280 25 1/8 22 5/8
Second Quarter .295 25 3/4 23 3/8
Third Quarter .295 26 3/4 24 3/8
Fourth Quarter .295 29 1/8 25 3/4
1995
First Quarter .280 20 1/8 18 1/8
Second Quarter .280 20 7/8 18 1/2
Third Quarter .280 21 5/8 20 1/8
Fourth Quarter .280 23 5/8 21 1/8
</TABLE>
Number of Security Holders:
Title of Class Number of Holders
-------------- -----------------
Common Stock: $1.00 Par Value As of March 20, 1997: 23,119
During 1996, SPR has continued the dividend policy of its predecessor
company which has paid cash dividends on its Common Stock each year since 1916
and quarterly dividends every year since 1946. Future dividends are subject to
factors that ordinarily affect dividend policy, such as future earnings and the
financial condition of SPR. As of December 31, 1996, SPR's dividend payout
ratio was 54% based on 1996 consolidated earnings.
On February 18, 1997, the SPR Board of Directors voted to increase its
next quarterly common dividend from $.295 per share to $.31 per share. This
dividend of approximately $9.6 million will be paid on May 1, 1997.
SPR's primary source of funds for the payment of dividends to its
stockholders is dividends paid by SPPC on its Common Stock, all of which is
owned by SPR. See Note 12 to the Company's consolidated financial statements.
9
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ITEM 6. SELECTED FINANCIAL DATA (in thousands of dollars,)
<TABLE>
<CAPTION>
Year Ended December 31,
(dollars in thousands, except per share amounts)
----------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Operating Revenues $ 627,711 $ 606,122 $ 626,312 $ 528,075 $ 481,810
========== ========== ========== ========== ===========
Operating Income $ 108,878 $ 104,760 $ 98,513 $ 87,893 $ 69,844
========== ========== ========== ========== ===========
Net Income $ 66,879 $ 58,039 $ 52,366 $ 44,890 $ 28,149 (1)
========== ========== ========== ===========
Net Income Per Share $ 2.19 $ 1.95 $ 1.79 $ 1.67 $ 1.09 (1)
========== ========== ========== ========== ===========
Total Assets $1,869,354 $1,756,627 $1,632,703 $1,608,946 $ 1,437,592
========== ========== ========== ========== ===========
Long-Term Debt and
Redeemable Preferred
Stock $ 686,346 $ 587,533 $ 582,309 $ 578,211 $ 595,545
========== ========== ========== ========== ===========
Cash Dividends Paid
Per Common Share $ 1.165 $ 1.120 $ 1.120 $ 1.120 $ 1.480
========== ========== ========== ========== ===========
</TABLE>
(1) Includes after-tax write-downs of assets of $11,549.
10
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SPR's net income in 1996 was $66.9 million, an increase of $8.9 million
compared to 1995. Earnings were driven by strong customer growth, weather-
related increases in electricity and natural gas sales for the principal
subsidiary, SPPC, and profitable performances by SPR's other principal
subsidiaries.
RESULTS OF OPERATIONS
---------------------
SPPC
- ----
Net income before preferred dividends in 1996 was $73.7 million, an
increase of $7.7 million compared to 1995. SPPC's most recent three-year
average return on year-end common equity was 10.5%. For 1996, SPPC was
authorized to earn a return on equity of 12% in its Nevada electric department,
and 11.5% and 11.75%, respectively, in its Nevada gas and water departments. In
November 1995, the California Commission changed the electric authorized return
on common equity from 11.3% to 11.6%, effective January 1, 1996.
On February 6, 1997, the Nevada Commission approved a new rate plan. As
part of the new rate plan SPPC will refund $13 million to electric customers.
SPPC recorded this refund in 1996 as a reduction in revenues. See Note 2 of the
Company's consolidated financial statements.
Nevada, SPPC's primary jurisdiction, uses a marginal cost method for
setting electric and gas rates by customer class. As a result, changes in sales
mix (i.e., consumption by customer class) can result in increases or decreases
in revenues, regardless of changes in total consumption.
The components of revenue margin are set forth below (dollars in
thousands):
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
Operating Revenues:
<S> <C> <C> <C>
Electric $507,004 $491,419 $498,680
Gas 67,376 62,572 65,174
Water 45,344 43,793 39,339
-------- -------- --------
Total Revenues 619,724 597,784 603,193
-------- -------- --------
Energy Costs:
Electric 223,177 212,473 244,404
Gas 32,479 37,330 41,296
-------- -------- --------
Total Energy Costs 255,656 249,803 285,700
-------- -------- --------
Revenue Margin $364,068 $347,981 $317,493
======== ======== ========
Revenue Margin by Division:
Electric $283,827 $278,946 $254,276
Gas 34,897 25,242 23,878
Water 45,344 43,793 39,339
-------- -------- --------
Total $364,068 $347,981 $317,493
======== ======== ========
</TABLE>
Energy costs are comprised of purchased power, fuel for power generation,
gas purchased for resale and deferred energy. Average energy costs are set
forth below:
11
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<TABLE>
<CAPTION>
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Average cost per KWH
of purchased power 3.15c 3.35c 3.64c
Average cost per KWH
of generated power 2.20c 2.02c 2.31c
Average cost per therm of
gas purchased for resale 27.48c 32.74c 29.12c
</TABLE>
The $15.6 million, 3.2%, increase in electric operating revenues during
1996 generally followed the regional increase in customers. The $7.3 million,
1.5%, decrease in 1995 electric operating revenues, compared to 1994, was due
primarily to the $18.8 million fuel rate decrease granted by the Nevada
Commission on May 1, 1995. This decrease was offset by a simultaneous $6.5
million general base rate increase and continued customer and MWH sales growth.
Gas operating revenues for 1996 increased $4.8 million, 7.7%, over 1995,
due to increased sales and continued customer growth. 1995 gas operating
revenues were down $2.6 million, 4.2%, compared to 1994, primarily due to warmer
weather in the fourth quarter of 1995. This decrease was partially offset by
continued customer and gas sales growth throughout the year.
Water department revenues increased $1.6 million, 3.5%, during 1996,
primarily as a result of customer growth. Water revenues increased $4.5
million, 11.3%, during 1995 over 1994, reflecting a full year of a $6 million
rate increase and customer growth.
During 1996, SPPC increased both its levels of electric generation and
power purchases in order to keep pace with the increasing demand for
electricity. Kilowatt hours generated in 1996 increased 11.3% from 1995 levels,
and kilowatt hours purchased increased 8.7% during the same period. The total
cost of electric generation per kilowatt hour increased 8.9% from 1995 to 1996,
driven by a 20.9% increase in the cost of fuel between years. This increase in
fuel costs is due primarily to an increase in the cost of natural gas over the
lower levels of 1995. Despite this increase, natural gas remained the fuel of
choice for 1996, rather than oil or coal. The total cost of purchased power
increased only $2.8 million, 2.1%, from 1995 to 1996. The increase in volume of
power purchases and the reduced cost per KWH are due to increased availability
of inexpensive hydro-electric power from the Northwest, as a result of wet
winter weather in that region. In 1995 and 1994, purchased power and fuel costs
for power generation decreased by $6.7 million, 5.3%, and $5.1 million, 5.6%,
respectively. During the same period, SPPC increased generation by 7.7% and
purchased power 1.3%, however, the combined cost of both declined from 1994 due
to lower unit costs of purchased power and natural gas.
For 1996, while SPPC increased total therms of natural gas purchased for
resale by 8.0%, the total cost of acquiring those therms decreased by $3.3
million, 9.3%, due to a 16.1% decrease in per-therm cost, from 1995. Purchased
gas in 1995 was up $2.1 million, 6.3%, from the prior year due to a 12.4%
increase in unit costs, offset by a 2.6% reduction in weather-related sales.
Deferral of energy costs-net decreased following the suspension of deferred
energy accounting in SPPC's California jurisdiction. The 1996 income represents
the write-off of the over-collected balance at the time of the suspension.
Deferral of energy costs-net decreased from 1994 to 1995, following the Nevada
Commission authorized change in deferred energy
12
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accounting. In March 1995, the remaining balances in SPPC's (Nevada
jurisdiction, only) deferred energy receivables accounts were collected and SPPC
suspended use of the deferred energy accounting methodology. Fluctuations in
purchased gas, fuel and purchased power expenses from the base fuel rates are
now reflected in earnings. Refer to Note 2 of the Company's consolidated
financial statements for discussion of deferred energy accounting.
Other operating expenses including labor, services and materials were up
$1.6 million, 1.3%, from 1995, excluding the cost of a coal contract buy-out.
Including the cost of the $4 million coal contract buy-out, these 1996 operating
expenses were up 4.7% over 1995. The 1995 expenses were $10.3 million, 9.6%,
higher than for 1994 due primarily to $11.6 million of merger expense. 1995 and
1996 increases in wages for bargaining unit employees, and additional water
treatment expenses were offset by staff reductions.
SPPC's gas and water departments experienced negligible increases in
maintenance expense in 1996. Electric department maintenance expense was up
$1.8 million, 11.4%, in 1996, due primarily to maintenance on the Valmy power
plant boiler $506,145, transmission stations $625,841, and overhead lines
$333,591. Total maintenance costs were up $2.2 million, 13.3%, in 1995 over
1994, due primarily to the overhaul of two turbine generators at the Tracy plant
and maintenance of overhead distribution lines.
Continued additions to utility plant contributed to an increase in
depreciation expense of $3.1 million, 5.5%, over the prior year for both 1996
and 1995.
Operating income taxes declined $1.1 million, 3.0%, in 1996, due to the
deductibility of merger expenses following the termination of the merger.
Operating income taxes for 1995 increased by $8.3 million, 28.4%, over 1994 due
to increased pre-tax income and the tax impact of merger costs, a portion of
which were not expected to be deductible for tax purposes.
Increases in property, franchise, and other non-income taxes accounted for
the $1.1 million, 6.4%, increase in this category for both 1996 and 1995 over
the prior years. These increases are consistent with the increase in revenues
and utility plant.
Allowance for funds used during construction (AFUDC) is calculated using
rates commensurate with the cost of debt and equity financing. For 1996, the
AFUDC rate was higher than in 1995; and combined with higher construction-work-
in-progress (CWIP) balances for the Alturas Intertie project, the Chalk Bluff
water plant, and plant associated with the Pinon project throughout 1996, caused
a doubling in AFUDC. The increase in AFUDC from 1995 was due to higher CWIP
balances, especially in electric and water departments, offset slightly by lower
rates.
For 1996, other income(expense)-net was significantly higher ($.9 million
income vs. $3.4 million expense) than in 1995. The 1995 data included among
other items: non-recurring expense adjustments for transition interest and
customer shared savings program; a change in tax regulations related to water
department trust fund interest in 1994; lower carrying charge income; and a
potential overcharge related to facilities. The 1995 amount was lower than in
1994 due to a reduction in carrying charge income, a reduction in income from
the variable rate note trust; and a reduction in non-operating income tax.
13
<PAGE>
Other interest expense increased $2.8 million in 1996, due primarily to the
absence of 1995 adjustments that reduced interest expense that year. Other
interest expense for 1995 was $4.1 million, 69.5%, lower than 1994 due primarily
to reversal of interest accruals related to IRS audit matters.
TGPC
- ----
Tuscarora Gas Pipeline Company had net income of $2.16 million in 1996
compared with $0.66 million in 1995. Commercial operation of TGTC's pipeline
began in December 1995. TGPC's 1996 net income was due to investments in the
natural gas pipeline. Income in 1995 was due primarily to TGPC's 50% share of
AFUDC incurred during the construction period. The Company anticipates TGPC to
be self-sustaining in 1997 and, therefore, plans no further capital
contributions to TGPC.
LOS
- ---
Lands of Sierra contributed $0.96 million to consolidated net income in
1996, due to continuing land sales. LOS reported a decrease of $17.5 million in
revenues for 1995 compared to 1994. This decrease was due to a large number of
property sales in 1994. Cost of sales also decreased in this period, resulting
in a net decrease of $3.9 million in net income. These property sales are part
of SPR's strategy of focusing on its utility businesses.
OTHER SUBSIDIARIES AND E.THREE
- ------------------------------
Combined, these entities contributed a net loss for the year ended December
31, 1996 of approximately $370,000 compared to net income of $607,000 and
$290,000 in 1995 and 1994.
14
<PAGE>
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
----------------------------------------------------
CONSTRUCTION EXPENDITURES AND FINANCING
- ---------------------------------------
The table below shows cash construction expenditures and net internally
generated cash for 1994 - 1996 (dollars in thousands):
<TABLE>
<CAPTION>
1996 1995 1994 Total
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Cash Construction Expenditures $179,102 $133,088 $108,822 $421,012
======== ======== ======== ========
Net Cash Flow from Operating
Activities $110,448 $158,065 $139,034 $407,547
Less: Cash Dividends Paid 42,032 40,668 40,636 123,336
-------- -------- -------- --------
Net Internally Generated
Cash $ 68,416 $117,397 $ 98,398 $284,211
======== ======== ======== ========
Net Internally Generated Cash
as a Percentage of Cash
Construction Expenditures 38% 88% 90% 67%
======== ======== ======== ========
</TABLE>
The Company estimates that 61% of its 1997 cash construction requirements
will be provided by internally generated funds. The remaining 39% will be
provided by a variety of other sources including issuance of long-term and
short-term debt.
Estimated construction expenditures for 1997 and the period 1998-2001 are
as follows (dollars in thousands):
<TABLE>
<CAPTION>
Total
1997 1998-2001 5-Year
---------- ----------- ----------
<S> <C> <C> <C>
Electric Facilities $111,091 $398,631 $509,722
Water Facilities 21,240 45,202 66,442
Gas Facilities 9,565 35,051 44,616
Common Plant 4,579 11,516 16,095
-------- -------- --------
Total Construction
Expenditures 146,475 490,400 636,875
AFUDC (8,456) (9,651) (18,107)
Salvage, Net of Cost of
Removal 1,089 3,648 4,737
Net Customer Advances and
Contributions in Aid of
Construction (3,634) (14,491) (18,125)
-------- -------- --------
Total Cash Requirements $135,474 $469,906 $605,380
======== ======== ========
</TABLE>
NOTE: These construction expenditures do not include investments in TGPC or
e.three.
15
<PAGE>
CAPITAL STRUCTURE
- -----------------
On January 3, 1995, SPPC replaced its lines-of-credit arrangements with an
$80 million revolving credit facility, thus assuring itself a committed facility
to support its commercial paper borrowings. At December 31, 1996, SPPC had
$38.0 million of short-term borrowings outstanding, all of which were in
commercial paper. SPPC's commercial paper is rated P2, A2 and D1- by Moody's,
Standard & Poor's and Duff & Phelps, respectively.
The Company has a $10 million revolving credit facility with Barclay's
Bank, PLC. This line has been extended until April 26, 1997. There is
currently no outstanding balance, and the Company does not expect to draw on the
facility in 1997.
The Company's actual capital structure at December 31, 1996, 1995 and 1994
was as follows (dollars in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
------------------ ------------------ -----------------
<S> <C> <C> <C>
Short-Term Debt (1) $ 63,434 (4%) $ 73,470 (6%) $ 59,143 (5%)
Long-Term Debt 637,846 (45%) 573,933 (45%) 561,909 (46%)
Preferred Stock 121,615 (9%) 86,715 (7%) 93,515 (8%)
Common Equity 594,859 (42%) 544,550 (42%) 508,722 (41%)
---------------- ---------------- ---------------
$1,417,754 (100%) $1,278,668 (100%) $1,223,289 (100%)
================ ================ ===============
</TABLE>
(1) Including current maturities of long-term debt and preferred stock.
The Company has $40 million of senior notes which include Series B through
E due in years 1997 through 2000. In April 1996, the Company redeemed $10
million of the notes, and in April 1997, another $10 million will mature.
The indenture under which SPPC's first mortgage bonds are issued prescribes
certain coverage ratios that must be met before additional bonds may be issued.
At December 31, 1996, these coverage provisions would allow for the issuance of
approximately $477 million in additional first mortgage bonds at an assumed
interest rate of 8%. SPPC's long-term debt is rated A3, A- and A- by Moody's,
Standard & Poor's and Duff & Phelps, respectively. SPPC's pre-tax interest
coverages for 1996, 1995, and 1994 were 3.50, 3.78, and 3.21, respectively.
On November 13, 1996, the Company's Board of Directors declared a common
dividend of $9.1 million that was paid on February 1, 1997. On February 18,
1997, the SPR Board voted to increase its next quarterly common dividend from
$.295 per share to $.310 per share. This dividend of approximately $9.6 million
will be paid on May 1, 1997. On the same date, SPPC's Board declared both
common ($18.0 million) and preferred ($1.4 million) dividends, payable May 1,
and June 1, 1997, respectively.
16
<PAGE>
In December 1996, SPPC registered $35 million of collateralized debt
securities. See Note 8 of the Company's consolidated financial statements.
On June 3, 1996, SPPC redeemed the remaining 408,0000 shares of Series G,
8.24% Preferred Stock, at par value for $20.4 million. On July 29, 1996, Sierra
Pacific Capital I, (the Trust), a wholly-owned subsidiary of SPPC, issued $48.5
million (1,940,000 shares) 8.60% Trust Originated Preferred Securities (the
Preferred Securities). See Note 7 of the Company's consolidated financial
statements.
NEVADA MATTERS
- --------------
Under Nevada law, general rate increases must be based upon 12 months
experienced (historic) costs. A 12-month historic test year may be updated an
additional 90 days for certified expenditures and revenues. The Nevada
Commission is obligated to issue its final decision within 180 days after the
filing.
As provided by statute, SPPC is allowed to use deferred energy accounting
procedures in its retail electric and gas operations. The intent of these
procedures is to capture fluctuations in the cost of purchased gas, fuel and
power. Deferred energy accounting allows a utility to defer the difference
between actual monthly expense and the rates it is allowed to recover from its
customers. The procedures also allow for an annual updating of fuel and
purchased power costs and the amortization of deferred balances over a 12
month period. An optional mid-year filing can occur if the increase or decrease
in total revenues exceeds 5%. The Company has suspended deferred energy
accounting in its Nevada and California jurisdictions. See Note 2 of the
Company's consolidated financial statements.
As a result of the termination of the merger certain filings were made.
See Note 2 of the Company's consolidated financial statements.
Nevada has begun investigating various proposals which could result in a
restructuring of the electric industry and increase competition among power
providers. On June 28, 1996, the Nevada Commission issued an order in its
electric restructuring investigation which approved forwarding to a Legislative
Subcommittee a report entitled "The Structure of Nevada's Electric Industry:
Promoting the Public Interest". That report concluded that the Nevada
Commission should continue to acquire information relating to past costs,
uneconomic bypass, unbundling, and the potential for anticompetitive practices.
Workshops are continuing to be scheduled to investigate these and other issues
related to Nevada's electric industry. The subcommittee issued a report to the
Legislature for consideration during the 1997 legislative session. The Company
cannot predict the outcome of these investigations or the effect that the
adoption of any such proposals would have on SPPC or its future earnings.
17
<PAGE>
CALIFORNIA MATTERS
- ------------------
SPPC utilizes an Energy Cost Adjustment Clause (ECAC) which provides for
electric deferred energy accounting procedures similar to those described under
"Nevada Matters" above. In addition, the California Commission permits the use
of the following adjustment mechanisms: Attrition Rate Adjustment (ARA), a
procedure used to adjust rates between tri-annual general rate filings and
Electric Revenue Adjustment Mechanism (ERAM), a procedure used to adjust
revenues for fluctuations in sales from those levels adopted in a general rate
case decision.
During the merger time frame SPPC reached agreements with the California
Commission concerning these mechanisms. As a result of the termination of the
merger certain filings were made. See Note 2 of the Company's consolidated
financial statements.
On September 24, 1996, the Governor of California signed into law a bill
restructuring California's electric services industry and reforming regulation.
That bill provided for the restructuring of the electric industry beginning
January 1, 1998. The law included creation of an Independent System Operator
(ISO) to efficiently operate the State's transmission system and ensure
comparable access for power suppliers. It will also create a Power Exchange (PX)
to function as a spot market for electricity, and over time, to provide
customers direct access to alternative suppliers. Utility provisions of
performance-based ratemaking will be applied to remaining monopoly distribution
services. Stranded costs will be recovered through a separate competitive
transition charge on customers' bills.
On March 4, 1997, the California Senate Committee on Energy, Utilities and
Communications met to discuss how provisions of the restructuring bill apply to
small and multi-jurisdictional utilities such as SPPC. The committee reviewed
the relevant provisions of the legislation and clarified that utilities have the
option to request recovery of stranded costs. Utilities requesting recovery of
stranded costs are required to freeze rates at June 10, 1996 levels and provide
a 10% rate reduction for residential and small commercial customers. The
committee also clarified that if utilities do not request recovery of stranded
costs they are not required to participate in the ISO and PX. All utilities,
including SPPC, are required to make direct customer access available (based
upon a yet unreleased CPUC phase-in plan) beginning January 1, 1998, so long as
transmission facilities linking the utility to the ISO grid exist.
FERC MATTERS
- ------------
On April 24, 1996, the FERC issued its final rules concerning transmission
open access and stranded cost recovery. These were finalized in FERC Orders 888
and 889. The rules require that all public utilities that own and/or control
transmission facilities must file tariffs that allow third parties to utilize
the transmission facilities on a comparable basis to the use by the transmission
owners. The transmission provider must provide tariffs that allow third parties
to purchase point-to-point transmission service or service that has multiple
points of receipt and delivery, much the same as the provider, which is called
network service. The orders also require that the transmission provider
"unbundle" the transmission rates into a transmission-only rate plus ancillary
services for generation and scheduling activities performed by the provider.
18
<PAGE>
The purchase of the ancillary services by the customer from the transmission
provider is largely optional.
SPPC filed its initial tariffs for open access transmission service by July
9, 1996 as required by FERC Order 888 (the Order). Final acceptance and
approval of the filed rates are expected to occur over the following year, with
the resulting rates, terms and conditions determined by the FERC for each
utility. The impact of the new transmission rate and the provision of expanded
transmission service have not been fully determined at this time.
On July 12, 1996, SPPC and six other northwest electric companies signed a
memorandum of understanding to study the feasibility of creating an independent
transmission grid operator (INDEGO) to insure non-discriminatory, open access to
electric transmission facilities in compliance with the FERC rulings. Since
that date, 12 other utilities have joined the group bringing the current number
of participants to 19. The group plans to file the INDEGO proposal with FERC by
the summer of 1997, and anticipates that limited operation would commence in
early 1999.
Another requirement of the order is for utilities to establish an
electronic bulletin board (OASIS) to facilitate the purchase and sale of
transmission service. SPPC has contracted with Salt River Project to meet this
requirement and is part of the Southwest OASIS (SWOASIS). The SWOASIS became
operational January 3, 1997 in accordance with FERC requirements, and can be
found on the internet (http://www.swoasis.com).
The Order also requires a distinct separation of personnel who act as
wholesale marketers and as transmission marketers. SPPC accomplished this
requirement through restructuring into business units that separate these
functions under different officers. The wholesale marketers for SPPC no longer
have exclusive access to information related to the transmission system. The
wholesale marketers are required to place service requests and purchases based
on information provided on the OASIS in the same manner as all other third
parties.
OTHER
- -----
Inflation affects the prices SPR and its subsidiaries must pay for labor,
materials, equipment and supplies used in operations, maintenance and
construction. Changes in fuel, purchased power and purchased gas costs, as a
result of inflation or otherwise, were recovered through balancing account
mechanisms in years prior to 1995. Beginning in April 1995, changes in these
costs, like all other costs, are recovered through general rate requests.
Regulatory principles generally provide for recovery of the original cost of
plant investment. To the extent that SPPC experiences regulatory lag, the
effects of inflation included therein are unrecovered.
19
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
<CAPTION>
Page
----
<S> <C>
REPORTS OF INDEPENDENT ACCOUNTANTS......................................... 21
FINANCIAL STATEMENTS:
Consolidated Balance Sheets
As of December 31, 1996 and 1995.................................... 23
Consolidated Statements of Income
Years Ended December 31, 1996, 1995 and 1994........................ 24
Consolidated Statements of Retained Earnings
Years Ended December 31, 1996, 1995 and 1994........................ 25
Consolidated Statements of Capitalization
As of December 31, 1996 and 1995.................................... 26
Consolidated Statements of Cash Flows
Years Ended December 31, 1996 and 1995.............................. 27
Notes to Consolidated Financial Statements............................. 28
</TABLE>
20
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
Sierra Pacific Resources
Reno, Nevada
We have audited the accompanying consolidated balance sheet and consolidated
statement of capitalization of Sierra Pacific Resources and subsidiaries as of
December 31, 1996, and the related consolidated statements of income, retained
earnings, and cash flows for the year then ended. 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 audit. The consolidated
financial statements of the Company for the years ended December 31, 1995 and
1994 were audited by other auditors whose report, dated February 16, 1996,
expressed an unqualified opinion on those statements.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, such 1996 consolidated financial statements present fairly, in
all material respects, the financial position of the Company as of December 31,
1996, and the results of its operations and its cash flows for the year then
ended in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Reno, Nevada
February 14, 1997
21
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
Sierra Pacific Resources
We have audited the accompanying consolidated balance sheet and consolidated
statement of capitalization of Sierra Pacific Resources and subsidiaries as of
December 31, 1995, and the related consolidated statements of income, cash
flows, and retained earnings for the years ended December 31, 1995 and 1994.
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, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Sierra Pacific
Resources and subsidiaries at December 31, 1995, and the consolidated results of
its operations and its cash flows for each of the two years in the period ended
December 31, 1995 in conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
San Francisco, California
February 16, 1996
22
<PAGE>
SIERRA PACIFIC RESOURCES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
December 31,
ASSETS 1996 1995
------ ------------- -------------
<S> <C> <C>
Utility Plant, at Original Cost:
Plant in service $ 1,984,781 $ 1,816,444
Less accumulated provision for
depreciation 606,406 556,710
------------- ------------
1,378,375 1,259,734
Construction work in progress 164,835 153,067
------------- ------------
1,543,210 1,412,801
------------- ------------
Investments in subsidiaries and other
property, net 44,583 45,290
------------- ------------
Current Assets:
Cash and cash equivalents 4,949 4,243
Accounts receivable less provision
for uncollectible accounts: 1996 -
$2,196, 1995 - $1,543 94,736 92,177
Materials, supplies and fuel, at average
cost 27,586 30,455
Other 4,472 2,538
------------- ------------
131,743 129,413
------------- ------------
Deferred Charges:
Regulatory tax asset 67,667 69,610
Other regulatory assets 67,319 82,841
Other 14,832 16,672
------------- ------------
149,818 169,123
------------- ------------
$ 1,869,354 $ 1,756,627
============= ============
CAPITALIZATION AND LIABILITIES
------------------------------
Capitalization:
Common shareholders' equity $ 594,859 $ 544,550
Preferred stock 73,115 73,115
Preferred stock subject to mandatory
redemption: - 13,600
Series G
SPPC-obligated Mandatorily Redeemable
Preferred Securities of SPPC's
Subsidiary Trust, Sierra Pacific
Power Capital I, holding solely $50
million principal amount of 8.60%
Junior Subordinated Debentures of SPPC,
due 2036 48,500 -
Long-term debt 637,846 573,933
------------- ------------
1,354,320 1,205,198
------------- ------------
Current Liabilities:
Short-term borrowings 38,000 56,112
Current maturities of long-term debt and
preferred stock 25,434 17,358
Accounts payable 53,804 91,885
Accrued interest 6,849 6,109
Other current liabilities 43,530 31,900
------------- ------------
167,617 203,364
------------- ------------
Deferred Credits:
Accumulated deferred federal income taxes 164,199 159,300
Accumulated deferred investment tax credits 41,836 43,797
Regulatory tax liability 42,870 45,084
Customer advances for construction 39,429 40,168
Other 59,083 59,716
------------- ------------
347,417 348,065
------------- ------------
Commitments and Contingencies (Note 16) $ 1,869,354 $ 1,756,627
============= ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
23
<PAGE>
SIERRA PACIFIC RESOURCES
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Operating Revenues:
Electric $ 507,004 $ 491,419 $ 498,680
Gas 67,376 62,572 65,174
Water 45,344 43,793 39,339
Other 7,987 8,338 23,119
----------- ----------- -----------
627,711 606,122 626,312
----------- ----------- -----------
Other Expenses:
Operation:
Purchased power 122,272 119,464 126,190
Fuel for power generation 102,601 84,878 89,937
Gas purchased for resale 32,519 35,864 33,739
Deferral of energy costs-net (1,736) 9,597 35,834
Other 129,810 123,670 127,404
Maintenance 20,672 18,391 16,235
Depreciation and Amortization 58,118 55,076 52,570
Taxes:
Income taxes 35,626 36,574 28,939
Other than income 18,951 17,848 16,951
----------- ----------- -----------
518,833 501,362 527,799
----------- ----------- -----------
Operating Income 108,878 104,760 98,513
----------- ----------- -----------
Other Income:
Allowance for other funds used
during construction 5,231 1,245 2,042
Other income (expense) - net 1,289 (2,244) 2,808
----------- ----------- -----------
6,520 (999) 4,850
----------- ----------- -----------
Total Income Before Interest Charges 115,398 103,761 103,363
----------- ----------- -----------
Interest Charges:
Long-term debt 39,770 38,477 38,731
Other 4,624 2,873 5,834
Allowance for borrowed funds used during
construction and Capitalized Interest (3,924) (3,002) (1,502)
----------- ----------- -----------
40,470 38,348 43,063
----------- ----------- -----------
Income Before Obligated Mandatorily
Redeemable Preferred Securities 74,928 65,413 60,300
Preferred Dividend Requirements of
SPPC-Obligated Mandatorily Redeemable
Preferred Securities (1,749) - -
----------- ----------- -----------
Income Before Preferred Dividends 73,179 65,413 60,300
Preferred Dividend Requirements of
Subsidiary (6,300) (7,374) (7,934)
----------- ----------- -----------
Net Income $ 66,879 $ 58,039 $ 52,366
=========== =========== ===========
Net Income Per Share $ 2.19 $ 1.95 $ 1.79
=========== =========== ===========
Weighted Average Shares of
Common Stock Outstanding 30,495,224 29,754,978 29,219,078
=========== =========== ===========
Annual Dividends Paid Per Share of
Common Stock $ 1.165 $ 1.120 $ 1.120
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
24
<PAGE>
SIERRA PACIFIC RESOURCES
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995 1994
--------- --------- --------
<S> <C> <C> <C>
Retained Earnings at Begining of $ 80,845 $ 58,062 $ 46,631
Year
Income Before Preferred Dividends 73,179 65,413 60,300
-------- -------- --------
154,024 123,475 106,931
Other (268) - -
Dividends Declared:
Preferred stock of subsidiary (5,879) (9,205) (7,981)
Common stock (36,136) (33,425) (40,888)
-------- -------- --------
Retained Earnings at End of Year $111,741 $ 80,845 $ 58,062
======== ======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
25
<PAGE>
SIERRA PACIFIC RESOURCES
CONSOLIDATED STATEMENTS OF CAPITALIZATION
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
December 31,
1996 1995
--------------- ---------------
<S> <C> <C>
Common Shareholders' Equity:
- ---------------------------
Common stock $1.00 par value,
authorized 90,000,000 shares, issued and
outstanding 1996, 30,815,936 shares;
1995, 30,034,513 shares $ 30,816 $ 30,035
Additional paid-in capital 452,302 433,670
Retained earnings 111,741 80,845
---------- ----------
Total common shareholders' equity 594,859 544,550
---------- ----------
Preferred Stock of Subsidiary:
- -----------------------------
Cumulative preferred stock:
Not subject to mandatory redemption:
$50 par value:
Series: A, $2.44 dividend 4,025 4,025
B, $2.36 dividend 4,100 4,100
C, $3.90 dividend 14,990 14,990
$25 stated value:
Class A Series I, $1.95 dividend 50,000 50,000
---------- ----------
Subtotal 73,115 73,115
Subject to mandatory redemption:
$50 par value:
Series: G, $4.12 dividend - 13,600
$25 stated value:
SPPC-obligated Mandatorily Redeemable
Preferred Securities of SPPC's Subsidiary Trust,
Sierra Pacific Power Capital I, holding solely $50
million principal amount of 8.60% Junior
Subordinated Debentures of SPPC, due 2036 48,500 -
---------- ----------
Total preferred stock 121,615 86,715
---------- ----------
Long-Term Debt:
- ---------------
First Mortgage Bonds:
6.50% Series K due 1997 - 15,000
Unamortized bond premium and
discount, net (906) (947)
---------- ----------
Subtotal, excluding current portion (906) 14,053
---------- ----------
Debt Secured by First Mortgage Bonds:
- ------------------------------------
2.00% Series Z due 2004 135 155
2.00% Series O due 2011 1,736 1,852
6.35% Series FF due 2012 1,000 1,000
6.55% Series AA due 2013 39,500 39,500
6.30% Series DD due 2014 45,000 45,000
6.65% Series HH due 2017 75,000 75,000
6.65% Series BB due 2017 17,500 17,500
6.55% Series GG due 2020 20,000 20,000
6.30% Series EE due 2022 10,250 10,250
6.95% to 8.65% Series A MTN due 2022 115,000 115,000
7.10% and 7.14% Series B MTN due 2023 58,000 58,000
6.83% and 6.86% Series C MTN due 1999 30,000 -
6.62% to 6.83% Series C MTN due 2006 50,000 -
5.90% Series JJ due 2023 9,800 9,800
5.90% Series KK due 2023 30,000 30,000
5.00% Series Y due 2024 3,335 3,395
6.70% Series II due 2032 21,200 21,200
---------- ----------
Subtotal, excluding current portion 527,456 447,652
---------- ----------
Variable Rate Notes:
- -------------------
Water facilities note maturing 2020 80,000 80,000
Total Funds Held in Trust - (9,175)
---------- ----------
Subtotal 80,000 70,825
---------- ----------
Senior Notes 30,000 40,000
---------- ----------
Other, excluding current portion 1,296 1,403
---------- ----------
Total long-term debt 637,846 573,933
---------- ----------
TOTAL CAPITALIZATION $1,354,320 $1,205,198
========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
26
<PAGE>
SIERRA PACIFIC RESOURCES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Cash Flows From Operating Activities:
- ----------------------------------------
Income before preferred dividends $ 73,179 $ 65,413 $ 60,300
Non-cash items included in income:
Depreciation and amortization 58,118 55,076 52,570
Deferred taxes and investment tax credits 2,983 (1,012) (8,030)
AFUDC and capitalized interest (9,155) (4,247) (3,544)
Deferred energy costs (1,736) 9,597 35,834
Deferred Interest on Variable Rate Debt (602) (708) (67)
Early Retirement and Severance Amortization 7,877 2,127 1,488
Merger Costs 1,909 11,612 -
Other non-cash 3,405 2,570 (127)
Changes in certain assets and liabilities:
Accounts Receivable (2,559) (13,513) (21,075)
Materials, supplies and fuel 2,869 935 (196)
Other current assets (1,934) 1,346 205
Accounts payable (38,081) 41,862 2,484
Other current liabilities 11,373 (5,958) 10,070
Other-net 2,802 (7,035) (10,854)
Proceeds from sales of operating properties - - 19,976
--------- --------- ---------
Net Cash Flows From Operating Activities 110,448 158,065 139,034
--------- --------- ---------
Cash Flows Used In Investing Activities:
- ---------------------------------------
Additions to utility plant (203,109) (144,197) (125,478)
Non-cash charges to utility plant 9,474 5,059 3,980
Customer (refunds) advances for construction (739) (571) 1,070
Contributions in aid of construction 15,272 6,621 11,606
--------- --------- ---------
Net cash used for utility plant (179,102) (133,088) (108,822)
Proceeds from sale of other assets 4 1,440 1,818
Investments in (disposal of) subsidiaries and
other property - net 1,261 (27,978) (7,178)
--------- --------- ---------
Net Cash Used In Investing Activities (177,837) (159,626) (114,182)
--------- --------- ---------
Cash Flows From (Used In) Financing Activities:
- ----------------------------------------------
(Decrease) Increase in short-term borrowings (16,059) 12,424 (10,668)
Proceeds from issuance of long-term debt 80,041 - -
Retirement of long-term debt (10,539) (11,038) (8,261)
Decrease in funds held in trust 9,175 23,058 22,203
Proceeds from SPPC-obligated Mandatorily
Redeemable Preferred Securities 48,500 - -
Retirement of preferred stock (20,400) (6,800) (6,800)
Sale of common stock 19,414 13,045 7,479
Expenses of external financing (5) (59) (309)
Dividends paid (42,032) (40,668) (40,636)
Decrease in notes receiveable - - (115)
--------- --------- ---------
Net Cash From (Used In) Financing Activities 68,095 (10,038) (37,107)
--------- --------- ---------
Net Increase (Decrease) in Cash and Cash Equivalents 706 (11,599) (12,255)
Beginning Balance in Cash and Cash Equivalents 4,243 15,842 28,097
--------- --------- ---------
Ending Balance in Cash and Cash Equivalents $ 4,949 $ 4,243 $ 15,842
========= ========= =========
Supplemental Disclosure of Cash Flow Information:
- ------------------------------------------------
Cash Paid During Year for:
Interest $ 44,106 $ 38,873 $ 39,966
Income Taxes $ 39,234 $ 34,557 $ 35,187
</TABLE>
The accompanying notes are an integral part of the financial statements.
27
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
- ---------------------------------------------------
The significant accounting policies for both utility and non-utility
operations are as follows:
General
-------
The consolidated financial statements include the accounts of Sierra
Pacific Resources (SPR) and its wholly-owned subsidiaries, Sierra Pacific Power
Company (SPPC), Tuscarora Gas Pipeline Company (TGPC), Sierra Gas Holding
Company (formerly Sierra Energy Company), Sierra Energy Company dba e.three
(e.three), Lands of Sierra, Inc. (LOS), and Sierra Water Development Company
(SWDC). All significant intercompany balances and intercompany transactions
have been eliminated in consolidation.
SPPC, SPR's principal subsidiary, is a regulated public utility engaged
principally in the generation, purchase, transmission, distribution, and sale of
electric energy in Reno, west, central, and northern Nevada and the Lake Tahoe
area of California. SPPC also provides water and natural gas service in the
cities of Reno and Sparks, Nevada, and environs. In 1995, SPPC formed two
subsidiaries for the specific purpose of investing with a subsidiary of General
Electric Capital Corporation (GECC) in the Pinon Pine gasifier facility. These
subsidiaries are Pinon Pine Corp. and Pinon Pine Investment Co. They are
consolidated into the financial statements of SPPC, with all significant
intercompany transactions eliminated. On July 29, 1996, SPPC formed a wholly-
owned subsidiary, Sierra Pacific Power Capital I (Trust), for the purpose of
completing a public offering of trust originated preferred securities. See Note
7 for the stock issuance, and Note 5 for the Pinon Pine Power Project of the
Company's consolidated financial statements.
SPPC maintains its accounts for electric and natural gas in accordance with
the uniform system of accounts prescribed by the Federal Energy Regulatory
Commission (FERC) and for water operations in accordance with the uniform system
of accounts prescribed by the National Association of Regulatory Utility
Commissioners.
TGPC is a partner in a general partnership which developed, constructed,
and operates a natural gas pipeline serving expanding gas markets in the Reno
area and certain limited northeastern California markets. TGPC accounts for its
interest in Tuscarora Gas Transmission Company (TGTC) under the equity method.
Organized in October 1996, e.three provides comprehensive energy services in
commercial and industrial markets on a regional and national basis. LOS is
primarily engaged in real estate management and is currently in the process of
disposing of its properties.
In November 1996, the Board of Directors of the Company approved an
investment, as a limited partner, in an energy technology venture capital
partnership to gain access to new technologies that could benefit the Company.
This partnership will invest in energy companies offering technologies of
strategic advantage to its partners. The Company's initial $250,000 payment on
this investment was made in November 1996. The remaining balance of the
Company's commitment, $4.75 million, will be drawn on as funds are needed by the
partnership over the next five years. The term of this partnership is ten years
with two extensions of up to an additional two years each. Gains and losses
will be
28
<PAGE>
allocated among the limited partners based on their contributions. At present,
the Company, as a limited partner, would be entitled to 26 percent.
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of certain assets and
liabilities. These estimates and assumptions also affect the disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of certain revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Certain reclassifications have been made for comparative purposes but have
not affected previously reported net income or common shareholders' equity.
SPPC Utility Plant
------------------
In addition to direct labor and material costs, SPPC also charges the
following costs to the construction of utility plant: cost of time spent by
administrative employees in planning and directing construction work; property
taxes; employee benefits (including such costs as pensions, postretirement and
postemployment benefits, vacations and payroll taxes); and an allowance for
funds used during construction, which is calculated monthly on the total funds
expended.
The original cost of plant retired or otherwise disposed of and the cost of
removal less salvage are charged to the accumulated provision for depreciation.
The cost of current repairs and minor replacements is charged to operating
expenses when incurred. The cost of renewals and betterments is capitalized.
Allowance For Funds Used During Construction and Capitalized Interest
---------------------------------------------------------------------
SPPC capitalizes, as part of construction costs on utility plant, an
allowance for funds used during construction (AFUDC). AFUDC represents the cost
of borrowed funds and a reasonable return on other funds used for construction
purposes in accordance with rules prescribed by the FERC and the Nevada
Commission. AFUDC is capitalized in the same manner as construction labor and
material costs, with an offsetting credit to "other income" for the portion
representing other funds and as a reduction of interest charges for the portion
representing borrowed funds. Recognition of this item as a cost of utility
plant is in accordance with established regulatory ratemaking practices. Such
practices permit the utility to earn a fair return on, and recover in rates
charged for utility services, all capital costs. This is accomplished by
including such costs in rate base and in the provision for depreciation.
The AFUDC rates used during 1996, 1995 and 1994 were 8.91%, 8.16% and
8.59%, respectively. As specified by the Nevada Commission, certain projects
were assigned a lower AFUDC rate due to specific low-interest-rate financings
directly associated with those projects.
Depreciation
------------
29
<PAGE>
Depreciation is calculated using the straight-line method over the
estimated remaining service lives of the related properties. The provision, as
authorized by the Nevada Commission, for 1996, 1995, and 1994, stated as a
percentage of the original cost of depreciable property, was 3.18%, 3.16%, and
3.15%, respectively.
Cash And Cash Equivalents
-------------------------
Cash is comprised of cash on hand and working funds. Cash equivalents
consist of high quality investments in commercial paper of other corporations
with original maturities of three months or less. The Company's investments in
commercial paper were $3.7 million and $2.6 million for December 31, 1996 and
1995, respectively.
SPPC also engages in short-term investment activity whenever it is deemed
beneficial. As of December 31, 1996 and 1995, SPPC had no commercial paper
investments (cash equivalents).
Other Regulatory Assets
-----------------------
Accounting for the 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 utility
businesses operate.
In accordance with these principles, certain costs that would otherwise be
charged to expense or capitalized as plant costs are deferred as regulatory
assets based on expected recovery from customers in future rates. Management's
expected recovery of deferred costs is based upon specific ratemaking decisions
or precedent for each item. The following other regulatory assets were included
in the consolidated balance sheets as of December 31 (dollars in thousands):
<TABLE>
<CAPTION>
DESCRIPTION 1996 1995 AMORTIZATION PERIODS
- ---------------------------------------- -------- -------- --------------------
<S> <C> <C> <C>
Early retirement and severance offers $29,195 $43,269 Various through 2005
Loss on reacquired debt 19,113 19,872 Various through 2023
Plant assets 9,888 7,462 Various through 2031
Conservation and demand side programs 6,805 9,069 Various through 2006
Other costs 2,318 3,169 Various
------- -------
Total $67,319 $82,841
======= =======
</TABLE>
30
<PAGE>
Deferral Of Energy Costs
------------------------
SPPC has suspended deferred energy accounting in its Nevada and California
jurisdictions. Prior to May 1995 (Nevada) and June 1996 (California), SPPC
employed deferred energy accounting procedures in its electric and natural gas
operations, as provided by statutes. The intent of these procedures was to
capture fluctuations in the cost of purchased gas, fuel and purchased power.
Deferred energy accounting required SPPC to record the difference between actual
fuel expense and fuel revenues as deferred energy costs. Refer to Note 2 of the
Company's consolidated financial statements.
Federal Income Taxes And Investment Tax Credits
-----------------------------------------------
The Company and its subsidiaries file a consolidated federal income tax
return. Current income taxes are allocated based on the parent and each
subsidiary's respective taxable income or loss and investment tax credits as if
each subsidiary filed a separate return. Deferred taxes are provided on
temporary differences at the statutory income tax rate in effect as of the most
recent balance sheet date.
For regulatory purposes, SPPC is authorized to provide for deferred taxes
on the difference between straight-line and accelerated tax depreciation on
post-1969 utility plant expansion property, deferred energy, and certain other
differences between financial reporting and taxable income, including those
added by the Tax Reform Act of 1986 (TRA). In 1981, SPPC began providing for
deferred taxes on the benefits of using the Accelerated Cost Recovery System for
all post-1980 property. In 1987 the TRA required SPPC to begin providing
deferred taxes on the benefits derived from using the Modified Accelerated Cost
Recovery System.
Investment tax credits (ITC) are no longer available to SPPC. The deferred
ITC balance is being amortized over the estimated service lives of the related
properties.
Revenues
--------
SPPC accrues unbilled utility revenues earned from the dates customers were
last billed to the end of the accounting period. These amounts are included in
accounts receivable.
NOTE 2. REGULATORY ACTIONS:
- ---------------------------
Nevada Proceedings
------------------
In September 1994, the Nevada Commission approved a stipulation to settle
the pending general rate case. The stipulation specified that the pre-1987
methodology be used to calculate fuel recoveries in deferred energy accounting.
The original transition balance that arose when the methodology was changed in
1987 was offset by this change. Interest of $4.8 million on the transition
balance was moved to a regulatory asset account. Amortization of this
regulatory asset was completed in December 1996. While the suspension of
deferred energy accounting continues, fluctuations in gas purchased for resale,
fuel and purchased power costs from the base fuel rates will flow through
earnings.
31
<PAGE>
The September 1994 stipulation also allowed for the deferred electric and
natural gas energy rates to remain intact until the full deferred energy
balances were recovered. In March 1995, the balances in SPPC's (Nevada
jurisdiction) deferred energy accounts were collected and SPPC suspended use of
the deferred energy accounting methodology, increased base rates by $6.5 million
and decreased deferred fuel rates by $18.8 million.
As a result of the termination of the merger and as required by the
September 1994 stipulation, SPPC filed with the Nevada Commission an application
to decrease deferred energy rates $8.2 million and increase purchased gas rates
$1.3 million effective January 1, 1997. SPPC also filed an application pursuant
to the provisions of General Order 43 cost recovery mechanism to decrease its
general rates by $1.4 million plus amortization of a balance of $3.6 million.
The filings were accompanied by a motion to adopt the rate plan previously
approved by the Nevada Commission in the proceeding related to the merger.
Hearings concerning the motion were held, and additional discussions were
conducted which resulted in a stipulated rate plan. The rate plan, approved by
the Nevada Commission on February 6, 1997, includes: a one-time refund of $13
million to Nevada electric customers, a decrease of $7.1 million in electric
rates, a rate freeze for electric and natural gas rates through December 31,
1999, and continued suspension of deferred energy accounting. In addition, the
deferred energy and purchased gas filings were withdrawn and the General Order
43 cost recovery filing was resolved by an additional $2.4 million decrease in
electric rates. The $13 million refund is included in current liabilities in
the accompanying consolidated balance sheets.
The Nevada rate plan also provides for a 50/50 sharing between customers
and shareholders of electric and natural gas earnings in excess of a 12 percent
return on equity. SPPC has an opportunity, subject to certain conditions, to
apply such excess to buying down or buying out of long-term fuel and purchased
power contracts currently in place.
California Proceedings
----------------------
As a result of the termination of the merger, certain filings were made in
SPPC's California jurisdiction. In a previous decision, which conditionally
approved the merger, SPPC was required to file various rate applications for
test year 1997 in the event the merger was not consummated by March 31, 1996.
In a second decision, the California Commission extended this deadline and
suspended deferred energy accounting, which reduced SPPC's rates by $2.3 million
effective June 1, 1996. With the termination of the merger, another decision
was issued which ordered a rate freeze through December 31, 2000 and continued
the suspension of deferred energy accounting.
32
<PAGE>
NOTE 3. UTILITY PLANT:
- -----------------------
Utility Plant in service consisted of (dollars in thousands of dollars):
<TABLE>
<CAPTION>
December 31,
1996 1995
----------- -----------
<S> <C> <C>
Electric $1,545,045 $1,445,478
Water 300,431 241,015
Gas 139,305 129,951
---------- ----------
$1,984,781 $1,816,444
========== ==========
</TABLE>
NOTE 4. OTHER PROPERTY:
- -----------------------
Other property consisted of (dollars in thousands):
<TABLE>
<CAPTION>
December 31,
1996 1995
-------- --------
<S> <C> <C>
Investment in TGPC $17,639 $18,054
Investment in Pinon
Pine Gasifier 20,247 20,372
Real Estate - net 3,229 4,094
Other 3,468 2,770
------- -------
$44,583 $45,290
======= =======
</TABLE>
NOTE 5. JOINTLY-OWNED FACILITIES:
- ---------------------------------
VALMY
- -----
SPPC and Idaho Power Company each own an undivided 50% interest in the
Valmy generating station, with each company being responsible for financing its
share of capital and operating costs. SPPC is the operator of the plant for
both parties.
SPPC's share of direct operation and maintenance expenses for Valmy is
included in the accompanying consolidated statements of income.
The following schedule reflects SPPC's 50% ownership interest in jointly-
owned electric utility plant at December 31, 1996 (dollars in thousands):
<TABLE>
<CAPTION>
Electric Accumulated
MW Plant Provision For Construction
Plant Capacity In Service Depreciation Work In Progress
- ----------- -------- ---------- ------------- ----------------
<S> <C> <C> <C> <C>
Valmy #1 129 $127,252 $46,070 $385
Valmy #2 137 $153,580 $44,593 $284
</TABLE>
PINON PINE
- ----------
Pinon Pine Corp. and Pinon Pine Investment Co., subsidiaries of SPPC, own
25% and 75%, respectively of a 38% interest in Pinon Pine Co., LLC (The LLC),
with a subsidiary of General Electric Capital Corporation (GECC) owning the
remaining 62%. The LLC was formed to take advantage of federal income tax
credits available under IRC (S)29 from the production and sale of an alternative
fuel (syngas) produced by the coal gasifier. The entire project, which includes
an LLC-owned gasifier and an SPPC-owned power island and post-gasification
facilities to partially cool and clean the syngas, is referred to collectively
as the Pinon Pine Power Project.
33
<PAGE>
SPPC has signed several contracts with The LLC. These contracts include a
fixed-price turn-key construction agreement, site and space leases, an operation
and maintenance agreement, a working capital loan agreement and a syngas
purchase agreement. In addition, SPPC has a funding arrangement with the DOE.
Under the agreement, the DOE will provide funding towards the construction of
the project, and towards the operating and maintenance costs of the facility.
The total DOE contribution is capped at $168 million, and through December 31,
1996 the DOE has funded $115.6 million.
The fixed-price construction contract provides that The LLC will pay SPPC
$92.0 million for the gasifier. SPPC's obligations under the contract include
construction and start-up of the gasifier, and integration of the gasifier
facility into the operation of SPPC's post-gasification equipment and power
island. One-half of the $92.0 million cost will be funded by the DOE. The
remainder of the cost will be paid by The LLC. The LLC will fund this
construction commitment through a $20.4 million contribution of construction-
work-in-progress by SPPC at the time The LLC was created, and additional capital
contributions by GECC of $32.6 million. The LLC will not pay more than $46.0
million of the $92.0 million construction price.
Costs incurred above the $92.0 million contract price will be absorbed by
SPPC and the DOE without reimbursement from The LLC. Foster Wheeler, USA Corp.
the architect, engineer and construction manager on the project has estimated
that construction costs of The LLC-owned gasifier will overrun the contract
price by $2.7 to $3.3 million, after the DOE funding. SPPC and Foster Wheeler,
USA Corp. are currently investigating the reasons for, the exact nature and
extent of, and responsibility for cost increases on the entire Pinon project.
Total costs are now estimated to be $272.4 million.
The original in-service date was expected to be December 31, 1996 as
required to take advantage of the (S)29 credits. However, Congress extended the
deadline relative to the credits to June 30, 1998 and the gasifier is now
expected to be completed and in-service by mid-1997.
SPPC must satisfy certain performance requirements as part of the
construction agreement. The initial performance warranty requires that the
gasifier attain an average capacity factor of 30% during 1997, regardless of
delays in the in-service date. If the gasifier does not achieve the 30% factor
required in 1997, the Company is required to pay liquidated damages to GECC
ranging from $93,000 to $2.8 million depending on the performance levels
achieved. The targeted capacity factor for 1998 is 70%. The liquidated damages
required to be paid by SPPC to The LLC if the 70% target is not met in 1998 are
shown in the table below:
<TABLE>
<CAPTION>
Certified Average Capacity Factor Liquidated Damages Owed by SPPC
- ------------------------------------ -------------------------------
<S> <C>
68% $ 1.5 million
66% $ 3.0 million
64% $ 4.5 million
62% $ 6.0 million
</TABLE>
If the capacity factor falls below 62% in 1998, an initial total
performance failure is triggered with appropriate liquidated damages to be paid
by SPPC (up to a maximum of $33.0 million) and acquisition of the gasifier
facility by SPPC.
Under the continuing performance warranty, the average capacity factor is
recalculated for the five-year period ending December 31, 2003. If the
34
<PAGE>
five-year average factor falls between 62% and 70%, liquidated damages will be
assessed with a maximum exposure for SPPC of $10 million. If the five-year
average capacity factor or the average capacity factor for 2003 falls below 62%,
or if the factor is less than 50% in any of the years 1999-2002, SPPC is
required to purchase the facility and pay GECC an after-tax yield of 9.5% on its
investment.
Under the terms of the syngas purchase agreement, SPPC is required to
purchase from The LLC, at an already determined price, all syngas produced by
the facility, up to a 70% average capacity. The syngas contract runs from 1997
to 2012, with a right of early termination if the price is determined to be
uneconomic.
SPPC believes the gasifier technology will achieve the required capacity
factors. If, however, the gasifier does not achieve the required capacity
factor and SPPC must acquire the facility, SPPC will benefit from the partial
funding by the DOE. SPPC will have acquired a combined-cycle combustion turbine
power plant that can use natural gas or conventional fuels, with minor
modifications, as approved in the Nevada Resource Plan.
NOTE 6. COMMON STOCK AND ADDITIONAL PAID-IN CAPITAL:
- ---------------------------------------------------
As of December 31, 1996, 2,025,300 shares of common stock were reserved for
issuance under the CSIP, Employees' Stock Purchase Plan (ESPP), Non-Employee
Director Stock Plan and Executive Long-term Incentive Plan (ELTIP). The ELTIP
for key management employees allows for the issuance of Company common shares to
key employees through December 30, 2003. This Plan permits the following types
of grants, separately or in combination: nonqualified and qualified stock
options; stock appreciation rights; restricted stock; performance units;
performance shares and bonus stock. The Company also provides an ESPP to all of
its employees meeting minimum service requirements. Employees can choose twice
each year to have up to 15% of their base earnings withheld to purchase Company
common stock. The purchase price of the stock is 90% of the market value on the
offering date or 100% of the market price on the execution date, if less. The
Non-employee Director Stock Plan provides that a portion of the Company's
outside directors' annual retainer be paid in Company common stock. The Company
records the costs of these plans in accordance with Accounting Principles Board
Opinion Number 25. There would be no material impact on net income or earnings
per share if the fair value provisions of SFAS 123 were to be adopted.
A Stock Rights Plan was placed into effect by declaring a dividend
distribution of one right for each outstanding share of common stock of SPR, par
value $1.00 per share, to stockholders of record at the close of business on
October 31, 1989, and by authorizing the issuance of one right for each share of
common stock issued between the October 31, 1989, record date and the earliest
of the distribution date, the redemption date and the October 31, 1999
expiration date. With certain exceptions and under certain conditions, each
right, when exercisable under the terms of the plan, entitles the registered
holder (except acquiring persons as defined by the plan) to purchase common
stock of an acquiring or surviving corporation (including Company stock if any
remains after the transaction) having a value of $140 for $70, subject to
adjustment. The purpose of the plan is to help ensure that SPR's shareholders
receive fair and equal treatment in the event of any proposed hostile takeover
of the Company.
35
<PAGE>
The changes in common stock and additional paid-in capital for 1996, 1995,
and 1994 are as follows (dollars in thousands):
<TABLE>
<CAPTION>
Shares Issued Amount
--------------------------- -----------------------------
1996 1995 1994 1996 1995 1994
------- ------- ------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Public Sale 517,900 290,900 - $12,315 $ 6,037 $ -
CSIP/DRP 238,403 298,704 348,674 5,783 6,373 6,729
ESPP, ESOP,
and Other 25,120 39,590 42,458 533 635 749
------- ------- ------- ------- ------- ------
781,423 629,194 391,132 $18,631 $13,045 $7,478
======= ======= ======= ======= ======= ======
</TABLE>
NOTE 7. PREFERRED STOCK:
- -----------------------
All issues of preferred stock are superior to SPR's common stock with
respect to dividend payments (which are cumulative) and liquidation rights.
SPPC's Restated Articles of Incorporation, as amended on August 19, 1992,
authorize an aggregate total of 11,780,500 shares of preferred stock at any
given time.
The following table indicates the number of shares outstanding and the
dollar amount thereof at December 31 of each year. The difference between total
shares authorized and the amount outstanding represents undesignated shares
authorized but not issued.
<TABLE>
<CAPTION>
1996 1995
--------------------- --------------------
(dollars in thousands) Shares Amount Shares Amount
--------- --------- --------- --------
<S> <C> <C> <C> <C>
Not Subject to
Mandatory Redemption:
Series A 80,500 $ 4,025 80,500 $ 4,025
Series B 82,000 4,100 82,000 4,100
Series C 299,800 14,990 299,800 14,990
Class A Series 1 2,000,000 50,000 2,000,000 50,000
--------- -------- --------- -------
Subtotal 2,462,300 73,115 2,462,300 73,115
Subject to Mandatory
Redemption:
Series G - - 408,000 20,400
Preferred Securities
of Sierra Pacific Power
Capital I 1,940,000 48,500 - -
--------- -------- --------- -------
Total 4,402,300 $121,615 2,870,300 $93,515
========= ======== ========= =======
</TABLE>
SPPC's Series G Preferred Stock was redeemable at any time at a redemption
price of $50 plus accrued dividends. SPPC was required to redeem 136,000 shares
at par value plus accrued dividends annually starting June 1, 1994. On June 3,
1996, SPPC redeemed the remaining 408,000 shares of Series G, 8.24% Preferred
Stock, at par value, for $20.4 million using the proceeds from the following
issuance of Preferred Securities. As of December 31, 1995, 272,000 Series G
shares had been redeemed.
On July 29, 1996, Sierra Pacific Power Capital I (the Trust), a wholly-
owned subsidiary of SPPC, issued $48.5 million (1,940,000 shares) 8.60% Trust
Originated Preferred Securities (the Preferred Securities). SPPC owns all the
Common Securities of the Trust, 60,000 shares totaling $1.5 million (Common
Securities). The Preferred Securities and the Common Securities (the Trust
Securities) represent undivided beneficial ownership interests in the assets of
the Trust. The existence of the Trust is for the sole purpose of issuing the
Trust Securities and using the proceeds thereof to purchase from SPPC its 8.60%
Junior Subordinated Debentures due July 30,
36
<PAGE>
2036, in a principal amount of $50 million. The sole asset of the Trust is
SPPC's Junior Subordinated Debentures. SPPC's obligations under the Guarantee
Agreement entered into in connection with the Preferred Securities, when taken
together with SPPC's obligation to make interest and other payments on the
Junior Subordinated Debentures issued to the Trust, and SPPC's obligations under
its Indenture pursuant to which the Junior Subordinated Debentures are issued
and its obligations under the Declaration, including its liabilities to pay
costs, expenses, debts and liabilities of the Trust, provides a full and
unconditional guarantee by SPPC of the Trust's obligations under the Preferred
Securities. In addition to retiring the Series G Preferred Stock, proceeds were
used to reduce short-term borrowings.
The preferred securities of Sierra Pacific Power Capital I are redeemable
only in conjunction with the redemption of the related 8.60% Junior Subordinated
Debentures. The Junior Subordinated Debentures will mature on July 30, 2036,
and may be redeemed, in whole or in part, at any time on or after July 30, 2001,
or at any time in certain circumstances upon the occurrence of a Tax Event. A
Tax Event occurs if an opinion has been received from Tax Counsel that there is
more than an insubstantial risk that: the trust is, or will be subject to
United States federal income tax with respect to interest accrued or received on
the Junior Subordinated Debentures; the Trust is, or will be subject to more
than a de minimis amount of other taxes, duties or other governmental charges;
interest payable by SPPC to the Trust on the Junior Subordinated Debentures is
not, or will not be, deductible, in whole or in part by SPPC for federal income
tax purposes.
Upon the redemption of the Junior Subordinated Debentures, payment will
simultaneously be applied to redeem Preferred Securities having an aggregate
liquidation amount equal to the aggregate principal amount of the Junior
Subordinated Debentures. The Preferred Securities are redeemable at $25 per
preferred security plus accrued dividends.
NOTE 8. LONG-TERM DEBT:
- -----------------------
Substantially all utility plant is subject to the lien of the indenture
under which the first mortgage bonds are issued. The indenture contains sinking
and improvement fund provisions which require SPPC to make annual cash deposits
with the trustee equivalent to 1.75% of the greatest aggregate principal amount
of bonds of the respective series outstanding prior to a date one and one-half
months preceding the next sinking fund payment date, with certain deductions
allowable with respect to all bonds. SPPC has satisfied these requirements in
past years by relinquishing the right to use a net amount of additional property
for bond issue, and expects to continue this practice in the future.
A financing agreement in connection with SPPC's $80 million Water
Facilities Bonds, maturing in 2020, requires SPPC to maintain a bank letter of
credit agreement. On July 19, 1996, SPPC converted the interest rate on the
bonds to a daily rate which reduced the letter of credit, trustee fees, and
administrative costs. The fees are included in long-term debt interest charges
on the consolidated statements of income.
SPPC issued $80 million of collateralized debt securities, Medium-Term
Notes, Series C. SPPC issued $30 million principal amount of Medium-Term Notes,
Series C. These are ten year non-callable notes, due in 2006, with interest
rates ranging from 6.62% to 6.83% and three year non-callable
37
<PAGE>
notes, due in 1999, with interest rates ranging from 6.83% to 6.86%. For all
notes, interest is payable in semi-annual payments. The net proceeds to SPPC
from the sales of the notes were used to reduce short-term debt and fund
construction projects.
In December 1996, SPPC registered an additional $35 million of
collateralized debt securities. The net proceeds to SPPC from the sale of these
notes will be used for general corporate purposes including, but not limited to:
the acquisition of property; the construction, completion, extension or
improvement of facilities; or the refinancing or discharge or refunding of
obligations, including short-term borrowings.
On April 1, 1996, the Company redeemed $10 million of senior notes Series A
leaving a remaining balance of $40 million, of which $10 million has been
included in the current liability portion of the consolidated balance sheets.
These senior notes, Series B through E, are due in 1997 through 2000.
The Company's aggregate annual amount of maturities for long-term debt for
the next five years is shown below: (dollars in millions):
<TABLE>
<CAPTION>
<S> <C>
1997 25.5
1998 10.6
1999 40.6
2000 10.4
2001 .3
</TABLE>
NOTE 9. FAIR VALUE OF FINANCIAL INSTRUMENTS:
- --------------------------------------------
The December 31, 1996 and 1995 carrying amounts for cash, cash equivalents,
current assets, accounts payable, current liabilities, and construction trust
funds approximates fair value due to the short-term nature of these instruments.
The total fair value of the Company's long-term debt at December 31, 1996,
is estimated to be $649.8 million (excluding current portion) based on quoted
market prices for the same or similar issues or on the current rates offered to
the Company for debt of the same remaining maturities. The total fair value
(excluding current portion) was estimated to be $612.8 million at December 31,
1995.
38
<PAGE>
NOTE 10. SHORT-TERM BORROWINGS:
- -------------------------------
The Company has a $10 million revolving credit facility with Barclay's
Bank, PLC. This credit facility has been extended until April 26, 1997. There
is currently no outstanding balance.
In 1995, SPPC replaced its lines-of-credit arrangements with an $80 million
revolving credit facility, which will expire on December 29, 1997. SPPC pays
the lender a facility fee on the commitment quarterly, in arrears, based on
SPPC's First Mortgage Bond rating. Facility fees for 1996 and 1995 were
approximately $101,000 for each year.
At December 31, 1996, SPPC's short-term borrowings of $38.0 million were
comprised entirely of commercial paper at an average interest rate of 5.65%. At
December 31, 1995, SPPC had $56.0 million of commercial paper at an average
interest rate of 6.20%.
The other subsidiaries of the Company have no outstanding short-term
borrowings at this time.
39
<PAGE>
NOTE 11. TAXES:
- ----------------
The following reflects the composition of taxes on income (dollars in
thousands):
<TABLE>
<CAPTION>
1996 1995 1994
---------- --------- ----------
<S> <C> <C> <C>
Federal:
Taxes estimated to be currently
payable $28,986 $38,469 $ 38,891
Deferred taxes related to:
Excess of tax depreciation over
book depreciation 5,217 9,237 10,693
Deferral of energy costs
deducted currently for tax
purposes - net (307) (4,112) (12,022)
Contributions in aid of
construction and customer
advances (2,917) (1,798) (4,835)
Avoided interest capitalized (3,124) (569) (1,744)
Costs of terminated merger 4,359 (776) -
Other - net 3,382 (2,854) 390
Net amortization of investment
tax credit (1,961) (1,942) (1,946)
State (California): 754 688 262
------- ------- --------
Total $34,389 $36,343 $ 29,689
======= ======= ========
As reflected in Statement of
Income:
Federal Income Taxes $34,872 $35,886 $ 28,677
State Income Taxes 754 688 262
------- ------- --------
Operating Income 35,626 36,574 28,939
Other (expense) income - net (1,237) (231) 750
------- ------- --------
Total $34,389 $36,343 $ 29,689
======= ======= ========
</TABLE>
40
<PAGE>
The total income tax provisions differ from amounts computed by applying
the federal statutory tax rate to income before income taxes for the following
reasons (dollars in thousands of dollars):
<TABLE>
<CAPTION>
1996 1995 1994
------------- --------- ---------
<S> <C> <C> <C>
Income before preferred dividends $ 73,179 $ 65,413 $60,300
Total income tax expense 34,389 36,343 29,689
------------ -------- -------
107,568 101,756 89,989
Statutory tax rate 35% 35% 35%
------------ -------- -------
Expected income tax expense 37,649 35,615 31,496
Depreciation related to
difference in cost basis for
tax purposes 471 2,394 2,805
Allowance for funds used during
construction - equity (1,831) (540) (715)
Tax benefit from the disposition
of assets (1,130) (1,427) (1,937)
ITC amortization (1,961) (1,942) (1,946)
Other - net 1,191 2,243 (14)
------------ -------- -------
$ 34,389 $ 36,343 $29,689
============ ======== =======
Effective tax rate 32.0% 35.7% 33.0%
============ ======== =======
</TABLE>
41
<PAGE>
Accumulated Deferred Federal Income Taxes:
- -----------------------------------------
The net accumulated deferred tax liability consists of accumulated deferred
federal income tax liabilities less related accumulated deferred federal income
tax assets, as shown (dollars in thousands):
<TABLE>
<CAPTION>
December 31,
---------------------
1996 1995
--------- ---------
<S> <C> <C>
Accumulated Deferred Federal
Income Tax Liabilities:
AFUDC $ 5,745 $ 4,459
Bond redemptions 6,690 7,184
Excess of tax depreciation over book 142,447 136,067
depreciation
Tax benefits flowed through to
customers 67,667 69,610
Other 10,120 5,731
-------- --------
Total 232,669 223,051
-------- --------
Accumulated Deferred Federal
Income Tax Assets:
Avoided interest capitalized 12,241 9,117
Contributions in aid of construction
and customer advances 25,980 23,102
Unamortized investment tax credit 22,527 23,583
Other 7,722 7,949
-------- --------
Total 68,470 63,751
-------- --------
Accumulated Deferred Federal Income
Liability $164,199 $159,300
======== ========
</TABLE>
The Company's consolidated balance sheets contain a net regulatory asset of
$24.8 million at year-end 1996 and $24.5 million at year-end 1995. The net
regulatory asset consists of future revenue to be received from customers (a
regulatory tax asset) of $67.7 million at year-end 1996 and $69.6 million at
year-end 1995, due to the flow-through of the tax benefits of temporary
differences. Offset against these amounts are future revenues to be refunded to
customers (a regulatory tax liability) consisting of $20.4 million at year-end
1996 and $21.5 million at year-end 1995, due to temporary differences for
liberalized depreciation at rates in excess of current tax rates, and $22.5
million at year-end 1996 and $23.6 million at year-end 1995 due to temporary
differences caused by the investment tax credit. The regulatory tax liability
for temporary differences related to liberalized depreciation will continue to
be amortized using the average rate assumption method required by the Tax Reform
Act of 1986. The regulatory tax liability for temporary differences caused by
the investment tax credit will be amortized ratably in the same fashion as the
accumulated deferred investment credit.
42
<PAGE>
NOTE 12. DIVIDEND RESTRICTIONS:
- -------------------------------
The Company's primary source of funds for the payment of dividends to its
stockholders is dividends paid by SPPC on its common stock, all of which is
owned by the Company. Accordingly, the Company's ability to pay dividends is
dependent upon the ability of SPPC to pay dividends on its common stock. The
Restated Articles of Incorporation of SPPC and the indentures relating to the
various series of its First Mortgage Bonds contain restrictions as to the
payment of dividends on its common stock and as to the purchase or retirement of
its capital stock. Under the most restrictive of these provisions,
approximately $72.5 million of SPPC's retained earnings was available at
December 31, 1996, for the payment of cash dividends to the Company. As of
December 31, 1996, the Company had consolidated retained earnings of
approximately $111.7 million.
SPR's outstanding Senior Notes also contains provisions which restrict
SPR's ability to pay dividends and make certain other payments to its
stockholders. These provisions would not have restricted the payment of
dividends declared by SPR in recent periods, and SPR does not believe that they
will limit its ability to pay dividends in the future.
43
<PAGE>
NOTE 13. RETIREMENT PLAN:
- -------------------------
The Company sponsors a noncontributory defined benefit retirement plan
covering all employees who satisfy the service requirement.
The plan provides benefits based on each covered employee's years of
service, highest five-year average compensation, and a step rate benefit formula
indirectly integrating the plan with Social Security.
The Company's funding policy is to contribute an annual amount to an
irrevocable trust that is not less than the minimum funding requirement under
the Employee Retirement Income Security Act of 1974, and not in excess of the
amount that can be deducted for federal income tax purposes. The plan's assets
are invested primarily in common stocks, marketable bonds and other fixed-income
securities. The remainder is held in cash and cash equivalents. None of the
plan assets are invested in Company common or preferred stock.
In April of 1995, SPPC offered an early retirement plan to non-
bargaining unit employees whose age and credited years of service equaled at
least 70. The present value of termination costs relating to the 112 employees
who accepted the offering was originally recorded in 1995 at $16.8 million, but
was revalued at $12.8 million during 1996 due to a revision in the measurement
date. These termination costs were fully deferred, as a regulatory asset, as of
December 31, 1995. During 1996, SPPC began amortization of the termination costs
by recognizing expense for both 1995 and 1996. SPPC is using a ten-year
amortization period for these costs which is consistent with the treatment of
previous early retirement programs.
The following table sets forth a reconciliation of the funded status of the
plan with amounts included in the accompanying consolidated balance sheets as of
December 31, 1996 and 1995 (dollars in thousands):
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Actuarial present value of benefit
obligations:
Vested benefit obligation $ 118,383 $ 119,495
========= =========
Accumulated benefit obligation $ 125,547 $ 127,276
========= =========
Projected benefit obligation $ 157,660 $ 165,877
Less plan assets at fair value (167,416) (148,436)
--------- ---------
Projected benefit obligation (less
than) in excess of excess of plan assets (9,756) 17,441
Unrecognized net gain 26,661 5,715
Unrecognized prior service cost (4,251) (4,624)
--------- ---------
Net balance sheet liability $ 12,654 $ 18,532
========= =========
</TABLE>
In the preceding table, unrecognized net gain represents the net gain
attributable to changes in actuarial assumptions and differences between actual
experience and actuarial assumptions.
44
<PAGE>
Net periodic pension expense for 1996, 1995 and 1994 included the following
components (dollars in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Service cost $ 6,652 $ 6,320 $ 5,989
Interest cost 11,778 10,380 9,512
Actual (gain) loss on plan assets (19,954) (33,248) 5,126
Net amortizations and deferrals 7,736 23,518 (15,175)
Costs associated with 1995
early retirement plan - 12,825 -
-------- -------- --------
Net periodic pension cost as
determined under SFAS No. 87 6,212 19,795 5,452
Amount expensed (deferred) under
SFAS No. 71 - net 3,882 (11,509) 1,316
-------- -------- --------
Net periodic pension expense
recognized $ 10,094 $ 8,286 $ 6,768
======== ======== ========
Amount charged to operating expense $ 6,769 $ 5,416 $ 4,699
======== ======== ========
Amount charged to utility plant
and clearing accounts $ 3,325 $ 2,870 $ 2,069
======== ======== ========
</TABLE>
In the table above, service cost represents the benefits earned during the
year while interest cost represents the increase in the accumulated benefit
obligation due to the passage of time.
The amount deferred under SFAS No. 71 represents the SFAS No. 88 costs
arising from the 1989, 1992 and 1995 early retirement programs. Pursuant to
Nevada Commission directive and prior precedent, costs for the 1989, 1992 and
1995 programs are being amortized over 10 years and are summarized as follows
(dollars in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
------ -------- ------
<S> <C> <C> <C>
SFAS No. 88 costs associated with
the 1995 early retirement program $ - $(12,825) $ -
Amortization of 1995 early
retirement program 2,566
Amortization of 1992 early
retirement program 574 574 574
Amortization of 1989 early
retirement program 742 742 742
------ -------- ------
Net amount expensed (deferred)
under SFAS No. 71 $3,882 $(11,509) $1,316
====== ======== ======
</TABLE>
The weighted average discount rate used in determining the actuarial
present value of the projected benefit obligation as of December 31, 1996, 1995
and 1994 was 7.50%, 7.00% and 8.00%, respectively. For purposes of determining
1996, 1995 and 1994 pension cost, the expected long-term rate of return on
assets was 8.50%, 9.00% and 9.00%, respectively.
In addition to the employee retirement plan covering all employees, the
Company has a Supplemental Executive Retirement Plan which is a non-qualified
45
<PAGE>
defined benefit plan under which the Company will pay out of general assets
supplemental pension benefits to key executives. The Company also has a non-
qualified supplemental pension plan covering certain employees. This plan
provides for incremental pension payments from the Company's funds so that total
pension payments equal amounts that would have been payable from the Company's
principal pension plan if it were not for limitations imposed by income tax
regulations. The unfunded liability under these plans as of December 31, 1996
and 1995 was $4.9 million and $4.8 million, respectively.
NOTE 14. POSTRETIREMENT BENEFITS:
- ---------------------------------
The Company currently sponsors a defined benefit postretirement plan that
covers administrative employees and those covered under collective bargaining
agreements. The plan provides medical, dental and life insurance benefits for
retirees. The plan is contributory for individuals retiring after January 1,
1993, with retiree contributions tied to each retiree's length of service.
Additionally, the plan requires employees retiring after January 1, 1993 to
participate in Medicare Part "B". Life insurance benefits remain noncontributory
for retirees. However, the amount of life insurance provided for retirees is
significantly less than that provided to active employees. Also, dental coverage
is discontinued for all employees at age 65.
The Company's funding policy for its postretirement benefit obligation
takes advantage of federal income tax deductions. Contributions are being made
to two voluntary employee's beneficiary associations and an IRC (S)401(h)
account. Plan assets are invested primarily in common stocks, marketable bonds
and other fixed income securities. The remainder is held in cash and cash
equivalents. None of the plan assets are invested in Company common or preferred
stock. Postretirement health care costs for key executives continue to be paid
from SPPC's general assets.
The following table sets forth a reconciliation of the funded status of the
plan with amounts included in the accompanying consolidated balance sheets as of
December 31, 1996 and 1995 (dollars in thousands):
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Accumulated postretirement benefit
obligation:
Retirees $ 37,941 $ 39,712
Fully eligible active participants 6,227 4,915
Other active plan participants 29,358 29,194
-------- --------
Total 73,526 73,821
Less plan assets at fair value (32,944) (25,076)
-------- --------
Accumulated postretirement benefit
obligation in excess of plan assets 40,582 48,745
Unrecognized prior service cost (415) -
Unrecognized net gain 8,562 3,340
Unrecognized transition obligation (39,419) (41,883)
-------- --------
Net balance sheet liability $ 9,310 $ 10,202
======== ========
</TABLE>
In the preceding table, unrecognized net gain represents the net change
attributed to changes in actuarial assumptions and differences between actual
experience and actuarial assumptions.
46
<PAGE>
Net periodic postretirement benefit expense for 1996, 1995 and 1994
included the following components (dollars in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
--------- -------- ---------
<S> <C> <C> <C>
Service cost $ 2,587 $ 2,448 $ 2,810
Interest cost 5,269 4,479 4,759
Actual (gain) loss on plan assets (1,942) (3,891) 319
Net amortizations and deferrals (94) 2,111 (980)
Amortization of transition
obligation over 20 years 2,464 2,838 2,838
Costs associated with 1995 early - 8,047 -
retirement plan ------- ------- -------
Net periodic postretirement benefit
cost determined under SFAS No. 106 8,284 16,032 9,746
Amount expensed (deferred) under
SFAS No. 71 - net 2,044 (7,086) 1,043
------- ------- -------
Net periodic postretirement expense
recognized $10,328 $ 8,946 $10,789
======= ======= =======
Amount charged to operating expense $ 6,903 $ 6,108 $ 7,285
======= ======= =======
Amount charged to utility plant and
clearing accounts $ 3,425 $ 2,838 $ 3,504
======= ======= =======
</TABLE>
In the table above service cost represents the benefits earned during the
year while interest cost represents the increase in the accumulated benefit
obligation due to the passage of time.
The amount deferred under SFAS No. 71 for 1995 represents the present value
of termination benefits and curtailment losses resulting from the early
retirement and severance plans offered during that year. The present value of
these costs was originally recorded at $8.3 million during 1995, but was
revalued to $8.0 million during 1996 because of a revision in the measurement
date. These termination costs were fully deferred, as a regulatory asset, as of
December 31, 1995. Beginning in 1996, SPPC began amortization of the
termination costs by recognizing expense for both 1995 and 1996. SPPC is
using a ten-year amortization period for these costs which is consistent with
the treatment of previous early retirement programs.
The amortization of 1993 deferred costs represents the annual amounts
expensed from charges initially deferred pending the decision of the general
rate case filed in December 1992. These costs were deferred as a result of a
regulatory phase-in plan which did not allow immediate recognition of these
costs when SPPC adopted SFAS 106 in January 1993. As a result of the decision,
issued in June 1993, SPPC began to amortize these costs over a thirty-six
month period beginning July 1993. The following schedule summarizes the
amortization of the deferred costs (dollars in thousands):
47
<PAGE>
<TABLE>
<CAPTION>
1996 1995 1994
------ -------- ------
<S> <C> <C> <C>
SFAS No. 106 costs deferred $ - $(8,047) $ -
Amortization of 1995 early
retirement program 1,610
Amortization of 1993 deferred costs 434 961 1,043
------ ------- ------
Net amount expensed (deferred) under
SFAS No. 71 $2,044 $(7,086) $1,043
====== ======= ======
</TABLE>
For measurement purposes, the Company used a discount rate for
obligations as of December 31, 1996, 1995 and 1994 of 7.50%, 7.00% and 8.00%,
respectively. The expected long-term return on assets was 8.50%, 9.00% and
9.00% for the same periods, respectively. The graduated medical trend rates for
1996, 1995 and 1994 was 11.25%, 11.75% and 12.25%, respectively. This medical
trend rate declines by 0.50% over the next ten years to an ultimate rate of
5.75% in 2007, remaining at that level thereafter. The health care cost trend
rate has a significant effect on the amounts reported. For example, an increase
in the health care cost trend rates by one percentage point in each year would
increase the accumulated postretirement benefit obligation as of December 31,
1996 by $12.6 million and the aggregate of the service and interest cost
component of net periodic postretirement benefit cost for the year then ended by
$1.7 million.
NOTE 15. POSTEMPLOYMENT BENEFITS:
- ---------------------------------
During 1995, the Company offered a severance program to non-bargaining-unit
employees which provided both severance pay and medical benefits continuation
totaling $7.0 million and $0.5 million, respectively. These costs were deferred,
as a regulatory asset, as of December 31, 1995. Amortization of these costs
began in 1996 over a ten-year period consistent with the period used for pension
and postretirement benefits. There was no remaining liability for unpaid
severance and benefits at December 31, 1996. The remaining liability was $3.0
million at December 31, 1995.
48
<PAGE>
NOTE 16. COMMITMENTS AND CONTINGENCIES:
- ---------------------------------------
The Company's estimated cash construction expenditures for the year 1997
and the five-year period 1997-2001 are $135.5 million and $605.4 million,
respectively.
Several of SPPC's purchased power, gas supply and pipeline capacity, and
coal supply contracts contain minimum volume provisions, which SPPC is either
meeting, exceeding or buying out of. SPPC anticipates continuing to meet,
exceed or buy out of them in the future.
SPPC has an operating lease for its corporate headquarters building, a
334,000 square foot, five-floor, multi-purpose building located in southeast
Reno, Nevada. The primary term of the lease is 25 years, ending in 2010. The
current annual rental is $5.2 million, which amount remains constant until the
end of the primary term. The lease has renewal options for an additional 50
years.
The total rental expense under all leases was approximately $8.2 million in
1996, $8.0 million in 1995 and $7.4 million in 1994.
Estimated future minimum lease commitments (including the corporate
headquarters building described above) under non-cancelable operating leases
with initial terms of one year or more at December 31, 1996 were as follows
(dollars in millions):
<TABLE>
<CAPTION>
<S> <C>
1997 $ 7.4
1998 7.2
1999 6.9
2000 6.4
2001 6.4
After 2001 to 2018 53.2
-----
Total $87.5
=====
</TABLE>
See Notes 1, 5, 7 and 13 of the Company's consolidated financial statements
for additional commitments and contingencies.
49
<PAGE>
NOTE 17. SEGMENT INFORMATION:
- -----------------------------
Information related to the segments of the Company's business is detailed
below (dollars in thousands):
<TABLE>
<CAPTION>
December 31, 1996 Electric Gas Water Other Total
- -------------------------- ---------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
Operating Revenues $ 507,004 $ 67,376 $ 45,344 $ 7,987 $ 627,711
========== ======== ======== ======== ==========
Operating Income $ 86,428 $ 11,035 $ 9,545 $ 1,870 $ 108,878
========== ======== ======== ======== ==========
Depreciation $ 47,797 $ 4,223 $ 6,098 - $ 58,118
========== ======== ======== ======== ==========
Capital Expenditures $ 158,482 $ 10,798 $ 33,829 - $ 203,109
========== ======== ======== ======== ==========
Identifiable Assets:
Net Utility Plant $1,182,623 $104,427 $256,160 - $1,543,210
Other $ 141,956 $ 13,270 $ 12,653 $ 5,253 $ 173,132
Other Utility Assets - - - $131,539 $ 131,539
Other Corporate Assets - - - $ 21,473 $ 21,473
----------
Total Assets $1,869,354
==========
December 31, 1995 Electric Gas Water Other Total
- -------------------------- ---------- --------- --------- --------- ----------
Operating Revenues $ 491,419 $ 62,572 $ 43,793 $ 8,338 $ 606,122
========== ======== ======== ======== ==========
Operating Income $ 87,825 $ 5,041 $ 8,945 $ 2,949 $ 104,760
========== ======== ======== ======== ==========
Depreciation $ 45,361 $ 4,019 $ 5,685 $ 11 $ 55,076
========== ======== ======== ======== ==========
Capital Expenditures $ 99,537 $ 13,318 $ 31,342 $ 28,475 $ 172,672
========== ======== ======== ======== ==========
Identifiable Assets:
Net Utility Plant $1,076,126 $ 98,367 $238,308 $ - $1,412,801
Other $ 146,392 $ 11,505 $ 7,723 $ 7,121 172,741
Other Utility Assets - - - 151,397 151,397
Other Corporate Assets - - - 19,688 19,688
----------
Total Assets $1,756,627
==========
December 31, 1994 Electric Gas Water Other Total
- -------------------------- ---------- --------- --------- --------- ----------
Operating Revenues $ 498,680 $ 65,174 $ 39,339 $ 23,119 $ 626,312
========== ======== ======== ======== ==========
Operating Income $ 81,641 $ 5,806 $ 8,536 $ 2,530 $ 98,513
========== ======== ======== ======== ==========
Depreciation $ 43,137 $ 3,769 $ 5,270 $ 394 $ 52,570
========== ======== ======== ======== ==========
Capital Expenditures $ 91,483 $ 8,614 $ 25,381 $ 6,923 $ 132,401
========== ======== ======== ======== ==========
Identifiable Assets:
Net Utility Plant $1,026,602 $ 89,201 $215,675 $ - $1,331,478
Other $ 117,888 $ 17,750 $ 7,573 $ 12,011 155,222
Other Utility Assets - - - 131,021 131,021
Other Corporate Assets - - - 14,982 14,982
----------
Total Assets $1,632,703
==========
</TABLE>
50
<PAGE>
NOTE 18. SUPPLEMENTAL QUARTERLY FINANCIAL DATA (UNAUDITED):
- ----------------------------------------------------------
The following figures are unaudited and include all adjustments necessary
in the opinion of the Company's management for a fair presentation of the
results of interim periods (dollars in thousands except per share amounts).
<TABLE>
<CAPTION>
Quarter Ended
----------------------------------------------
March 31, June 30, Sept. 30, Dec. 31,
1996 1996 1996 1996
--------- --------- --------- ----------
(1)
<S> <C> <C> <C> <C>
Operating Revenue $163,826 $150,173 $160,812 $152,900
Operating Income $ 28,757 $ 24,169 $ 32,750 $ 23,202
Net Income $ 17,786 $ 14,805 $ 21,978 $ 12,310
Net Income Per Share $ .59 $ .49 $ .72 $ .39
<CAPTION>
Quarter Ended
----------------------------------------------
March 31, June 30, Sept. 30, Dec. 31,
1995 1995 1995 1995
--------- --------- --------- ----------
<S> <C> <C> <C> <C>
Operating Revenue $160,146 $142,233 $151,220 $152,523
Operating Income $ 27,251 $ 22,320 $ 27,496 $ 27,693
Net Income $ 15,247 $ 10,896 $ 16,459 $ 15,437
Net Income Per Share $ .52 $ .37 $ .55 $ .51
</TABLE>
(1) Reflects $13 million Nevada electric revenue refund.
51
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable.
52
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information with respect to SPR's directors called for by Item 10 of
Part III is hereby incorporated by reference from the section titled "Security
Ownership of Certain Beneficial Owners and Management" of SPR's definitive proxy
statement to be filed pursuant to regulation 14A.
Information with respect to SPR's executive officers is set forth in Part I
hereof following Item 4.
ITEM 11. EXECUTIVE COMPENSATION
The information with respect to officers and directors called for by Item
11 of Part III is hereby incorporated by reference from the sections titled
"Directors Compensation", "Summary Compensation Table" and "Severance
Arrangements" of SPR's definitive proxy statement to be filed pursuant to
regulation 14A.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information with respect to security ownership of certain beneficial
owners and management called for by Item 12 of Part III is hereby incorporated
by reference from the sections titled "Certain Business Relationships",
"Indebtedness of Management" and "Election of Directors" of SPR's definitive
proxy statement to be filed pursuant to regulation 14A.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information with respect to Certain Relationships and Related
Transactions called for by Item 13 of Part III is hereby incorporated by
reference from the section titled "Transactions With Management" of SPR's
definitive proxy statement to be filed pursuant to regulation 14A.
53
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(b) Reports on Form 8-K
Filed on November 20, 1996 - Item 4, Changes in Registrant's
Certifying Accountant
. Based upon the recommendation if its audit committee, the Board of
Directors of the Company, voted to appoint Deloitte & Touche LLP as
the Company's independent accountants. Coopers & Lybrand L.L.P. had
previously served as the Company's independent accountants. During
the two most recent fiscal years, ending December 31, 1995, the
reports on financial statements by Coopers & Lybrand L.L.P. did not
contain any adverse opinion or disclaimer of opinion, nor were the
reports modified or qualified in any manner. Additionally, there
were no disagreements with Coopers & Lybrand L.L.P. on any matter
of accounting principle or practice, financial statement disclosure
or auditing scope or procedure for the abovementioned period nor
were there any "reportable events" as defined in Item 304 (a) (1)
(v) of Regulation S-K.
Reports on Form 8-K/A
Filed on November 22, 1996 - Amendment of Form 8-K filed on November 20,
1996
. To include as an exhibit a letter from Coopers & Lybrand L.L.P.
dated November 21, 1996 regarding the change in certifying
accountants.
54
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 and 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.
SIERRA PACIFIC RESOURCES
By /s/ Walter M. Higgins
-------------------------------
Walter M. Higgins
Chairman, President and
Chief Executive Officer
March 21, 1997
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 indicated on the 21st day of March, 1997.
/s/ Walter M. Higgins /s/ Mark A. Ruelle
- --------------------------------- -----------------------
Walter M. Higgins Mark A. Ruelle
Chairman, President, and Chief Senior Vice President and
Executive Officer (Principal Chief Financial Officer
Executive Officer) and Director (Principal Financial Officer)
(Principal Accounting Officer)
/s/ Edward P. Bliss /s/ Richard N. Fulstone
- --------------------------------- --------------------------------
Edward P. Bliss Richard N. Fulstone
Director Director
/s/ Krestine M. Corbin /s/ James L. Murphy
- --------------------------------- -------------------------------
Krestine M. Corbin James L. Murphy
Director Director
/s/ Theodore J. Day /s/ Dennis E. Wheeler
- ------------------------ -------------------------
Theodore J. Day Dennis E. Wheeler
Director Director
/s/ Harold P. Dayton, Jr. /s/ Robert B. Whittington
- ---------------------------- ----------------------------
Harold P. Dayton, Jr. Robert B. Whittington
Director Director
/S/ James R. Donnelley
- --------------------------
James R. Donnelley
Director
55
<PAGE>
(a) Exhibits Index*
Exhibits with respect to SPR's principal subsidiary, SPPC, are listed in
the exhibit index of its Annual Report on Form 10-K for the year ended December
31, 1996, and are attached hereto as the Appendix.
Certain of the following exhibits with respect to SPR and its
subsidiaries, Lands of Sierra, Inc., Sierra Energy Company dba e.three,
Tuscarora Gas Pipeline Company, Sierra Water Development Company and Sierra Gas
Holding Company (formerly Sierra Energy Company) are filed herewith. Certain
other of such exhibits have heretofore been filed with the Commission and are
incorporated herein by reference.
(* Filed herewith)
(3)
. Restated Articles of Incorporation of SPR filed October 5, 1990.
(Exhibit 3 to Form 10-Q for the quarter ended September 30, 1990).
*(A)
By-laws of the Company, in its entirety as amended dated November
13, 1996.
(4)
. Rights Agreement dated as of October 13, 1989 between SPR and
Bank of America N.T. & S.A., including form of Rights
Certificate. (Exhibit 1 to Form 8-K dated October 30, 1989).
(1O)
*(A)
Change in Control Agreements between the Company and the
Executives.
. Note Purchase Agreement, dated as of April 20, 1993, with respect
to the private placement of $50 million in senior notes. (Exhibit
10 to Form 10-Q for the quarter ended March 31, 1993).
. Employment Agreement dated June 27, 1994 by and among Sierra
Pacific Resources, Sierra Pacific Power Company and William E.
Peterson. (Exhibit to Form 10-K filed December 31, 1994).
. Employment Agreement dated June 27, 1994 by and among Sierra
Pacific Resources, Sierra Pacific Power Company and Malyn K.
Malquist. (Exhibit to Form 10-K filed December 31, 1994).
Sierra Pacific Resources Executive Long-Term Incentive Plan
effective as of January 1, 1994. (Exhibit 99.1 to Form S-8 dated
November 30, 1994 Registration No. 33-87646).
*(B) The Amended and Restated Nonqualified Deferred Compensation Plan
in which any director or any executive officer of the Company may
participate. The Plan was amended and restated January 1, 1996.
(13)
*(A)
Pursuant to Rule 15d-21 under the Securities Exchange Act of
1934, the financial statements for the periods ended 1996 and
1995
56
<PAGE>
required by Form 11-K with respect to Sierra Pacific Resources
Employee's Stock Ownership Plan are filed herewith.
(16)
. Letter from Coopers & Lybrand L.L.P. dated November 21, 1996
regarding the change in certifying accountants. (Exhibit filed
with Form 8-K/A dated November 22, 1996)
(21) Subsidiaries of the Registrant:
Sierra Pacific Power Company, a Nevada Corporation.
Lands of Sierra, Inc., a Nevada Corporation.
Sierra Energy Corporation dba e.three, a Nevada Corporation.
Tuscarora Gas Pipeline Company, a Nevada Corporation.
Sierra Water Development Company, a Nevada Corporation.
Sierra Gas Holdings Company (Formerly Sierra Energy Company),
a Nevada Corporation.
(23)
*(A)
Consent of Independent Accountants, Deloitte & Touche, LLP, in
connection with Form S-3 of Sierra Pacific Resources for its
2,000,000 shares of continuously offered stock plan (File No. 33-
90284), and its Common Stock Investment Plan (File No. 333-4374)
in the registration statements on Form S-8 of SPR for the
Employees' Stock Purchase Plan and Employees' Stock Ownership
Plan (File No. 2-92454), Executive Long-Term Incentive Plan (File
No. 33-87646), and the Non-Employee Director Stock Plan (File No.
33-48152).
Consent of Independent Accountants, Deloitte and Touche, LLP, in
connection with Form 11-K with respect to the Company's Employee
Stock Ownership Plan for the periods ended 1995 and 1996.
*(B)
Consent of Independent Accountants, Coopers and Lybrand, L.L.P.,
in connection with Form S-3 of Sierra Pacific Resources for its
2,000,000 shares of continuously offered stock plan (File No. 33-
90284), and its Common Stock Investment Plan (File No. 333-4374)
in the registration statements on Form S-8 of SPR for the
Employees' Stock Purchase Plan and Employees' Stock Ownership
Plan (File No. 2-92454), Executive Long-Term Incentive Plan (File
No. 33-87646), and the Non-Employee Director Stock Plan (File No.
33-48152).
Consent of Independent Accountants, Coopers and Lybrand, L.L.P.,
in connection with Form 11-K with respect to the Company's
Employee Stock Ownership Plan for the periods ended 1995 and
1996.
57
<PAGE>
(27)
. The Financial Data Schedule containing summary financial
information extracted from the consolidated financial statements
of the Company used in connection with the Form 10-Q for the six-
month period ending June 30, 1996. (Exhibit filed with the Form
10-Q dated August 14, 1996).
. The Financial Data Schedule containing summary financial
information extracted from the consolidated financial statements
of the Company used in connection with the Form 10-Q for the
nine-month period ended September 30, 1996. (Exhibit filed with
the Form 10-Q dated November 7, 1996).
*(A)
The Financial Data Schedule containing summary financial
information extracted from the consolidated financial statements
of the Company used in connection with the Form 10-K for the
twelve month period ending December 31, 1996. (Exhibit filed with
the Form 10-K dated March 14, 1997.)
(99)
. Press Release from the Company dated June 28, 1996 announcing
receipt of notification from its merger partners, Spokane-based
Washington Water Power Company (WWP), that WWP no longer intends
to pursue the merger of the two companies. (Exhibit C of Form 8-K
dated July 3, 1996).
58
<PAGE>
(3) (A)
BY-LAWS
OF
SIERRA PACIFIC RESOURCES
(Amended: January 15, 1985)
(Amended: May 20, 1985)
(Amended: June 30, 1988)
(Amended: October 2, 1989)
(Amended: November 27, 1989)
(Amended: January 11, 1990)
(Amended: June 22, 1990)
(Amended: October 4, 1990)
(Amended
Effective: May 20, 1991)
(Amended: May 18, 1992)
(Amended: October 5, 1992)
(Amended: December 7, 1993)
(Amended: January 5, 1994)
(Amended: March 30, 1994)
(Amended: May 16, 1994)
(Amended: June 24, 1994)
(Amended: March 21, 1995)
(Amended: November 13, 1996)
1
<PAGE>
ARTICLE I
NAME
----
The name of the Corporation (hereinafter referred to as this
Corporation) shall be as set forth in the Articles of Incorporation or in any
lawful amendments thereto from time to time.
ARTICLE II
STOCKHOLDERS' MEETINGS
----------------------
All meetings of the stockholders shall be held at the principal office
of the Corporation in the State of Nevada unless some other place within or
without the State of Nevada is stated in the call. No stockholder action
required to be taken or which may be taken at any annual or special meeting of
stockholders of the Corporation may be taken without a meeting, and the power of
stockholders to consent in writing without a meeting to the taking of any action
is specifically denied.
ARTICLE III
ANNUAL STOCKHOLDERS' MEETINGS
-----------------------------
The Annual Meeting of the Stockholders of the Corporation shall be
held at such time and place as directed or selected by a majority of the Board
of Directors.
ARTICLE IV
SPECIAL STOCKHOLDERS' MEETINGS
------------------------------
Special meetings of the stockholders of the Corporation for any
purpose or purposes permitted by law may be called at any time by a majority of
the Board of Directors
2
<PAGE>
or by the Chairman of the Board or the President of the Corporation. Such
special meetings may not be called by any other person or persons or in any
other manner.
ARTICLE V
NOTICE OF STOCKHOLDERS' MEETINGS
--------------------------------
Notice stating the place, day and hour of all stockholders' meetings
and the purpose or purposes for which such meetings are called, shall be given
by the President or a Vice President or the Secretary or an Assistant Secretary
not less than ten (10) nor more than sixty (60) days prior to the date of the
meeting to each stockholder entitled to vote thereat by leaving such notice with
him at his residence or usual place of business, or by mailing it, postage
prepaid, addressed to such stockholder at his address as it appears upon the
books of this Corporation, and to the Chairman of the Board at the Corporation's
main office, the person giving such notice shall make affidavit in relation
thereto.
3
<PAGE>
ARTICLE VI
QUORUM AT STOCKHOLDERS' MEETINGS
--------------------------------
Except as otherwise provided by law, at any meeting of the
stockholders, a majority of the voting power of the shares of capital stock
issued and outstanding and entitled to vote represented by such stockholders of
record in person or by proxy, shall constitute a quorum, but a less interest may
adjourn any meeting sine die or adjourn any meeting from time to time and the
meeting may be held as adjourned without further notice. When a quorum is
present at any meeting, a majority of the voting power of the stock entitled to
vote represented there, it shall decide any question brought before such
meeting, unless the question is one upon which by express provision of law, or
of the Articles of Incorporation, or of these By-Laws a larger or different vote
is required, in which case such express provision shall govern and control the
decision of such question.
4
<PAGE>
ARTICLE VII
PROXY AND VOTING
----------------
Stockholders of record entitled to vote may vote at any meeting either
in person or by proxy in writing, which shall be filed with the Secretary of the
meeting before being voted. Such proxies shall entitle the holders thereof to
vote at any adjournment of such meeting, but shall not be valid after the final
adjournment thereof. No proxy shall be valid after the expiration of six (6)
months from the date of its execution unless the stockholder specifies therein
the length of time for which it is to continue in force, which in no case shall
exceed seven (7) years from the date of its execution. Stockholders entitled to
vote shall be entitled to the voting rights as provided in the Articles of
Incorporation.
ARTICLE VIII
BOARD OF DIRECTORS
------------------
The number of Directors of the Corporation shall be not more than
fifteen (15) nor less than three (3), and until amendment of this By-Law by
either the stockholders or Directors, the number of Directors shall be ten (10).
The Board of Directors shall have authority to fix the compensation of Directors
for regular or special services rendered. The members of the Board of Directors
shall be divided into classes in the manner provided in Article VI of the
Corporation's Articles of Incorporation and shall be elected and serve for such
terms of office as are provided therein, each Director shall serve until his or
her successor is duly elected and qualified.
Newly created directorships resulting from an increase in number of
Directors and vacancies occurring in the Board of Directors for any reason shall
be filled in the manner specified in Article VI of the Corporation's Articles of
Incorporation. Newly created
5
<PAGE>
directorships shall be assigned by the Board of Directors to one of the classes
described in said Article VI in the manner provided in such Article.
ARTICLE IX
POWERS OF DIRECTORS
-------------------
The Board of Directors shall have the entire management of the
business of this Corporation. In the management and control of the property,
business and affairs of this Corporation, the Board of Directors is hereby
vested with all the powers possessed by this Corporation itself, so far as this
delegation of authority is not inconsistent with the laws of the State of
Nevada, with the Articles of Incorporation or with these By-Laws. Except as
otherwise provided by law, the Board of Directors shall have power to determine
what constitutes net earnings, profits and surplus, respectively, what amount
shall be reserved for working capital and for any other purposes, and what
amount shall be declared as dividends, and such determination by the Board of
Directors shall be final and conclusive.
ARTICLE X
---------
COMPENSATION OF DIRECTORS AND OTHERS
------------------------------------
Directors may be compensated for their services on an annual basis
and/or they may receive a fixed sum plus expenses of attendance, if any, for
attendance at each regular or special meeting of the Board, such compensation or
fixed sum to be fixed from time to time by resolution of the Board of Directors,
provided that nothing herein contained shall be construed to preclude any
director from serving this Corporation in any other capacity and receiving
compensation therefor. Members of special or standing committees may receive
like compensation for their services on an annual basis and/or fixed sum for
6
<PAGE>
attendance at each committee meeting. Any compensation so fixed and determined
by the Board of Directors shall be subject to revision or amendment by the
stockholders.
ARTICLE XI
----------
EXECUTIVE AND OTHER COMMITTEES
------------------------------
The Board of Directors may, by resolution or vote passed by a majority
of the whole Board, designate from their number an Executive Committee of not
less than three (3) nor more than a majority of the members of the whole Board
as at the time constituted, which Committee shall have and may exercise the
powers of the Board of Directors in the management of the business and affairs
of this Corporation when the Board is not in session. The Executive Committee
may make rules for the notice, holding and conduct of its meetings and keeping
of the records thereof. The Executive Committee shall serve until the first
Directors' meeting following the next Annual Stockholders' Meeting, and until
their successors shall be designated and shall qualify, and, a majority of the
members of said Committee shall constitute a quorum for the transaction of
business.
The Board of Directors shall, by resolution or vote passed by a
majority of the whole Board, designate from their members who are not employees
of the Corporation, and designate a representative from the Board of Directors
of the Corporation's wholly-owned subsidiaries, who is not an employee, to serve
on an Audit Committee. The Audit Committee shall not be less than three (3) nor
more than a majority of the whole Board at the time constituted, to nominate
auditors for the annual audit of the Corporation's books and records, to develop
the scope of the audit program, to discuss the results of such audits with the
audit firm, and to take any other action they may deem necessary or
7
<PAGE>
advisable in carrying out the work of the Audit Committee. The Audit Committee
shall serve until their successors shall be designated and shall qualify, and, a
majority of the members of the Audit Committee shall constitute a quorum for the
transaction of business.
The Board of Directors shall, by resolution or vote passed by a
majority of the whole Board, designate from their number members to serve on a
Compensation and Organization Committee, the Compensation and Organization
Committee shall not be less than three (3), nor more than the entire group of
directors of the Corporation who are not employees of the Corporation; provided,
however, that no more than one (1) member of the Compensation and Organization
Committee may be a Board member who is also an employee of the Corporation or
its wholly-owned subsidiaries. The Compensation and Organization Committee
shall have such duties and responsibilities as the whole Board shall from time
to time direct; provided, however, that the Compensation and Organization
Committee shall have the duties and responsibilities at least to review and
approve the programs, policies and organizational structure of the Corporation,
to recommend the personnel required by the Corporation to conduct its affairs,
to receive nominations to the Board of Directors (which nominations will be
reviewed with the whole Board and presented to the shareholders for election or
re-election as positions are available or as terms of office expire), and to
consider and recommend to the whole Board the appropriate number and appropriate
members to serve on the various committees of the Board. The Compensation and
Organization Committee shall serve until their successors shall be designated
and shall qualify, and a majority of the members of the Compensation and
Organization Committee shall constitute a quorum for the transaction of
business.
8
<PAGE>
The Board of Directors of this Corporation may also appoint other
committees from time to time, membership composition and numbers on such
committees, inclusive of representatives of Board of Directors from the wholly-
owned subsidiaries, and committee powers conferred upon the same to be
determined by resolution or vote of the Board of Directors of this Corporation.
ARTICLE XII
DIRECTORS' MEETINGS
-------------------
Regular meetings of the Board of Directors shall be held at such
places within or without the State of Nevada and at such times as the Board by
resolution or vote may determine from time to time, and if so determined no
notice thereof need be given. Special meetings of the Board of Directors may be
held at any time or place within or without the State of Nevada whenever called
by the Chairman of the Board, the President, a Vice President, a Secretary, an
Assistant Secretary or two or more Directors, notice thereof being given to each
Director by the Secretary, an Assistant Secretary or officer calling the
meeting, or at any time without formal notice provided all the Directors are
present or those not present waive notice thereof. Notice of Special meetings,
stating the time and place thereof, shall be given by mailing the same to each
Director at his residence or business address at least two days before the
meeting, unless, in case of exigency, the President or in his absence the
Secretary shall prescribe a shorter notice to be given personally or by
telephoning or telegraphing each Director at his residence or business address.
Such Special meetings shall be held at such times and places as the notices
thereof or waiver shall specify.
9
<PAGE>
Meetings of the Board of Directors may be conducted by means of a
conference telephone network or a similar communications method by which all
persons participating in the meeting can hear each other. The minutes of such
meeting shall be submitted to the Board of Directors, for approval, at a
subsequent meeting.
Unless otherwise restricted by the Articles of Incorporation or these
By-Laws, any action required or permitted to be taken at any meeting of the
Board of Directors or of any committee thereof may be taken without a meeting if
a written consent thereto is signed by all the members of the Board of Directors
or of such committee. Such written consent shall be filed with the minutes of
meetings of the Board or Committee.
ARTICLE XIII
QUORUM AT DIRECTORS' MEETING
----------------------------
Except as otherwise provided by law, by the Articles of Incorporation,
or by these By-Laws, a majority of the members of the Board of Directors shall
constitute a quorum for the transaction of business, but a lesser number may
adjourn any meeting from time to time, and the meeting may be held as adjourned
without further notice. When a quorum is present at any meeting, a majority of
the members present shall decide any question brought before such meeting.
10
<PAGE>
ARTICLE XIV
WAIVER OF NOTICE
----------------
Whenever any notice whatever of any meeting of the stockholders, Board
of Directors or any committee is required to be given by these By-Laws or the
Articles of Incorporation of this Corporation or any of the laws of the State of
Nevada, a waiver thereof in writing, signed by the person or persons entitled to
said notice whether before or after the time stated therein, shall be deemed
equivalent to such notice so required. The presence at any meeting of a person
or persons entitled to notice thereof shall be deemed a waiver of such notice as
to such person or persons.
ARTICLE XV
OFFICERS
--------
The officers of this Corporation shall be a President, one or more
Vice Presidents, a Secretary and a Treasurer. The Board of Directors at its
discretion may elect a Chairman of the Board of Directors. The Chairman of the
Board of Directors, if one is to be elected, the President, the Vice Presidents,
the Secretary and the Treasurer shall be elected annually by the Board of
Directors after its election by the stockholders and shall hold office until
their successors are duly elected and qualified, subject, however, to other
provisions contained in these By-Laws, and a meeting of the Directors may be
held without notice for this purpose immediately after the annual meeting of the
stockholders and at the same place.
11
<PAGE>
ARTICLE XVI
ELIGIBILITY OF OFFICERS
-----------------------
Any two or more offices may be held by the same person except the
offices of Chairman of the Board of Directors or President and Secretary shall
not be held by the same person.
The Chairman of the Board of Directors and the President may, but need
not, be stockholders and shall be Directors of the Corporation. The Vice
Presidents, Secretary, Treasurer and such other officers as may be elected or
appointed need not be stockholders or Directors of this Corporation.
ARTICLE XVII
ADDITIONAL OFFICERS AND AGENTS
------------------------------
The Board of Directors, at its discretion, may appoint one or more
Assistant Secretaries and one or more Assistant Treasurers and such other
officers or agents as it may deem advisable, and prescribe their duties. All
officers and agents appointed pursuant to this Article may hold office during
the pleasure of the Board of Directors.
ARTICLE XVIII
CHAIRMAN OF THE BOARD, CHIEF EXECUTIVE OFFICER AND PRESIDENT
------------------------------------------------------------
(A) Chairman of the Board: The Chairman of the Board, if there be such
---------------------
position, shall, if present, preside at all meetings of the Board of Directors
and shall have such powers and perform such other duties as may be assigned to
him from time to time by the Board of Directors.
(B) Chief Executive Officer: Subject to the control of the Board of
-----------------------
Directors, the
12
<PAGE>
Chief Executive Officer shall be the principal and chief managerial officer of
the corporation and shall have the general supervision, direction and control of
the business and officers of the corporation. The Chief Executive Officer shall
preside at all meetings of the shareholders. In the absence or inability of the
Chairman of the Board of Directors or during the vacancy of the office thereof,
the Chief Executive Officer shall preside at all meetings of the Board of
Directors and shall have such other powers and perform such other duties as may
be assigned to him from time to time by the Board of Directors including, but
not limited to, the signing or countersigning of certificates of stocks, bonds,
notes, contracts or other instruments of the Corporation. He shall be an ex-
officio member of all standing committees with the exception of the Audit
Committee.
(C) President: In the absence or inability of the Chief Executive Officer
---------
or during any vacancy in the office thereof, the President shall perform all of
the duties of the Chief Executive Officer and when so acting shall have all the
power of and be subject to all the restrictions upon the Chief Executive
Officer. Unless another officer is elected by the Board to hold the office of
Chief Operating Officer, the President shall also be the Chief Operating Officer
with such duties as the Board of Directors or the Chief Executive Officer may
from time to time prescribe.
ARTICLE XIX
VICE PRESIDENTS
---------------
Except as especially limited by resolution or vote of the Board of
Directors, any Vice President shall perform the duties and have the powers of
the President during the absence or disability of the President and shall have
power to sign all certificates of
13
<PAGE>
stock, deeds and contracts of this Corporation. He shall perform such other
duties and have such other powers as the Board of Directors shall designate from
time to time.
ARTICLE XX
SECRETARY
---------
The Secretary shall keep accurate minutes of all meetings of the Board
of Directors, the Executive Committee and the Stockholders, shall perform all
the duties commonly incident to this office, and shall perform such other duties
and have such other powers as the Board of Directors shall from time to time
designate. The Secretary shall have power, together with the Chairman of the
Board or the President or a Vice President, to sign certificates of stock of
this Corporation. In his absence, an Assistant Secretary or Secretary pro
tempore shall perform his duties.
ARTICLE XXI
TREASURER
---------
The Treasurer, subject to the order of the Board of Directors, shall
have the care and custody of the money, funds, valuable papers and documents of
this Corporation (other than his own bond which shall be in the custody of the
President) and shall have and exercise, under the supervision of the Board of
Directors, all the powers and duties commonly incident to his office, and shall
give bond in such form and with such sureties as may be required by the Board of
Directors.
He shall deposit all funds of this Corporation in such bank or banks,
trust company or trust companies or with such firm or firms doing banking
businesses as the Directors shall designate or approve. He may endorse for
deposit or collection all checks,
14
<PAGE>
notes, etc., payable to this Corporation or to its order, may accept drafts on
behalf of this Corporation and, together with the Chairman of the Board or the
President or a Vice President, may sign certificates of stock. He shall keep
accurate books of account of this Corporation's transactions which shall be the
property of this Corporation and, together with all its property of this
Corporation, shall be subject at all times to the inspection and control of the
Board of Directors.
ARTICLE XXII
RESIGNATIONS AND REMOVALS
-------------------------
Any Director or officer of this Corporation may resign at any time by
giving written notice to the Board of Directors or to the President or to the
Secretary of this Corporation, and any member of any committee may resign by
giving written notice either as aforesaid or to the committee of which he is a
member or to the chairman thereof. Any such resignation shall take effect at
the time specified therein or, if the time be not specified, upon receipt
thereof; and, unless otherwise specified therein, the acceptance of such
resignation shall not be necessary to make it effective.
The stockholders at any meeting called for that purpose may remove any
director from office in the manner provided in Article VI of the Articles of
Incorporation. The Board of Directors by the vote of not less than a majority
of those present at a duly called meeting, may remove from office any officer,
agent or member or members of any committee elected or appointed by it or by the
executive committee.
The Compensation and Organization Committee, at any meeting called for
that purpose, or the Chief Executive Officer, or, in his absence, the President
of the
15
<PAGE>
Company, may immediately suspend from his or her office and the performance of
his or her duties any officer of the Company pending any meeting of the Board of
Directors called for the purpose of removing an officer of the Corporation.
ARTICLE XXIII
VACANCIES
---------
If an officer or agent, one or more, becomes vacant by reason of
death, resignation, removal, disqualification or otherwise, the Directors may,
by majority vote of the Board of Directors choose a successor or successors who
shall hold office for the unexpired term. Vacancies in the Board of Directors
shall be filled by the Directors in the manner provided in Article VI of the
Articles of Incorporation.
ARTICLE XXIV
CAPITAL STOCK
-------------
The amount of capital stock shall be as fixed in the Articles of
Incorporation or in any lawful amendments thereto from time to time.
ARTICLE XXV
CERTIFICATES OF STOCK
---------------------
Every stockholder shall be entitled to a certificate or certificates
of the capital stock of this Corporation in such form as may be prescribed by
the Board of Directors, duly numbered and sealed with the corporate seal of this
Corporation and setting forth the number of shares to which each stockholder is
entitled. Such certificates shall be signed by the Chairman of the Board or the
President, or a Vice President and by the Treasurer or an
16
<PAGE>
Assistant Treasurer or the Secretary or an Assistant Secretary. The Board of
Directors may also appoint one or more Transfer Agents and/or Registrars for its
capital stock of any class or classes and may require stock certificates to be
countersigned and/or registered by one or more of such transfer agents and/or
registrars. If certificates of capital stock of this Corporation are signed by a
transfer agent and by a registrar, the signatures thereon of the Chairman of the
Board or the President or a Vice President and the Treasurer or an Assistant
Treasurer or the Secretary or an Assistant Secretary of this Corporation and the
seal of this Corporation thereon may be facsimiles, engraved or printed. Any
provisions of these By-Laws with reference to the signing and sealing of stock
certificates shall include, in cases above permitted, such facsimiles. In case
any officer or officers who shall have signed, or whose facsimile signature or
signatures shall have been used on, any such certificate or certificates shall
cease to be such officer or officers of this Corporation, whether because of
death, resignation or otherwise, before such certificate or certificates shall
have been delivered by this Corporation, such certificate or certificates may
nevertheless be adopted by the Board of Directors of this Corporation and be
issued and delivered as though the person or persons who signed such certificate
or certificates or whose facsimile signature or signatures shall have been used
thereon had not ceased to be such officer or officers of this Corporation.
17
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ARTICLE XXVI
TRANSFER OF STOCK
-----------------
Shares of stock may be transferred by delivery of the certificate
accompanied either by an assignment in writing on the back of the certificate or
by a written power of attorney to sell, assign and transfer the same on the
books of this Corporation, signed by the person appearing by the certificate to
be the owner of the shares represented thereby, and shall be transferable on the
books of this Corporation upon surrender thereof so assigned or endorsed. The
person registered on the books of this Corporation as the owner of any shares of
stock shall exclusively, be entitled as the owner of such shares, to receive
dividends and to vote as such owner in respect thereof. It shall be the duty of
every Stockholder to notify this Corporation of his address.
18
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ARTICLE XXVII
TRANSFER BOOKS
--------------
The transfer books of the stock of this Corporation may be closed
for such period from time to time, not exceeding sixty (60) days, in
anticipation of stockholders' meetings or the payment of dividends or the
allotment of rights as the Directors from time to time may determine, provided,
however, that in lieu of closing the transfer books as aforesaid, the Board of
Directors may fix in advance a date, not exceeding sixty (60) days, as of which
stockholders shall be entitled to vote at any meeting of the stockholders or to
receive dividends or rights, and in such case such stockholders and only such
stockholders as shall be stockholders of record as of the date so fixed shall be
entitled to vote at any such meeting and at any adjournment or adjournments
thereof or to receive dividends or rights, as the case may be, notwithstanding
any transfer of any stock on the books of this Corporation after such record
date fixed as aforesaid.
ARTICLE XXVIII
LOSS OF CERTIFICATES
--------------------
In case of the loss, mutilation or destruction of a certificate of
stock a duplicate certificate may be issued upon such terms consistent with the
laws of the State of Nevada as the Directors shall prescribe.
19
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ARTICLE XXIX
SEAL
----
The seal of this Corporation shall consist of a flat-faced circular
die with the corporate name of this Corporation, the year of its incorporation
and the words "Corporate Seal Nevada" cut or engraved thereon. Said seal may be
used by causing it or a facsimile thereof to be impressed or affixed or
reproduced or otherwise.
ARTICLE XXX
VOTING OF STOCK HELD
--------------------
Unless otherwise provided by resolution or vote of the Board of
Directors, the Chairman of the Board, the President or any Vice President, may
from time to time appoint an attorney or attorneys or agent or agents of this
Corporation, in the name on behalf of this Corporation to cast the votes which
this Corporation may be entitled to cast as a stockholder or otherwise in any
other corporation, any of whose stock or securities may be held by this
Corporation, at meetings of the holders of the stock or other securities of such
other corporations, or to consent in writing to any action by any such other
corporation, and may instruct the person or persons so appointed as to the
manner of casting such votes or giving such consent and may execute or cause to
be executed on behalf of this Corporation and under its corporate seal, or
otherwise such written proxies, consents, waivers or other instruments as he may
deem necessary or proper in the premises; or the Chairman of the Board or the
President or any Vice President may himself attend any meeting of the holders of
stock or other securities of such other corporation and thereat vote or exercise
any or all other powers of this Corporation as the holder of such stock or other
securities of such other corporation.
20
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The Chairman of the Board or the President or any Vice President may
appoint one or more nominees in whose name or names stock or securities acquired
by this Corporation may be taken. With the approval of the Chairman of the
Board or the President or any Vice President of the Corporation (which approval
may be evidenced by his signature as witness on the instruments hereinafter
referred to) any such nominee may execute such written proxies, consents,
waivers or other instruments as he may be entitled to execute as the record
holder of stock or other securities owned by this Corporation.
ARTICLE XXXI
EXECUTION OF CHECKS, DRAFTS, NOTES, ETC.
----------------------------------------
All checks, drafts, notes or other obligations for the payment of
money shall be signed by such officer or officers, agent or agents, as the Board
of Directors shall by resolution or vote direct. The Board of Directors may
also, in its discretion, require, by resolution or vote, that checks, drafts,
notes or other obligations for the payment of money shall be countersigned or
registered as a condition to their validity by such officer or officers, agent
or agents as shall be directed in such resolution or vote. Checks for the total
amount of any payroll and/or branch office current expenses may be drawn in
accordance with the foregoing provisions and deposited in a special fund or
funds. Checks upon such fund or funds may be drawn by such person or persons as
the Treasurer shall designate and need not be countersigned.
21
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ARTICLE XXXII
SPECIAL PROVISIONS
------------------
Section 1:
- ---------
The private property of the stockholders, Directors or officers shall
not be subject to the payment of any corporate debts to any extent whatsoever.
Section 2:
- ---------
(A) To the fullest extent that the laws of the State of Nevada, as in
effect on March 18, 1987, or as thereafter amended, permit elimination or
limitation of the liability of directors and officers, no Director, officer,
employee, fiduciary or authorized representative of the Company shall be
personally liable for monetary damages as such for any action taken, or any
failure to take any action, as a Director, officer or other representative
capacity.
(B) This Article shall not apply to any action filed prior to March 18,
1987, nor to any breach of performance or failure of performance of duty by a
Director, officer, employee, fiduciary or authorized representative occurring
prior to March, 1987. Any amendment or repeal of this Article which has the
effect of increasing Director liability shall operate prospectively only, and
shall not affect any action taken, or any failure to act, prior to its adoption.
Section 3:
- ---------
(A) Right to Indemnification. Except as prohibited by law, every Director
------------------------
and officer of the Company shall be entitled as a matter of right to be
indemnified by the
22
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Company against reasonable expense and any liability paid or incurred by such
person in connection with any actual or threatened claim, action, suit or
proceeding, civil, criminal, administrative, investigative or other, whether
brought by or in the right of the Company or otherwise, in which he or she may
be involved, as a party or otherwise, by reason of such person being or having
been a Director or officer of the Company or by reason of the fact that such
person is or was serving at the request of the Company as a Director, officer,
employee, fiduciary or other representative of the Corporation or another
corporation, partnership, joint venture, trust, employee benefit plan or other
entity (such claim, action, suit or proceeding hereafter being referred to as
"action"); provided, however, that no such right of indemnification shall exist
with respect to an action brought by a Director or officer against the Company
(other than a suit for indemnification as provided in paragraph (B)). Such
indemnification shall include the right to have expenses incurred by such person
in connection with an action paid in advance by the Company prior to final
disposition of such action, subject to such conditions as may be prescribed by
law. As used herein, "expense" shall include fees and expenses of counsel
selected by such person; and "liability" shall include amounts of judgments,
excise taxes, fines and penalties, and amounts paid in settlement.
(B) Right of Claimant to Bring Suit. If a claim under paragraph (A) of
-------------------------------
this Section is not paid in full by the Company within thirty (30) days after a
written claim has been received by the Company, the claimant may at any time
thereafter bring suit against the Company to recover the unpaid amount of the
claim, and, if successful in whole or in part, the claimant shall also be
entitled to be paid the expense of prosecuting such claim. It shall be a
defense to any such action that the conduct of the claimant was such that under
23
<PAGE>
Nevada law the Company would be prohibited from indemnifying the claimant for
the amount claimed, but the burden of proving such defense shall be on the
Company. Neither the failure of the Company (including its Board of Directors,
independent legal counsel and its stockholders) to have made a determination
prior to the commencement of such action that indemnification of the claimant is
proper in the circumstances because the conduct of the claimant was not such
that indemnification would be prohibited by law, nor an actual determination by
the Company (including the Board of Directors, independent legal counsel or its
stockholders) that the conduct of the claimant was such that indemnification
would be prohibited by law, shall be a defense to the action or create a
presumption that the conduct of the claimant was such that indemnification would
be prohibited by law.
(C) Insurance and Funding. The Company may purchase and maintain insurance
---------------------
to protect itself and any person eligible to be indemnified hereunder against
any liability or expense asserted or incurred by such person in connection with
any action, whether or not the Company would have the power to indemnify such
person against such liability or expense by law or under the provisions of this
Section 3. The Company may make other financial arrangements which include a
trust fund, program of self-insurance, grant a security interest or other lien
on any assets of the corporation, establish a letter of credit, guaranty or
surety as set forth in 1987 Statutes of Nevada, Chapter 28 to ensure the payment
of such sums as may become necessary to effect indemnification as provided
herein.
(D) Non-Exclusive; Nature and Extent of Rights. The right of
------------------------------------------
indemnification provided for herein (1) shall not be deemed exclusive of any
other rights, whether now existing or hereafter created, to which those seeking
indemnification hereunder may be
24
<PAGE>
entitled under any agreement, by-law or article provision, vote of stockholders
or directors or otherwise, (2) shall be deemed to create contractual rights in
favor of persons entitled to indemnification hereunder, (3) shall continue as to
persons who have ceased to have the status pursuant to which they were entitled
or were denominated as entitled to indemnification hereunder and shall inure to
the benefit of the heirs and legal representatives of persons entitled to
indemnification hereunder and (4) shall be applicable to actions, suits or
proceedings commenced after the adoption hereof, whether arising from acts or
omissions occurring before or after the adoption hereof. The right of
indemnification provided for herein may not be amended, modified or repealed so
as to limit in any way the indemnification provided for herein with respect to
any acts or omissions occurring prior to the adoption of any such amendment or
repeal.
Section 4:
- ---------
In furtherance, and not in limitation, of the powers conferred by
statute, the Board of Directors, by a majority vote of those present at any
called meeting, is expressly authorized:
(A) To hold its meetings, to have one or more offices and to keep the
books of the Corporation, except as may be otherwise specifically required by
the laws of the State of Nevada, within or without the State of Nevada, at such
places as may be from time to time designated by it.
(B) To determine from time to time whether, and if allowed under what
conditions and regulations, the accounts and books of the Corporation (other
than the books required by law to be kept at the principal office of the
Corporation in Nevada), or
25
<PAGE>
any of them, shall be open to inspection of the stockholders, and the
stockholders' rights in this respect are and shall be restricted or limited
accordingly.
(C) To make, alter, amend and rescind the By-Laws of the Corporation,
to fix the amount to be reserved as working capital, to fix the times for the
declaration and payment of dividends, and to authorize and cause to be executed
mortgages and liens upon the real and personal property of the Corporation.
(D) To designate from its number an executive committee, which, to the
extent provided by the By-Laws of the Corporation or by resolution of the Board
of Directors, shall have and may exercise in the intervals between meetings of
the Board of Directors, the powers thereof which may lawfully be delegated in
respect of the management of the business and the affairs of the Corporation,
and shall have power to authorize the seal of the Corporation to be affixed to
such papers as may require it. The Board of Directors may also, in its
discretion, designate from its number a finance committee and delegate thereto
such of the powers of the Board of Directors as may be lawfully delegated, to be
exercised when the Board is not in session.
Section 5:
- ---------
In furtherance, and not in limitation, of the powers conferred by
Section 78.378 to Section 78.3793, inclusive, of the General Corporation Law of
the State of Nevada, the Corporation, by resolution of the Board of Directors,
may call for redemption of control shares under the circumstances and in the
manner provided by Section 78.3792 of the General Corporation Law of the State
of Nevada as it may be amended from time to time.
26
<PAGE>
ARTICLE XXXIII
PROPOSALS AT STOCKHOLDERS' MEETINGS
-----------------------------------
Section 1: Advance Notification of Proposals at Stockholders' Meetings.
-----------------------------------------------------------------------
If a stockholder desires to submit a proposal for consideration at an
annual or special stockholders' meeting, or to nominate persons for election as
directors at any stockholders' meeting duly called for the election of
directors, written notice of such stockholder's intent to make such a proposal
or nomination must be given and received by the Secretary of the Corporation at
the principal executive offices of the Corporation either by personal delivery
or by United States mail not later than (i) with respect to an annual meeting of
stockholders, one hundred twenty (120) days prior to the anniversary date of the
immediately preceding annual meeting, and (ii) with respect to a special meeting
of stockholders, the close of business on the tenth day following the date on
which notice of such meeting is first given to stockholders. Each notice shall
describe the proposal or nomination in sufficient detail for the proposal or
nomination to be summarized on the agenda for the meeting and shall set forth
(i) the name and address, as it appears on the books of the Corporation, of the
stockholder who intends to make the proposal or nomination; (ii) a
representation that the stockholder is a holder of record of stock of the
Corporation entitled to vote at such meeting and intends to appear in person or
by proxy at the meeting to present such proposal or nomination; and (iii) the
class and number of shares of the Corporation which are beneficially owned by
the stockholder. In addition, in the case of a stockholder proposal, the notice
shall set forth the reasons for conducting such proposed business at the meeting
and any material interest of the stockholder in such
27
<PAGE>
business. In the case of a nomination of any person for election as a director,
the notice shall set forth: (i) the name and address of any person to be
nominated; (ii) a description of all arrangements or understandings between the
stockholder and each nominee and any other person or persons (naming such person
or persons) pursuant to which the nomination or nominations are to be made by
the stockholder; (iii) such other information regarding such nominee proposed by
such stockholder as would be required to be included in a proxy statement filed
pursuant to the proxy rules of the Securities and Exchange Commission; and (iv)
the consent of each nominee to serve as a director of the Corporation if so
elected. The presiding officer of the annual or special meeting shall, if the
facts warrant, refuse to acknowledge a proposal or nomination not made in
compliance with the foregoing procedure, and any such proposal or nomination not
properly brought before the meeting shall not be transacted.
Section 2: Advisory Stockholder Votes.
--------------------------------------
In order for the stockholders to adopt or approve any proposal
submitted to them for the purpose of advising the Board of Directors of the
stockholders' wishes, a majority of the outstanding stock of the Corporation
entitled to vote thereon must be voted for the proposal.
ARTICLE XXXIV
-------------
AMENDMENTS
----------
Except as otherwise specifically provided herein, these By-Laws may be
amended, added to, altered or repealed in whole or in part at any annual or
special
28
<PAGE>
meeting of the stockholders by vote in either case of at least two-thirds of the
voting power of the capital stock issued and outstanding and entitled to vote,
provided notice of the general nature or character of the proposed amendment,
addition, alteration or repeal is given in the notice of said meeting, or by the
affirmative vote of a majority of the Board of Directors present at a called
regular or special meeting of the Board of Directors, provided notice of the
general nature or character of the proposed amendment, addition, alteration or
repeal is given in the notice of said meeting.
29
<PAGE>
(10) (A)
CHANGE IN CONTROL AGREEMENT
---------------------------
THIS AGREEMENT, dated ______________________, 1997, is made by and
between Sierra Pacific Resources, a Nevada corporation (the "Company"), and
______________ (the "Executive").
WHEREAS, the Company considers it essential to the best interests of
its stockholders to foster the continued employment of key management personnel;
and
WHEREAS, the Board recognizes that, as is the case with many publicly
held corporations, the possibility of a Change in Control exists and that such
possibility, and the uncertainty and questions which it may raise among
management, may result in the departure or distraction of management personnel
to the detriment of the Company and its stockholders; and
WHEREAS, the Board has determined that appropriate steps should be
taken to reinforce and encourage the continued attention and dedication of
members of the management of the Company and its subsidiaries (collectively,
"Sierra"), including the Executive, to their assigned duties without distraction
in the face of potentially disturbing circumstances arising from the possibility
of a Change in Control;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, the Company and the Executive hereby agree as
follows:
1. Defined Terms. The definitions of capitalized terms used in this
-------------
Agreement are provided in the last Section hereof.
2. Term of Agreement. Subject to the provisions of Section 12.2
-----------------
hereof, the term of this Agreement shall commence on the date hereof and shall
continue in effect through December 31, 1999; provided, however, that commencing
-------- -------
on January 1, 1999, and each January 1 thereafter, the Term shall automatically
be extended for one additional year unless, not later than September 30 of the
preceding year, the Company or the Executive shall have given notice not to
extend the Term; and further provided, however, that if a Change in Control
------- -------- -------
shall have occurred during the Term, the Term shall expire no earlier than
twenty-four (24) months beyond the month in which such Change in Control
occurred; and further
-------
1
<PAGE>
provided, however, that if a Potential Change in Control shall have occurred
- -------- -------
during the Term, the Term shall expire no earlier than a date six months beyond
the month in which such Potential Change in Control occurred.
3. Company's Covenants Summarized. In order to induce the Executive
------------------------------
to remain in the employ of Sierra and in consideration of the Executive's
covenants set forth in Section 4 hereof, the Company agrees, under the
conditions described herein, to pay the Executive the Severance Payments and the
other payments and benefits described herein. Except as provided in Section 9.1
hereof, no Severance Payments shall be payable under this Agreement unless there
shall have been (or, under the terms of the second sentence of Section 6.1
hereof, there shall be deemed to have been) a termination of the Executive's
employment with Sierra following a Change in Control and during the Term. This
Agreement shall not be construed as creating an express or implied contract of
employment and, except as otherwise agreed in writing between the Executive and
Sierra, the Executive shall not have any right to be retained in the employ of
Sierra. The obligations of the Company hereunder shall be deemed satisfied to
the extent payments are made by Sierra Power Company.
4. The Executive's Covenants. The Executive agrees that, subject to
-------------------------
the terms and conditions of this Agreement, in the event of a Potential Change
in Control during the Term, the Executive will remain in the employ of the
Company until the earliest of (i) a date which is six (6) months from the date
of such Potential Change of Control, (ii) the date of a Change in Control, (iii)
the date of termination by the Executive of the Executive's employment for Good
Reason or by reason of death, Disability or Retirement, or (iv) the termination
by Sierra of the Executive's employment for any reason.
5. Compensation Other Than Severance Payments.
------------------------------------------
5.1 Following a Change in Control and during the Term, during any
period that the Executive fails to perform the Executive's full-time duties with
Sierra as a result of incapacity due to physical or mental illness, the Company
shall pay the Executive's full salary to the Executive at the rate in effect at
the commencement of any such period, together with all compensation and benefits
payable to the Executive under the terms of any compensation or benefit plan,
program or arrangement maintained by Sierra during such period, until the
Executive's employment is terminated by Sierra for Disability.
5.2 If the Executive's employment shall be terminated for any reason
following a Change in Control and during the Term, the Company shall pay the
Executive's full salary to the Executive through the Date of Termination at the
rate in effect immediately prior to the Date of Termination or, if higher, the
rate in effect immediately prior to the first occurrence of an event or
circumstance constituting Good Reason, together with all compensation and
benefits payable to the Executive
2
<PAGE>
through the Date of Termination under the terms of Sierra compensation and
benefit plans, programs or arrangements as in effect immediately prior to the
Date of Termination or, if more favorable to the Executive, as in effect
immediately prior to the first occurrence of an event or circumstance
constituting Good Reason.
5.3 If the Executive's employment shall be terminated for any reason
following a Change in Control and during the Term, the Company shall pay to the
Executive the Executive's normal post-termination compensation and benefits as
such payments become due. Such post-termination compensation and benefits shall
be determined under, and paid in accordance with, Sierra's retirement, insurance
and other compensation or benefit plans, programs and arrangements as in effect
immediately prior to the Date of Termination or, if more favorable to the
Executive, as in effect immediately prior to the occurrence of the first event
or circumstance constituting Good Reason.
6. Severance Payments.
------------------
6.1 Subject to Section 6.2 hereof, if the Executive's employment is
terminated following a Change in Control and during the Term, other than (A) by
Sierra for Cause, (B) by reason of death or Disability, or (C) by the Executive
without Good Reason, then Sierra shall pay the Executive the amounts, and
provide the Executive the benefits, described in this Section 6.1 ("Severance
Payments"), in addition to any payments and benefits to which the Executive is
entitled under Section 5 hereof. For purposes of this Agreement, the
Executive's employment shall be deemed to have been terminated following a
Change in Control by Sierra without Cause or by the Executive with Good Reason,
if (i) the Executive's employment is terminated by Sierra without Cause prior to
a Change in Control (whether or not a Change in Control ever occurs) and such
termination was at the request or direction of a Person who has entered into an
agreement with the Company the consummation of which would constitute a Change
in Control, (ii) the Executive terminates his employment for Good Reason prior
to a Change in Control (whether or not a Change in Control ever occurs) and the
circumstance or event which constitutes Good Reason occurs at the request or
direction of such Person, or (iii) the Executive's employment is terminated by
Sierra without Cause or by the Executive for Good Reason and such termination or
the circumstance or event which constitutes Good Reason is otherwise in
connection with or in anticipation of a Change in Control (whether or not a
Change in Control ever occurs). For purposes of any determination regarding the
applicability of the immediately preceding sentence, any position taken by the
Executive shall be presumed to be correct unless the Company establishes to the
Board by clear and convincing evidence that such position is not correct.
(A) In lieu of any further salary payments to the Executive for
periods subsequent to the Date of Termination and in lieu of any severance
benefit otherwise payable to the Executive, the Company shall pay to the
3
<PAGE>
Executive a lump sum severance payment, in cash, equal to three times the
sum of (i) the Executive's base salary as in effect immediately prior to
the Date of Termination or, if higher, in effect immediately prior to the
first occurrence of an event or circumstance constituting Good Reason, and
(ii) the target annual incentive award applicable to the Executive pursuant
to any annual bonus or incentive plan maintained by Sierra in respect of
the fiscal year ending immediately prior to the fiscal year in which occurs
the Date of Termination or, if higher, immediately prior to the fiscal year
in which occurs the first event or circumstance constituting Good Reason.
(B) For the thirty-six (36) month period immediately following
the Date of Termination, the Company shall arrange to provide the Executive
and his dependents life, disability, accident and health insurance benefits
substantially similar to those provided to the Executive and his dependents
immediately prior to the Date of Termination or, if more favorable to the
Executive, those provided to the Executive and his dependents immediately
prior to the first occurrence of an event or circumstance constituting Good
Reason, at no greater cost to the Executive than the cost to the Executive
immediately prior to such date or occurrence; provided, however, that,
-------- -------
unless the Executive consents to a different method (after taking into
account the effect of such method on the calculation of "parachute
payments" pursuant to Section 6.2 hereof), such health insurance benefits
shall be provided through a third-party insurer. Benefits otherwise
receivable by the Executive pursuant to this Section 6.1(B) shall be
reduced to the extent benefits of the same type are received by or made
available to the Executive during the thirty-six (36) month period
following the Executive's termination of employment (and any such benefits
received by or made available to the Executive shall be reported to the
Company by the Executive); provided, however, that the Company shall
-------- -------
reimburse the Executive for the excess, if any, of the cost of such
benefits to the Executive over such cost immediately prior to the Date of
Termination or, if more favorable to the Executive, the first occurrence of
an event or circumstance constituting Good Reason. If the Severance
Payments shall be decreased pursuant to Section 6.2 hereof, and the Section
6.1(B) benefits which remain payable after the application of Section 6.2
hereof are thereafter reduced pursuant to the immediately preceding
sentence, the Company shall, no later than five (5) business days following
such reduction, pay to the Executive the least of (a) the amount of the
decrease made in the Severance Payments pursuant to Section 6.2 hereof, (b)
the amount of the subsequent reduction in these Section 6.1(B) benefits, or
(c) the maximum amount which can be paid to the Executive without being, or
causing any other payment to be, nondeductible by reason of Section 280G of
the Code.
(C) Notwithstanding any provision of any annual or long-term
incentive plan to the contrary, the Company shall pay to the Executive a
lump
4
<PAGE>
sum amount, in cash, equal to the sum of (i) any unpaid incentive
compensation which has been allocated or awarded to the Executive for a
completed fiscal year or other measuring period preceding the Date of
Termination under any such plan and which, as of the Date of Termination,
is contingent only upon the continued employment of the Executive to a
subsequent date, and (ii) a pro rata portion to the Date of Termination of
the aggregate value of all contingent incentive compensation awards to the
Executive for all then uncompleted periods under any such plan, calculated
as to each such award by multiplying the award that the Executive would
have earned on the last day of the performance award period, assuming the
achievement, at the target level of the individual and corporate
performance goals established with respect to such award, by the fraction
obtained by dividing the number of full months and any fractional portion
of a month during such performance award period through the Date of
Termination by the total number of months contained in such performance
award period.
(D) In addition to the retirement benefits to which the
Executive is entitled under each Pension Plan or any successor plan
thereto, the Company shall pay the Executive a lump sum amount, in cash,
equal to the excess of (i) the actuarial equivalent of the aggregate
retirement pension (taking into account any early retirement subsidies
associated therewith and determined as a straight life annuity commencing
at the date (but in no event earlier than the third anniversary of the Date
of Termination) as of which the actuarial equivalent of such annuity is
greatest) which the Executive would have accrued under the terms of all
Pension Plans (without regard to any amendment to any Pension Plan made
subsequent to a Change in Control and on or prior to the Date of
Termination, which amendment adversely affects in any manner the
computation of retirement benefits thereunder), determined as if the
Executive were fully vested thereunder and had accumulated (after the Date
of Termination) thirty-six (36) (or, with respect to the Sierra Pacific
Power Company Supplemental Executive Retirement Plan only, the higher of
thirty-six (36) or the number of months remaining from the Date of
Termination until the Executive's Early Retirement Date, as defined in such
plan) additional months of service credit thereunder and had been credited
under each Pension Plan during such period with compensation equal to the
Executive's compensation (as defined in such Pension Plan) during the
twelve (12) months immediately preceding the Date of Termination or, if
higher, during the twelve months immediately prior to the first occurrence
of an event or circumstance constituting Good Reason, over (ii) the
actuarial equivalent of the aggregate retirement pension (taking into
account any early retirement subsidies associated therewith and determined
as a straight life annuity commencing at the date (but in no event earlier
than the Date of Termination) as of which the actuarial equivalent of such
annuity is greatest) which the Executive had accrued pursuant to the
provisions of the Pension Plans as of the Date of Termination. For
purposes of this
5
<PAGE>
Section 6.1(D), "actuarial equivalent" shall be determined using the same
assumptions utilized under the Sierra Pacific Power Company Retirement Plan
immediately prior to the Date of Termination. or, if more favorable to the
Executive, immediately prior to the first occurrence of an event or
circumstance constituting Good Reason.
(E) If the Executive would have become entitled to benefits under
Sierra's post-retirement health care or life insurance plans, as in effect
immediately prior to the Date of Termination or, if more favorable to the
Executive, as in effect immediately prior to the first occurrence of an
event or circumstance constituting Good Reason, had the Executive's
employment terminated at any time during the period of thirty-six (36)
months after the Date of Termination, the Company shall provide such post-
retirement health care or life insurance benefits to the Executive and the
Executive's dependents commencing on the later of (i) the date on which
such coverage would have first become available and (ii) the date on which
benefits described in subsection (B) of this Section 6.1 terminate.
6.2 (A) Notwithstanding any other provisions of this Agreement, in
the event that any payment or benefit received or to be received by the
Executive in connection with a Change in Control or the termination of the
Executive's employment (whether pursuant to the terms of this Agreement or any
other plan, arrangement or agreement with the Company, any Person whose actions
result in a Change in Control or any Person affiliated with the Company or such
Person) (all such payments and benefits, including the Severance Payments, being
hereinafter called "Total Payments") would be subject (in whole or part), to the
Excise Tax, then, after taking into account any reduction in the Total Payments
provided by reason of section 280G of the Code in such other plan, arrangement
or agreement, the cash Severance Payments shall first be reduced, and the non-
cash Severance Payments shall thereafter be reduced, to the extent necessary so
that no portion of the Total Payments is subject to the Excise Tax but only if
(A) the net amount of such Total Payments, as so reduced (and after subtracting
the net amount of federal, state and local income taxes on such reduced Total
Payments) is greater than or equal to (B) the net amount of such Total Payments
without such reduction (but after subtracting the net amount of federal, state
and local income taxes on such Total Payments and the amount of Excise Tax to
which the Executive would be subject in respect of such unreduced Total
Payments); provided, however, that the Executive may elect to have the non-cash
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Severance Payments reduced (or eliminated) prior to any reduction of the cash
Severance Payments.
(B) For purposes of determining whether and the extent to which the
Total Payments will be subject to the Excise Tax, (i) no portion of the Total
Payments the receipt or enjoyment of which the Executive shall have waived at
such time and in such manner as not to constitute a "payment" within the meaning
of Section 280G(b) of the Code shall be taken into account, (ii) no portion
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<PAGE>
of the Total Payments shall be taken into account which, in the opinion of tax
counsel ("Tax Counsel") reasonably acceptable to the Executive and selected by
the accounting firm (the "Auditor") which was, immediately prior to the Change
in Control, the Company's independent auditor, does not constitute a "parachute
payment" within the meaning of Section 280G(b)(2) of the Code (including by
reason of Section 280G(b)(4)(A) of the Code) and, in calculating the Excise Tax,
no portion of such Total Payments shall be taken into account which, in the
opinion of Tax Counsel, constitutes reasonable compensation for services
actually rendered, within the meaning of Section 280G(b)(4)(B) of the Code, in
excess of the Base Amount allocable to such reasonable compensation, and (iii)
the value of any non-cash benefit or any deferred payment or benefit included in
the Total Payments shall be determined by the Auditor in accordance with the
principles of Sections 280G(d)(3) and (4) of the Code.
(C) At the time that payments are made under this Agreement, the
Company shall provide the Executive with a written statement setting forth the
manner in which such payments were calculated and the basis for such
calculations including, without limitation, any opinions or other advice the
Company has received from Tax Counsel, the Auditor or other advisors or
consultants (and any such opinions or advice which are in writing shall be
attached to the statement). If the Executive objects to the Company's
calculations, the Company shall pay to the Executive such portion of the
Severance Payments (up to 100% thereof) as the Executive determines is necessary
to result in the proper application of subsection A of this Section 6.2.
6.3 The payments provided in subsections (A), (C) and (D) of Section
6.1 hereof shall be made not later than the fifth day following the Date of
Termination; provided, however, that if the amounts of such payments, and the
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limitation on such payments set forth in Section 6.2 hereof, cannot be finally
determined on or before such day, the Company shall pay to the Executive on such
day an estimate, as determined in good faith by the Executive of the minimum
amount of such payments to which the Executive is clearly entitled and shall pay
the remainder of such payments (together with interest on the unpaid remainder
(or on all such payments to the extent the Company fails to make such payments
when due) at 120% of the rate provided in Section 1274(b)(2)(B) of the Code) as
soon as the amount thereof can be determined but in no event later than the
thirtieth (30th) day after the Date of Termination. In the event that the
amount of the estimated payments exceeds the amount subsequently determined to
have been due, such excess shall constitute a loan by the Company to the
Executive, payable on the fifth (5th) business day after demand by the Company
(together with interest at 120% of the rate provided in Section 1274(b)(2)(B) of
the Code).
6.4 The Company also shall pay to the Executive all legal fees and
expenses incurred by the Executive in disputing in good faith any issue
hereunder relating to the termination of the Executive's employment, in seeking
in good faith to
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<PAGE>
obtain or enforce any benefit or right provided by this Agreement or in
connection with any tax audit or proceeding to the extent attributable to the
application of Section 4999 of the Code to any payment or benefit provided
hereunder. Such payments shall be made within five (5) business days after
delivery of the Executive's written requests for payment accompanied with such
evidence of fees and expenses incurred as the Company reasonably may require.
7. Termination Procedures and Compensation During Dispute.
------------------------------------------------------
7.1 Notice of Termination. After a Change in Control and during the
---------------------
Term, any purported termination of the Executive's employment (other than by
reason of death) shall be communicated by written Notice of Termination from one
party hereto to the other party hereto in accordance with Section 10 hereof.
For purposes of this Agreement, a "Notice of Termination" shall mean a notice
which shall indicate the specific termination provision in this Agreement relied
upon and shall set forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of the Executive's employment under
the provision so indicated. Further, a Notice of Termination for Cause is
required to include a copy of a resolution duly adopted by the affirmative vote
of not less than three-quarters (3/4) of the entire membership of the Board at a
meeting of the Board which was called and held for the purpose of considering
such termination (after reasonable notice to the Executive and an opportunity
for the Executive, together with the Executive's counsel, to be heard before the
Board) finding that, in the good faith opinion of the Board, the Executive was
guilty of conduct set forth in clause (i) or (ii) of the definition of Cause
herein, and specifying the particulars thereof in detail.
7.2 Date of Termination. "Date of Termination," with respect to any
-------------------
purported termination of the Executive's employment after a Change in Control
and during the Term, shall mean (i) if the Executive's employment is terminated
for Disability, thirty (30) days after Notice of Termination is given (provided
that the Executive shall not have returned to the full-time performance of the
Executive's duties during such thirty (30) day period), and (ii) if the
Executive's employment is terminated for any other reason, the date specified in
the Notice of Termination (which, in the case of a termination by Sierra, shall
not be less than thirty (30) days (except in the case of a termination for
Cause) and, in the case of a termination by the Executive, shall not be less
than fifteen (15) days nor more than sixty (60) days, respectively, from the
date such Notice of Termination is given).
7.3 Dispute Concerning Termination. If within fifteen (15) days
------------------------------
after any Notice of Termination is given, or, if later, prior to the Date of
Termination (as determined without regard to this Section 7.3), the party
receiving such Notice of Termination notifies the other party that a dispute
exists concerning the termination, the Date of Termination shall be extended
until the earlier of (i) the date on which the Term ends or (ii) the date on
which the dispute is finally resolved, either by mutual written agreement of the
parties or by a final judgment, order or decree of an
8
<PAGE>
arbitrator or a court of competent jurisdiction (which is not appealable or with
respect to which the time for appeal therefrom has expired and no appeal has
been perfected); provided, however, that the Date of Termination shall be
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extended by a notice of dispute given by the Executive only if such notice is
given in good faith and the Executive pursues the resolution of such dispute
with reasonable diligence.
7.4 Compensation During Dispute. If a purported termination occurs
---------------------------
following a Change in Control and during the Term and the Date of Termination is
extended in accordance with Section 7.3 hereof, the Company shall continue to
pay the Executive the full compensation in effect when the notice giving rise to
the dispute was given (including, but not limited to, salary) and continue the
Executive as a participant in all compensation, benefit and insurance plans in
which the Executive was participating when the notice giving rise to the dispute
was given, until the Date of Termination, as determined in accordance with
Section 7.3 hereof. Amounts paid under this Section 7.4 are in addition to all
other amounts due under this Agreement (other than those due under Section 5.2
hereof) and shall not be offset against or reduce any other amounts due under
this Agreement.
8. No Mitigation. The Company agrees that, if the Executive's
-------------
employment with Sierra terminates during the Term, the Executive is not required
to seek other employment or to attempt in any way to reduce any amounts payable
to the Executive by the Company pursuant to Section 6 hereof or Section 7.4
hereof. Further, the amount of any payment or benefit provided for in this
Agreement (other than Section 6.1(B) hereof) shall not be reduced by any
compensation earned by the Executive as the result of employment by another
employer, by retirement benefits, by offset against any amount claimed to be
owed by the Executive to the Company, or otherwise.
9. Successors; Binding Agreement.
-----------------------------
9.1 In addition to any obligations imposed by law upon any successor
to the Company, the Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to expressly
assume and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. Failure of the Company to obtain such assumption and agreement
prior to the effectiveness of any such succession shall be a breach of this
Agreement and shall entitle the Executive to compensation from the Company in
the same amount and on the same terms as the Executive would be entitled to
hereunder if the Executive were to terminate the Executive's employment for Good
Reason after a Change in Control, except that, for purposes of implementing the
foregoing, the date on which any such succession becomes effective shall be
deemed the Date of Termination.
9.2 This Agreement shall inure to the benefit of and be enforceable
by
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<PAGE>
the Executive's personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If the Executive shall
die while any amount would still be payable to the Executive hereunder (other
than amounts which, by their terms, terminate upon the death of the Executive)
if the Executive had continued to live, all such amounts, unless otherwise
provided herein, shall be paid in accordance with the terms of this Agreement to
the executors, personal representatives or administrators of the Executive's
estate.
10. Notices. For the purpose of this Agreement, notices and all
-------
other communications provided for in the Agreement shall be in writing and shall
be deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, addressed, if to the
Executive, to the address inserted below the Executive's signature on the final
page hereof and, if to the Company, to the address set forth below, or to such
other address as either party may have furnished to the other in writing in
accordance herewith, except that notice of change of address shall be effective
only upon actual receipt:
To the Company:
Sierra Power Resources
6100 Neil Road
Reno, Nevada 89520-3150
Attention: General Counsel
11. Miscellaneous. No provision of this Agreement may be modified,
-------------
waived or discharged unless such waiver, modification or discharge is agreed to
in writing and signed by the Executive and such officer as may be specifically
designated by the Board. No waiver by either party hereto at any time of any
breach by the other party hereto of, or of any lack of compliance with, any
condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same or at any prior or subsequent time. This Agreement supersedes any
other agreements or representations, oral or otherwise, express or implied, with
respect to the subject matter hereof which have been made by either party;
provided, however, that this Agreement shall supersede any agreement setting
- -------- -------
forth the terms and conditions of the Executive's employment with Sierra only in
the event that the Executive's employment with Sierra is terminated on or
following a Change in Control, by Sierra other than for Cause or by the
Executive other than for Good Reason. The validity, interpretation, construction
and performance of this Agreement shall be governed by the laws of the State of
Nevada. All references to sections of the Exchange Act or the Code shall be
deemed also to refer to any successor provisions to such sections. Any payments
provided for hereunder shall be paid net of any applicable withholding required
under federal, state or local law and any additional withholding to which the
Executive has agreed. The obligations of the Company and the
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Executive under this Agreement which by their nature may require either partial
or total performance after the expiration of the Term (including, without
limitation, those under Sections 6 and 7 hereof) shall survive such expiration.
12. Validity; Pooling.
-----------------
12.1 The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement, which shall remain in full force and effect.
12.2 In the event that the Company is party to a transaction which
is otherwise intended to qualify for "pooling of interests" accounting treatment
then (A) this Agreement shall, to the extent practicable, be interpreted so as
to permit such accounting treatment, and (B) to the extent that the application
of clause (A) of this Section 12.2 does not preserve the availability of such
accounting treatment, then, to the extent that any provision of the Agreement
disqualifies the transaction as a "pooling" transaction (including, if
applicable, the entire Agreement), such provision shall be null and void as of
the date hereof. All determinations under this Section 12.2 shall be made by
the accounting firm whose opinion with respect to "pooling of interests" is
required as a condition to the consummation of such transaction.
13. Counterparts. This Agreement may be executed in several
------------
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
14. Settlement of Dispute; Arbitration.
----------------------------------
14.1 All claims by the Executive for benefits under this Agreement
shall be directed to and determined by the Board and shall be in writing. Any
denial by the Board of a claim for benefits under this Agreement shall be
delivered to the Executive in writing and shall set forth the specific reasons
for the denial and the specific provisions of this Agreement relied upon. The
Board shall afford a reasonable opportunity to the Executive for a review of the
decision denying a claim and shall further allow the Executive to appeal to the
Board a decision of the Board within sixty (60) days after notification by the
Board that the Executive's claim has been denied.
14.2 Any further dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by arbitration in
Reno, Nevada in accordance with the rules of the American Arbitration
Association then in effect; provided, however, that the evidentiary standards
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set forth in this Agreement shall apply. Judgment may be entered on the
arbitrator's award in any court having jurisdiction. Notwithstanding any
provision of this Agreement to the contrary, the Executive shall be entitled to
seek specific performance of the Executive's right to
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<PAGE>
be paid until the Date of Termination during the pendency of any dispute or
controversy arising under or in connection with this Agreement.
15. Definitions. For purposes of this Agreement, the following terms
-----------
shall have the meanings indicated below:
(A) "Affiliate" shall have the meaning set forth in Rule 12b-2
promulgated under Section 12 of the Exchange Act.
(B) "Auditor" shall have the meaning set forth in Section 6.2 hereof.
(C) "Base Amount" shall have the meaning set forth in Section
280G(b)(3) of the Code.
(D) "Beneficial Owner" shall have the meaning set forth in Rule 13d-3
under the Exchange Act.
(E) "Board" shall mean the Board of Directors of the Company.
(F) "Cause" for termination by Sierra of the Executive's employment
shall mean (i) the willful and continued failure by the Executive to
substantially perform the Executive's duties with Sierra (other than any such
failure resulting from the Executive's incapacity due to physical or mental
illness or any such actual or anticipated failure after the issuance of a Notice
of Termination for Good Reason by the Executive pursuant to Section 7.1 hereof)
after a written demand for substantial performance is delivered to the Executive
by the Board, which demand specifically identifies the manner in which the Board
believes that the Executive has not substantially performed the Executive's
duties, or (ii) the willful engaging by the Executive in conduct which is
demonstrably and materially injurious to Sierra, monetarily or otherwise. For
purposes of clauses (i) and (ii) of this definition, (x) no act, or failure to
act, on the Executive's part shall be deemed "willful" unless done, or omitted
to be done, by the Executive not in good faith and without reasonable belief
that the Executive's act, or failure to act, was in the best interest of Sierra
and (y) in the event of a dispute concerning the application of this provision,
no claim by Sierra that Cause exists shall be given effect unless Sierra
establishes to the Board by clear and convincing evidence that Cause exists.
(G) A "Change in Control" shall be deemed to have occurred if the
event set forth in any one of the following paragraphs shall have occurred:
(I) any Person is or becomes the Beneficial Owner, directly or
indirectly, of securities of the Company (not including in the
securities beneficially owned by such Person any securities acquired
directly from the Company or its affiliates) representing 30% or more
of the combined voting power of the Company's then outstanding
securities,
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<PAGE>
excluding any Person who becomes such a Beneficial Owner in connection
with a transaction described in clause (i) of paragraph (III) below;
or
(II) the following individuals cease for any reason to constitute
a majority of the number of directors then serving: individuals who,
on the date hereof, constitute the Board and any new director (other
than a director whose initial assumption of office is in connection
with an actual or threatened election contest, including but not
limited to a consent solicitation, relating to the election of
directors of the Company) whose appointment or election by the Board
or nomination for election by the Company's stockholders was approved
or recommended by a vote of at least two-thirds (2/3) of the directors
then still in office who either were directors on the date hereof or
whose appointment, election or nomination for election was previously
so approved or recommended; or
(III) there is consummated a merger or consolidation of the
Company or any direct or indirect subsidiary of the Company with any
other corporation, other than (i) a merger or consolidation which
would result in the voting securities of the Company outstanding
immediately prior to such merger or consolidation continuing to
represent (either by remaining outstanding or by being converted into
voting securities of the surviving entity or any parent thereof), in
combination with the ownership of any trustee or other fiduciary
holding securities under an employee benefit plan of the Company or
any subsidiary of the Company, at least 66.66% of the combined voting
power of the securities of the Company or such surviving entity or any
parent thereof outstanding immediately after such merger or
consolidation, or (ii) a merger or consolidation effected to implement
a recapitalization of the Company (or similar transaction) in which no
Person is or becomes the Beneficial Owner, directly or indirectly, of
securities of the Company (not including in the securities
Beneficially Owned by such Person any securities acquired directly
from the Company or its Affiliates other than in connection with the
acquisition by the Company or its Affiliates of a business)
representing 30% or more of the combined voting power of the Company's
then outstanding securities; or
(IV) the stockholders of the Company approve a plan of complete
liquidation or dissolution of the Company or there is consummated an
agreement for the sale or disposition by the Company of all or
substantially all of the Company's assets, other than a sale or
disposition by the Company of all or substantially all of the
Company's assets to an entity, at least 66.66% of the combined voting
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<PAGE>
power of the voting securities of which are owned by stockholders of
the Company in substantially the same proportions as their ownership
of the Company immediately prior to such sale.
Notwithstanding the foregoing, a "Change in Control" shall not be deemed to have
occurred by virtue of the consummation of any transaction or series of
integrated transactions immediately following which the record holders of the
common stock of the Company immediately prior to such transaction or series of
transactions continue to have substantially the same proportionate ownership in
an entity which owns all or substantially all of the assets of the Company
immediately following such transaction or series of transactions.
(H) "Code" shall mean the Internal Revenue Code of 1986, as amended
from time to time.
(I) "Company" shall mean Sierra Pacific Resources and, except in
determining under Section 15(G) hereof whether or not any Change in Control of
the Company has occurred, shall include any successor to its business and/or
assets which assumes and agrees to perform this Agreement by operation of law,
or otherwise.
(J) "Date of Termination" shall have the meaning set forth in Section
7.2 hereof.
(K) "Disability" shall be deemed the reason for the termination by
Sierra of the Executive's employment, if, as a result of the Executive's
incapacity due to physical or mental illness, the Executive shall have been
absent from the full-time performance of the Executive's duties with Sierra for
a period of six (6) consecutive months, Sierra shall have given the Executive a
Notice of Termination for Disability, and, within thirty (30) days after such
Notice of Termination is given, the Executive shall not have returned to the
full-time performance of the Executive's duties.
(L) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended from time to time.
(M) "Executive" shall mean the individual named in the first
paragraph of this Agreement.
(N) "Good Reason" for termination by the Executive of the Executive's
employment shall mean the occurrence (without the Executive's express written
consent) after any Change in Control, or prior to a Change in Control under the
circumstances described in clauses (ii) and (iii) of the second sentence of
Section 6.1 hereof (treating all references in paragraphs (I) through (VII)
below to a "Change in Control" as references to a "Potential Change in
Control"), of any one of
14
<PAGE>
the following acts by Sierra, or failures by Sierra to act, unless, in the case
of any act or failure to act described in paragraphs (I), (IV), (V) or (VI)
below, such act or failure to act is corrected prior to the Date of Termination
specified in the Notice of Termination given in respect thereof:
(I) the assignment to the Executive of any duties substantially
below the Executive's status as a senior executive officer of Sierra
or a substantial adverse reduction in the nature or status of the
Executive's responsibilities from those in effect immediately prior to
the Change in Control other than any such alteration primarily
attributable to the fact that the Company may no longer be a public
company;
(II) a reduction by Sierra in the Executive's annual base salary
as in effect on the date hereof or as the same may be increased from
time to time except for across-the-board salary reductions similarly
affecting all senior executives of Sierra and all senior executives of
any Person in control of Sierra;
(III) the failure by Sierra to pay to the Executive any portion
of the Executive's current compensation except pursuant to an across-
the-board compensation deferral similarly affecting all senior
executives of Sierra and all senior executives of any Person in
control of Sierra, or to pay to the Executive any portion of an
installment of deferred compensation under any deferred compensation
program of Sierra, within thirty (30) days of the date such
compensation is due;
(IV) the failure by Sierra to continue in effect any
compensation plan in which the Executive participates immediately
prior to the Change in Control which is material to the Executive's
total compensation, including but not limited to the Company's Officer
and Senior Managers Annual Incentive Plan, Executive Long-Term
Incentive Plan, Long-Term Performance Share Program and Stock Option
Plan or any substitute plans adopted prior to the Change in Control,
unless an equitable arrangement (embodied in an ongoing substitute or
alternative plan) has been made with respect to such plan, or the
failure by Sierra to continue the Executive's participation therein
(or in such substitute or alternative plan) on a basis not materially
less favorable, both in terms of the amount or timing of payment of
benefits provided and the level of the Executive's participation
relative to other participants, as existed immediately prior to the
Change in Control;
(V) the failure by Sierra to continue to provide the Executive
with benefits substantially similar to those enjoyed by the Executive
under any of Sierra's pension, savings, life insurance, medical,
health
15
<PAGE>
and accident, or disability plans in which the Executive was
participating immediately prior to the Change in Control (except for
across the board changes similarly affecting all senior executives of
Sierra and all senior executives of any Person in control of Sierra),
the taking of any other action by Sierra which would directly or
indirectly materially reduce any of such benefits or deprive the
Executive of any material fringe benefit enjoyed by the Executive at
the time of the Change in Control, or the failure by Sierra to provide
the Executive with substantially the same number of paid vacation days
to which the Executive is entitled on the basis of years of service
with Sierra in accordance with Sierra's normal vacation policy in
effect at the time of the Change in Control; or
(VI) any purported termination of the Executive's employment
which is not effected pursuant to a Notice of Termination satisfying
the requirements of Section 7.1 hereof; for purposes of this
Agreement, no such purported termination shall be effective.
The Executive's right to terminate the Executive's employment for Good
Reason shall not be affected by the Executive's incapacity due to physical or
mental illness. The Executive's continued employment shall not constitute
consent to, or a waiver of rights with respect to, any act or failure to act
constituting Good Reason hereunder.
For purposes of any determination regarding the existence of Good
Reason, any claim by the Executive that Good Reason exists shall be presumed to
be correct unless the Company establishes to the Board by clear and convincing
evidence that Good Reason does not exist.
(O) "Notice of Termination" shall have the meaning set forth in
Section 7.1 hereof.
(P) "Pension Plan" shall mean any tax-qualified, supplemental or
excess benefit pension plan maintained by Sierra and any other plan or agreement
entered into between the Executive and Sierra which is designed to provide the
Executive with supplemental retirement benefits.
(Q) "Person" shall have the meaning given in Section 3(a)(9) of the
Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof, except
that such term shall not include (i) the Company or any of its subsidiaries,
(ii) a trustee or other fiduciary holding securities under an employee benefit
plan of the Company or any of its Affiliates, (iii) an underwriter temporarily
holding securities pursuant to an offering of such securities, or (iv) a
corporation owned, directly or indirectly, by the stockholders of the Company in
substantially the same proportions as their ownership of stock of the Company.
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(R) "Potential Change in Control" shall be deemed to have occurred if
the event set forth in any one of the following paragraphs shall have occurred:
(I) the Company enters into an agreement, the consummation of
which would result in the occurrence of a Change in Control;
(II) the Company or any Person publicly announces an intention
to take or to consider taking actions which, if consummated, would
constitute a Change in Control;
(III) any Person becomes the Beneficial Owner, directly or
indirectly, of securities of the Company representing 15% or more of
either the then outstanding shares of common stock of the Company or
the combined voting power of the Company's then outstanding securities
(not including in the securities beneficially owned by such Person any
securities acquired directly from the Company or its affiliates); or
(IV) the Board adopts a resolution to the effect that, for
purposes of this Agreement, a Potential Change in Control has
occurred.
(S) "Retirement" shall be deemed the reason for the termination by
the Executive of the Executive's employment if such employment is terminated in
accordance with Sierra's retirement policy, including early retirement,
generally applicable to its salaried employees.
(T) "Severance Payments" shall have the meaning set forth in Section
6.1 hereof.
(U) "Tax Counsel" shall have the meaning set forth in Section 6.2
hereof.
(V) "Term" shall mean the period of time described in Section 2
hereof (including any extension, continuation or termination described therein).
(W) "Total Payments" shall mean those payments so described in
Section 6.2 hereof.
Sierra Pacific Resources
By:
-------------------------------
Name:
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Title:
-------------------------------
EXECUTIVE
-------------------------------
-------------------------------
-------------------------------
(Please print carefully)
FORMAGRM
18
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(10) (B)
SIERRA PACIFIC POWER COMPANY
NONQUALIFIED DEFERRED COMPENSATION PLAN
Adopted Effective January 1, 1996
<PAGE>
SIERRA PACIFIC POWER COMPANY
NONQUALIFIED DEFERRED COMPENSATION PLAN
The Board of Directors of Sierra Pacific Power Company, a Nevada
corporation ("Company") has adopted this Nonqualified Deferred Compensation Plan
("Plan") effective January 1, 1996.
1. PURPOSE
-------
The primary purpose of the Plan is to provide deferred compensation to
a select group of management and highly compensated employees through an
unfunded "top hat" arrangement exempt from the fiduciary, funding, vesting, and
plan termination insurance provisions of Title I and Title IV of the Employee
Retirement Income Security Act ("ERISA"). Additionally, the Company has adopted
this Plan to provide Employees with the opportunity to defer Compensation and to
receive the Matching Contributions they are unable to defer or receive under the
Company's tax qualified cash or deferred compensation plan ("Qualified 401(k)
Plan"), because of the limits imposed by Sections 401(a)(4), 401(a)(17), 401(k),
401(m), 402(g) and 415 of the Internal Revenue Code ("Code") on plans to which
those sections of the Code apply.
2. DEFINITIONS AND CAPITALIZED TERMS
---------------------------------
The capitalized terms, set forth in alphabetical order and defined
below, are used throughout the Plan.
(a) "Account" refers to the bookkeeping entries established and
maintained by the Company or the Committee for the purpose of recording (i) the
amounts of Compensation deferred by an Employee under this Plan, (ii) any
Company contributions, administrative expenses, interest accruals, investment
earnings or losses, and (iii) any distributions to an Employee or Beneficiary.
(b) "Beneficiary" refers to the person or entity selected to receive
any portion of an Employee's Account that has not been distributed from the Plan
at the time of the Employee's death. Such designation shall be on a form
provided or approved by the Plan Administrator. In the event a married Employee
designates someone other than his or her spouse as sole, primary Beneficiary,
such initial designation or subsequent change shall be invalid unless the spouse
consents in a writing which names the designated Beneficiary. If an Employee
fails to designate a Beneficiary or no designated Beneficiary survives the
Employee, the Plan Administrator may direct payment of benefits to the following
person or persons in the order given below: the Employee's
(i) spouse,
(ii) descendants, per stirpes,
(iii) parents,
(iv) brothers and sisters, or
(v) estate of the Participant.
(c) "Board" or "Board of Directors" refers to the Board of
Directors of the Company.
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<PAGE>
(d) "Change in Control" has the meaning specified in Section 280G of
the Code and the regulations thereunder. Except for purposes of Section 12
below, the term Change in Control shall not include any transaction between or
among (i) Washington Water Power Company or any of its affiliates or successors
in interest and (ii) Sierra Pacific Power Company or any Related Company.
(e) "Code" refers to the Internal Revenue Code of 1986, as amended
from time to time.
(f) "Committee" or "Administrative Committee" refers to the officers
of the Company who act on behalf of the Company in discharging the Company's
duties as the Plan Administrator. Notwithstanding any other provision of the
Plan document, to the extent permitted by law, any member of the Committee or
any other officer or employee of the Company who exercises discretion or
authority on behalf of the Company shall not be a fiduciary of the Plan merely
by virtue of his or her exercise of such discretion or authority. The Board
shall identify the Company officers who shall serve as members of the Committee.
Absent a designation to the contrary, the Company's internal administrative
Compensation and Benefits Committee shall act on behalf of the Company in
operating this Plan. Because this Plan is a "top hat" arrangement, the Committee
shall not be subject to the fiduciary duties imposed by the provisions of Part 4
of Title I of ERISA.
(g) "Company," "Corporation" or "Employer" refers to Sierra Pacific
Power Company, a Nevada corporation. For purposes other than Section 14, where
the Plan Administrator considers appropriate in applying the provisions of this
Plan, the term Company, Corporation or Employer also includes any Participating
Company.
(h) "Compensation" refers to an Employee's base salary, incentive
compensation awards, special awards, bonuses and other remuneration under the
Company's incentive compensation programs. Compensation considered under this
Plan includes only amounts payable by the Company after an Employee first
becomes eligible to participate in the Plan and during the period through which
such participation continues.
(i) "Disabled" or "Disability" refers to a physical or mental
condition of an Employee which (i) occurs after an Employee first defers
Compensation under this Plan, (ii) results from an injury, disease or disorder,
and (iii) renders the Employee totally and permanently incapable of continuing
in his or her customary employment with the Company. In determining whether an
Employee is disabled, the Committee may rely upon the conclusions of any
insurance carrier that has issued a policy of insurance covering the Employee or
upon the conclusions of any physician acceptable to the Committee. An Employee
automatically will satisfy the requirements under this Plan, with respect to
submission of evidence of disability, throughout the period that he or she
remains qualified for Social Security disability benefits or for benefits under
any Company long term disability plan in which the Employee participates. Any
Employee who believes that he or she is entitled to any advantage, benefit or
other consideration under the Plan as a result of being Disabled shall apply to
the Committee for such consideration and shall provide any evidence of
Disability which the Committee in its discretion may request in a manner
consistent with the Americans with Disabilities Act of 1990 and other relevant
laws.
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<PAGE>
(j) "Effective Date" refers to January 1,1996 with respect to
Compensation first earned, determined or payable after that date.
(k) "Employee" refers to any employee, within the meaning of Section
3121(d) of the Code, who is highly compensated or who is a member of management
selected by the Board to participate in this Plan. In determining whether an
employee is described in the preceding sentence, an employee shall be considered
to be highly compensated if (i) the Employee is in the top three-percent (3%) of
all Company employees determined with reference an employee's total Compensation
or (ii) the employee's annual Compensation exceeds $100,000 or such greater
amount described under Section 414(q)(1)(B) of the Code. Where the Plan
Administrator considers appropriate in applying the provisions of this Plan, the
term Employee may include (i) current and former Employees or (ii) Participants
and Inactive Participants under Plan.
(l) "ERISA" refers to the Employee Retirement Income Security Act of
1974, as amended from time to time.
(m) "Hardship" refers to an Employee's immediate and heavy financial
need caused by an unforeseeable emergency, as described in Treasury Regulations
Section 1.457-2(h)(4) and (5). In general, but without limitation, the Plan
Administrator shall approve a Hardship withdrawal from an Employee's Account if
the reduction does not exceed the amount needed to pay for the following
unreimbursed expenses: (i) medical expenses defined in Code Section 213(d) and
incurred (or to be incurred) during the calendar year by the Employee, or his or
her spouse or dependents (as described in Code Section 152) as a result of a
sudden or unexpected illness or accident; (ii) loss of a participant's property
as a result of a casualty or other extraordinary, unforeseeable circumstances
attributable to forces beyond the Employee's control; and (iii) other costs
recognized by the Plan Administrator to pose an immediate and heavy financial
need on the Employee as a result of an unforeseeable emergency or other factors
beyond an Employee's control.
(n) "Inactive Participant" refers to an Employee who deferred
Compensation under the Plan during a previous Plan Year, who retains an Account
in the Plan, but who does not defer any Compensation payable during the current
Plan Year.
(o) "Matching Contributions" refers to amounts described in Section
5.6(a) below.
(p) "Participant" refers to an eligible Employee who elects to defer
under the Plan part of his or her Compensation payable during the current Plan
Year, as described in Section 4 below.
(q) "Participating Company" refers to (i) Sierra Pacific Power
Company, (ii) each Related Company which has been authorized by the Chief
Executive Officer of Sierra Pacific Power Company to participate in the Plan and
which, by resolution of the Board of Directors (or governing body if the Related
Company is a partnership, joint venture or other unincorporated entity) of the
Related Company, has adopted the Plan and has agreed to comply with the
provisions of the Plan.
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<PAGE>
(r) "Plan Administrator" refers to Sierra Pacific Power Company. The
Plan Administrator shall determine which powers and duties a Related Company or
a Participating Company shall have in the operation of the Plan with respect to
Employees of that Related Company Participating Company.
(s) "Plan Year" refers to the calendar year.
(t) "Qualified 401(k) Plan" refers to the Company's tax qualified
individual account cash or deferred compensation plan subject to the limits
imposed by Code Sections 401(a)(4), 401(k), 401(m), 402(g) and 415.
(u) "Related Company" refers to an organization or enterprise which is
a member of a controlled group of corporations, trades or businesses (within the
meaning of Section 414(b) or (c) and Section 1563(a) of the Code, determined
without regard to Section 1563(a)(4) and (e)(3)(C) thereof and by substituting
the phrase at least 50 percent for the phrase at least 80 percent each time
it appears in Section 1563 (a)(1)) of which Sierra Pacific Power Company is a
component member.
(v) "Service" and "Years of Service" have the meanings specified in
Code Section 411(a)(4) and (5)(A) and the regulations thereunder. Said terms
shall be applied under this Plan in the same manner as applied under the
Company's Qualified 401(k) Plan.
(w) "Termination of Employment" refers to an Employee's (i) separation
from service with the Company, (ii) refusal or failure to return to work within
five working days after the date requested by the Company, (iii) failure to
return to work at the conclusion of a leave of absence. Termination of
Employment requires the complete severance of the relationship of common law
employment between an Employee and Sierra Pacific Power Company or a Related
Company. A reorganization or other change in the capital or ownership of a
Company or transfer within a Company or between or among Sierra Pacific Power
Company and Related Companies does not constitute a Termination of Employment.
(x) "Trust" refers to a rabbi trust within the meaning of Revenue
Procedures 92-64 and 92-65 of which a financial institution selected by the
Company serves as Trustee. Trust also may refer to a custodial account,
insurance policy or any other medium or vehicle issued by a financial
institution through which a Company may accumulate assets to meet the Company's
obligations under this Plan. The term "Trustee" shall include a financial
institution selected by the Company and any successor Trustee under the Trust
instrument.
(y) "Valuation Date" refers to the close of business on the last
business day of any calendar month.
3. ELIGIBILITY
-----------
The Board or the Committee may, from time to time, designate by name,
office, position or salary grade those Employees of the Company who are eligible
to participate in the Plan for one or more Plan Years and the date upon which
each such Employee's participation may commence. Absent specific designation by
the Board or Committee, no Employee shall be eligible to participate in the
Plan. In general, eligible Employees are salaried officers
Page 4
<PAGE>
or other key employees of a Participating Company who either (i) occupy a
position with the Participating Company which has been designated by the
Committee as an eligible position for participation in the Plan, or (ii) have
been designated individually by the Committee to participate in the Plan. All
designated Employees shall be notified by the Board or the Committee of their
eligibility to participate. An Employee shall cease to be eligible when the
Employee ceases to be highly compensated and ceases to be a member of management
selected to participate in the Plan. The effective date of any such
ineligibility under the preceding sentence shall be the first day of the Plan
Year coinciding with or next following the date on which the Board or Committee
provides the Employee with notice of such revocation. An Employee's eligibility
to participate in the Plan does not confer upon the Employee any right to any
position, title, incentive compensation award, bonus or other remuneration or
perquisite of any kind.
4. DEFERRAL OF COMPENSATION
------------------------
4.1 Election to Defer
-----------------
An Employee who is eligible to participate in the Plan may elect to
defer the receipt of Compensation by completing a deferral election form
provided or approved by the Committee. Pursuant to the deferral election form,
an eligible Employee may elect to defer any whole percentage or fixed dollar
amount of his or her Compensation. In general, an Employee may elect to defer
receipt of up to thirty percent (30%) of his or her base salary prior to any
reductions under Code Sections 125 or 401(k) and prior to any deferrals under
this Plan. In addition or in the alternative, an Employee may elect to defer
receipt of up to one hundred percent (100%) of his or her incentive
compensation, bonus or other items of remuneration under the Participating
Company's incentive compensation programs. An Employee who elects to
participate in the Plan must defer at least one thousand dollars ($1,000) in
Compensation for each Plan Year in which he or she remains eligible to
participate. At the time an Employee completes a deferral election form, the
Employee must designate in writing (i) the type(s) of Compensation to be
deferred, (ii) the amount or percentage of such Compensation to be deferred,
(iii) the method in which the Compensation deferred for any Plan Year, adjusted
under Section 5 below, shall be distributed from the Employee's Account, as
permitted by Section 7 below, (iv) the Beneficiary whom the Employee wishes to
designate as the recipient of any portion of the Employee's Account that remains
undistributed at the Employee's death, and the method of distribution to such
Beneficiary, and (v) if the Plan provides for participant-directed investment as
described in Section 5 below, the Employee's investment preferences.
4.2 Date of Deferral
----------------
An eligible Employee must submit his or her deferral election form to
the Committee no later than the last day of the deferral election period. The
last day of the deferral election period for any item of Compensation shall be:
(a) the last day preceding the calendar year
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<PAGE>
(i) in which the eligible Employee will render the services
for which he or she will receive any part of the base salary payable to the
Employee during that year, and
(ii) in which the Company determines the amount of incentive
compensation, bonus or other award that first becomes payable to the Employee
during that year; or
(b) in the first year in which the Company implements the Plan or
in which an Employee first becomes eligible to participate, the Employee may
make his or her election within the first 30 days after the later of
(i) the date the Plan becomes effective, or
(ii) the date the Employee becomes eligible to participate.
4.3 Multiple Elections
------------------
An election to defer Compensation shall be effective on the date an
eligible Employee delivers a completed deferral election form to the Committee;
provided, however, that, if the eligible Employee delivers another properly
completed deferral election form to the Committee prior to the close of the
deferral election period described in Section 4.2, the deferral election on the
form bearing the latest date shall control. Subject to Section 4.5 below, after
the last day of the election period, the controlling election made prior to the
close of the period shall be irrevocable.
4.4 Annual Elections
----------------
In order to defer any portion of Compensation earned in any calendar
year after 1996, an eligible Employee must submit at least one completed
deferral election form during the 30-day period immediately preceding the start
of that calendar year. If an Employee fails to make such a submission, the
Employee will be deemed to have elected to continue deferring the same
percentage of Compensation that the Employee deferred in the preceding calendar
year.
4.5 Deferral Adjustments
--------------------
Except as provided in this Section 4.5, after an annual election has
taken effect for any Plan Year, an Employee may not increase or decrease the
percentage or amount of Compensation to be deferred under this Plan during that
Plan Year.
a. An Employee must cease all deferrals under the Plan if such
cessation would relieve the Employee of one or more Hardships without any
withdrawals under this Plan or under the Qualified 401(k) Plan.
b. During any Plan Year, an Employee may apply in writing to
the Plan Administrator to reduce (but not below zero) the amount of base salary
that the Employee will defer during the remainder of such year; such application
may be made only once for any calendar year and shall apply only to base salary
that has not been earned at the time the Plan Administrator receives the
Employee's application to reduce the future deferral of his or her base salary.
In determining whether the application should be granted, the Plan Administrator
will consider the Employee's financial needs, including
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<PAGE>
any change in the Employee's family status or other circumstances, as well as
the projected needs of the Participating Company liable for future payments of
such base salary.
c. Any termination or reduction of deferrals of future
Compensation shall take effect as of the first day of the period in which such
Compensation first becomes payable following the determination of the Plan
Administrator.
4.6 Election Modifications
----------------------
At any time prior to the first day of the Plan Year in which an
Employee's Termination of Employment occurs, an Employee may apply in writing to
the Plan Administrator to modify the Employee's previous elections with respect
to Compensation deferrals for one or more previous Plan Years. In such
application, an Employee may request permission to modify his or her previous
elections pertaining to (i) the method in which amounts shall be distributed
from the Employee's Account upon the Employee's Termination of Employment and
(ii) the method in which amounts shall be distributed from the Employee's
Account to the Employee's Beneficiary in the event of the Employee's death. In
determining whether the Employee's application should be granted, the Plan
Administrator will consider the Employee's financial needs, including any change
in the Employee's family status or other circumstances, as well as the projected
needs of the Participating Company liable for payments from the Plan.
5. DEFERRED COMPENSATION ACCOUNTS
------------------------------
5.1 Maintenance of Accounts
-----------------------
The Plan Administrator shall maintain one or more Accounts with
respect to any Compensation deferred by an eligible Employee under Section 4
above. The Plan Administrator shall credit the Account with the full amount of
Compensation deferred in any payroll period. If the Compensation deferred is
subject to federal or state employment taxes (e.g. taxes under the Federal
Insurance Contributions Act or Federal Unemployment Tax Act), said taxes shall
be withheld and deducted from a portion of the Employee's Compensation not
deferred under this Plan. A Participant or Inactive Participant shall be fully
vested at all times in amounts deferred under Section 4 above, as adjusted for
any earnings, losses, interest accruals, administrative expenses or
distributions as described below.
5.2 Hypothetical Investment Elections
---------------------------------
Except for any period of time during which the Company limits
Account earnings to interest accruals under Section 5.4 below, a Participant or
Inactive Participant shall have the right to direct the investment of his or her
Account in accordance with rules and procedures established by the Company.
Although the Company shall have the obligation to follow the investment
directions of the Participant or Inactive Participant, the Company, in its sole
discretion, may satisfy its obligation at any time and from time to time in one
or both of the following ways:
a. The Company may invest assets allocable to an
Employee's Accounts in the specific investments, in the specific amounts and
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<PAGE>
for the specific periods directed by the Employee; and the Company must credit
or charge the Employee's Accounts with the earnings, gains or losses resulting
from such investments.
b. In the alternative, the Company may invest assets
allocable to the Employee's Accounts in any manner, in any amount and for any
period of time which the Company in its sole discretion may select; but the
Company must credit or charge the Employee's Accounts with the same earnings,
gains or losses that the Employee would have incurred if the Company had
invested the assets allocable to the Employee's Accounts in the specific
investments, in the specific amounts and for the specific periods directed by
the Employee.
In accordance with procedures established by the Plan
Administrator, an Employee may change his or her investment directions effective
as of the first day of any month or other period specified in any investment
election form provided by the Plan Administrator. Such changes may be made in a
writing delivered to the Company or the Committee no fewer than fifteen (15)
days preceding the effective date of the change. If the Employee fails to
provide any investment directions at a time when the Employee has an interest in
the Company's Qualified 401(k) Plan, the Company or the Committee may follow the
then current investment directions for the Employee's interest in the Company's
Qualified 401(k) Plan. If this Plan is determined to be subject to the fiduciary
provisions of Part 4 of Title I of ERISA, this Plan shall be treated as a Plan
described in Section 404(c) of ERISA and Title 29 of the Code of Federal
Regulations Section 2550.404c-1, in which Plan fiduciaries may be relieved of
liability for any losses which are the direct and necessary result of investment
instructions given by a Participant or Beneficiary.
5.3 Hypothetical Earnings or Losses
-------------------------------
Except for any period of time during which the Company limits Account
earnings to interest accruals under Section 5.4 below, any amounts credited to
the Account of a Participant or Inactive Participant as a result of the deferral
of all or part of his or her Compensation may increase or decrease as a result
of the Company's investment of such amounts between Valuation Dates, as
described in Section 5.2 above. A ratable share of Plan investment earnings or
losses under this Section 5.3 shall be credited to the Account of a Participant
or Inactive Participant, as determined in good faith by the Committee. At the
sole discretion of the Committee, for any Plan Year, the Committee may allocate
to the Employee's Account either (i) the full amount of the Employee's share of
Plan investment earnings or losses or (ii) the full amount of such share
adjusted for any federal, state or local income or employment taxes attributable
to such earnings or losses. If the full amount of such investment earnings or
losses are allocated to an Employee's Account, any federal, state or local
income or employment taxes attributable to such earnings or losses under this
Section 5.3 may be borne by or inure to the benefit of the Company. The
Employee and his or her spouse, if any, understand and agree that they assume
all risk in connection with any decrease in the value of the Compensation
deferred under the Plan as invested in accordance with these Sections 5.2 and
5.3.
5.4 Hypothetical Interest Accruals
------------------------------
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<PAGE>
a. Company as Obligor
------------------
During each Plan Year in which the Company does not invest an
Employee's deferred Compensation as described in Sections 5.2 and 5.3 above, any
amounts credited to the Account of a Participant or Inactive Participant as a
result of the deferral of all or part of his or her Compensation shall accrue
interest compounded monthly, as consideration for the use or forbearance of
money. The monthly crediting rate for a particular calendar year will equal
one-twelfth (1/12) of the sum of (i) two percent (2%) plus (ii) the annual yield
for a thirty (30) year U.S. Treasury Bond as of the first day of December
immediately preceding such calendar year. The accrual of interest begins on
January 1 of each Plan Year or, if later, the date on which an eligible Employee
first defers Compensation under the Plan. The amount on which interest is
accrued is the full amount in the Employee's Account as of the Valuation Date
immediately preceding the first day of the month for which the accrual is to
occur. At the sole discretion of the Company, for any Plan Year (i) the full
amount of such accrued interest may be allocated to an Employee's Account or
(ii) adjusted for any federal, state or local income or employment taxes
attributable to such interest, prior to allocating such interest to an
Employee's Account. If the full amount of such interest accruals are allocated
to an Employee's Account, any federal, state or local income or employment taxes
attributable to interest accruals under this Section 5.4 may be borne by or
inure to the benefit of the Company.
b. Third Party as Obligor
----------------------
Notwithstanding the foregoing, the Committee may at any time and from
time to time, with advance written notice to a Participant or Inactive
Participant, cease the hypothetical accrual of interest under this Section 5.4
with respect to such Employee and commence hypothetical investment elections
under Sections 5.2 and 5.3 above. If the Committee commences such hypothetical
investment elections, one option available to any affected Employee shall be an
investment in which the issuer of the security, contract, certificate, etc.
guarantees principal and provides a fixed rate of interest. Nothing in the
preceding sentence or in any other provision of the Plan shall be construed to
render any Participating Company or any Related Company or any other person (i)
the guarantor of the obligation of the issuer of any security, contract,
certificate, etc. with respect to principal or interest or (ii) in any way
responsible for the actions or omissions of any issuer of any security,
contract, certificate, etc. with respect to any hypothetical investment under
Sections 5.2 or 5.3 of this Plan.
5.5 Investment of Unpaid Balances
-----------------------------
The unpaid balance of all Accounts under the Plan shall continue to be
credited with the hypothetical investment earnings or losses described in
Sections 5.2 and 5.3 above or the hypothetical interest accruals described in
Section 5.4 above.
5.6 Company Contributions
---------------------
a. Matching Contributions
----------------------
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<PAGE>
As of the last day of any Plan Year for which an eligible Employee has
deferred Compensation under this Plan, the Committee shall add to his or her
Account an amount equal to the Company matching contributions, within the
meaning of Code Section 401(m) and the Company's Qualified 401(k) Plan, which
the Employee would have received (i) if the Employee had contributed, to the
Company's Qualified 401(k) Plan, the amounts deferred under this Plan and (ii)
if the limitations described in Section 1 above did not apply to the Company's
Qualified 401(k) Plan ("Matching Contributions"). For any year, Matching
Contributions will be allocated to a Participant's Account in this Plan in an
amount equal to the excess, if any, of
(1) the rate of the Company's Matching Contribution to the Qualified
401(k) Plan that year multiplied by the lesser of the following:
(a) the sum of
(i) the Participant's deferrals under the
Qualified 401(k) Plan, plus
(ii) the Participant's deferrals under this Plan,
or
(b) six percent (6%) of the Participant's Compensation
that year; over
(2) Company's Matching Contributions allocated to the Participant's
Account under the Qualified 401(k) Plan that year.
b. Other Contributions
-------------------
Apart from Compensation deferrals and Matching Contributions, the
Company, in its sole discretion, at any time and from time to time, may make
contributions for any Employee, Participant or Inactive Participant under this
Plan. Subject to Section 5.6(e) below, any such discretionary contribution shall
be fully vested at all times and shall be distributable pursuant to Section 7
below.
c. Adjustments to Company Contributions
------------------------------------
Once credited to an Employee's Accounts under this Plan, the amounts
described in Section 5.6(a) and (b) shall accrue the hypothetical interest or
investment returns described in Section 5.2, 5.3, 5.4 and 5.5 above, and shall
be paid in accord with Section 7 below.
d. Vesting in Company Contributions
--------------------------------
Subject to the forfeiture provisions of Section 5.6(e) below, an
Employee shall be 100% vested in amounts allocated to his or her Account under
Section 5.6(a), (b) or (c) above.
e. Forfeitures
-----------
Without regard to the number of Years of Service an Employee has
completed with the Company and without regard to an Employee's
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<PAGE>
age, Disability or death, if an Employee separates from service with the Company
as a result of the Employee's gross misconduct, within the meaning of Part 6 of
Title I of ERISA, regarding group health continuation coverage, or if the
Employee engages in unlawful business competition with the Company, the Employee
shall forfeit all amounts allocated to his or her Accounts under Section 5.6(a),
(b) and (c) above. Similarly, an Employee's vesting in amounts allocated to his
or her Accounts under Section 5.6(a), (b) and (c) shall be contingent upon an
Employee's executing and not revoking a settlement and release ("Release"), in a
form approved by the Plan Administrator, which Release shall resolve all claims
by Employee against the Company, the Plan and other persons specified in the
Release with respect to matters addressed in the Release. Any forfeitures under
this Section 5.6(e) shall be used to reduce the Company's obligation, if any, to
make Matching Contributions to other Participants or to defray the expenses of
administering the Plan.
5.7 Statement of Account
--------------------
At least once each calendar year, the Plan Administrator will provide
every Participant, Inactive Participant or Beneficiary with a statement of the
balance of his or her Account under the Plan as of a specified Valuation Date
during that calendar year or during the preceding calendar year.
5.8 Company's General Assets
------------------------
Employee understands and agrees that all Compensation deferred under
the Plan and all amounts credited to an Employee's Account under the Plan (a)
are the general assets of the Company, (b) may be used in the operation of the
Company's business or in any other manner permitted by law, and (c) remain
subject to the claims of the Company's general unsecured creditors. Employee
agrees, on behalf of Employee and his or her spouse or other Beneficiary, that
(i) title to any amounts deferred under the Plan or credited to an Employee's
Account remains in the Company and (ii) neither Employee nor his or her spouse
or other Beneficiary has any property interests whatsoever in said amounts,
except as general creditors of the Company.
a. Terms of Other Plan Documents
-----------------------------
Amounts deferred under this Plan or distributed pursuant to the
terms of this Plan are not taken into account in the calculation of an
Employee's benefits under any employee pension or welfare benefit program or
under any other compensation policy or practice, except to the extent
specifically provided in such program, policy or practice.
b. Retirement Benefits
-------------------
Compensation deferred under this Plan are taken into account in
the calculation of an Employee's benefits under a Participating Company's tax-
qualified defined benefit pension plan ("Pension Plan") only to the extent
provided in such Pension Plan. Amounts deferred under this Plan shall be taken
into account in the calculation of any benefit which the Employee may accrue
under a Participating Company's supplemental executive retirement plan ("SERP")
or under a Participating Company's excess benefit plan, within the meaning of
ERISA Section 3(36), only to the extent provided in such SERP or
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<PAGE>
excess benefit plan. For any year in which an Employee defers any portion of his
or her Compensation under this Plan, the Employee may accrue a benefit in
accordance with the terms of the SERP or excess benefit plan. Except to the
extent specifically provided in a Participating Company's Pension Plan, SERP or
excess benefit plan, no Employee shall accrue any benefit under a Participating
Company's Pension Plan, SERP or excess benefit plan with respect to amounts
distributed pursuant to this Nonqualified Deferred Compensation Plan.
c. Prior Executive Deferred Compensation Plan
------------------------------------------
Before adopting this Plan, the Company maintained a nonqualified
Executive Deferred Compensation Plan ("EDCP"). If an Employee has an account in
the EDCP and the Employee is eligible to participate in this Plan, then upon the
effective date of this Plan (or, if later, the effective date of an Employee's
initial participation in this Plan), the Employee's account in the EDCP shall be
transferred to this Plan, unless the Employee fails to comply with the rules and
procedures which the Company shall establish in its sole discretion regarding
the transfer of accounts from the EDCP to this Plan. Upon the transfer of an
Employee's EDCP account to this Plan, said account shall become a liability of
the Company to said Employee under this Plan; and any such transfer shall
extinguish any liability that the Company may have had to said Employee or to
any other person under the EDCP. If an Employee has an account in the EDCP and
does not become a Participant in this Plan or fails to comply with the Company's
rules and procedures regarding the transfer of EDCP accounts to this Plan, then
the Company shall discharge its obligation to the Employee and his or her
successors in interest under the EDCP in accordance with the provisions of the
EDCP as the Company in its sole discretion shall determine. Any amounts
transferred from the EDCP to this Plan, including all amounts attributable to
compensation deferred prior to January 1, 1996, shall be subject to all the
provisions of this Plan, including without limitations those provisions that
prohibit loans from and restrict distributions under this Plan.
7. PAYMENT OF DEFERRED COMPENSATION ACCOUNTS
-----------------------------------------
7.1 Income Tax Obligations
----------------------
If an Employee is assessed federal, state or local income taxes
by reason of, and computed on the basis of, his or her undistributed deferred
Compensation, Company contributions, interest accruals or investment earnings in
his or her Account, the Employee shall notify the Committee in writing of such
assessment. Promptly upon receipt of such notification, the Committee shall
distribute to Employee from his or her Account an amount equal to such tax
assessment (or, at Employee's election, an amount equal to the items on which
such taxes are assessed) together with any interest due and penalties imposed
thereon; provided however, that if the Committee determines that such assessment
is improper, it may request that the Employee contest the assessment, at the
expense of the Company (which expense shall include all costs of appeal and
litigation, including legal and accounting fees, and any additional interest or
penalties imposed on the deficiency from and after the date of the Employee's
notice to the Committee); and during the period such contest is pending, the
sums otherwise distributable pursuant to this Section 7.1 shall not be
distributed.
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<PAGE>
7.2 Other Withdrawals
-----------------
a. Withdrawals to Meet Hardships
-----------------------------
If an Employee incurs a Hardship, as described in Section
2(m) above, the Employee may, by written notice to the Committee, request that
all or any specified part of his or her Account under this Plan, but not less
than $1,000 per withdrawal, be paid to the Employee; and such distribution, if
approved by the Committee, shall be made in a lump sum within thirty (30) days
following the Committee's receipt of such notice. The Committee shall have
exclusive authority to determine whether to make a Hardship distribution from an
Employee's Account but shall not unreasonably deny a request for such a
distribution. The Committee's decision shall be final and binding on all
parties. Any Hardship withdrawals from an Account shall reduce the amount
available for subsequent distributions from the Account, as the Committee in
good faith may determine.
b. In-Service Withdrawals
----------------------
Prior to Termination of Employment, a Participant or
Inactive Participant may not withdraw any funds from his or her Account, except
for Hardship as provided in paragraph a. of this Section 7.2.
7.3 Termination of Employment
-------------------------
yment of a Participant or Inactive Participant, the Committee shall distribute
his or her Account under the Plan, as elected by the Participant or Inactive
Participant under Section 4 above, in a lump sum or in five (5) or ten (10)
substantially equal annual installments. The payment from the Account shall
occur or commence within 30 days after the first day of the calendar year
immediately following the calendar year in which the Termination of Employment
occurs. During the period between the Termination of Employment and the
distribution of his or her entire Account, a former Employee may request
Hardship withdrawals from any undistributed portion of his or her Account. Any
such Hardship withdrawals shall reduce the amount available for subsequent
distributions from the Plan, as the Company in good faith may determine.
7.4 Disability
----------
yment, the Committee shall distribute his or her Account under the Plan, as
elected by the Participant or Inactive Participant under Section 4 above, in a
lump sum or in five (5) or ten (10) substantially equal annual installments. The
payment from the Account shall occur or commence within 30 days after the
Committee determines that the Participant or Inactive Participant is Disabled.
Prior to the death of the Participant or Inactive Participant, during any period
in which a Participant or Inactive Participant remains Disabled, he or she (or
his or her legal representative) may request Hardship withdrawals from any
undistributed portion of his or her Account. Any such Hardship withdrawals shall
reduce the amount available for subsequent distributions from the Account, as
the Company in good faith may determine.
7.5 Death Prior to Commencement of Distributions
--------------------------------------------
Page 13
<PAGE>
Upon the death of a Participant or Inactive Participant prior to
the commencement of any distribution under Sections 7.3 or 7.4 above, the
Account of such Participant or Inactive Participant shall be distributed to his
or her Beneficiary, in a lump sum or in five (5) or ten (10) substantially equal
annual installments, as elected by the Participant or Inactive Participant under
Section 4 above. The payment from the Account shall occur or commence within 30
days after the Committee receives written notice of the death of the Participant
or Inactive Participant.
7.6 Death After Commencement of Distributions
-----------------------------------------
Upon the death of a Participant or Inactive Participant after the
commencement of any distribution in accordance with Sections 7.3 or 7.4 above,
the balance remaining in the Account of such Participant or Inactive Participant
shall be distributed to his or her Beneficiary in accordance with the terms
elected by the Participant or Inactive Participant under Sections 7.3 or 7.4
above.
7.7 Default Distribution
--------------------
The Company shall accelerate the payment of Accounts under the
Plan as a lump sum payment (i) if an Employee terminates employment with the
Company at a time when the value of his or her Account is less than $25,000,
(ii) at any time after an Employee's Termination of Employment if the value of
an Account falls below $10,000 or (iii) if an Employee who has elected
installment distributions, terminates employment with the Company and works for
a competitor of the Company, as the Committee in good faith may determine.
Additionally, if a Participant or Inactive Participant fails to elect a form of
payment from the Plan at the time of his or her deferral of Compensation or at
any other time before an Account becomes payable, the Company shall distribute
the Account in five (5) substantially equal annual installments, commencing
within 30 days after the Account first becomes payable under the Plan.
7.8 Payment of Annual Installments
------------------------------
Where an Account is payable in annual installments, the amount of
such installment shall be computed as follows. The first installment shall equal
(i) the amount in the Account determined as of the Valuation Date immediately
preceding payment of the first installment (ii) multiplied by a fraction the
numerator of which is one (1) and denominator of which is the total number of
installments to be paid from the Account. Each remaining installment shall be
paid as soon as administratively feasible after the start of the Plan Year
following payment of a previous installment and shall equal (i) the amount in
the Account determined as of the Valuation Date immediately preceding payment of
that installment (ii) multiplied by a fraction the numerator of which is one (1)
and denominator of which is the total number of installments still to be paid
from the Account.
7.9 Withholding of Taxes
--------------------
With respect to any payments to or from this Plan, the Company
shall withhold any taxes or other amounts which federal, state or local law
requires the Company to deduct, withhold and deposit. The Company's
Page 14
<PAGE>
determination of the type and amount of taxes to be withheld from any payment
shall be final and binding on all persons having or claiming to have an interest
in this Plan or in any Account under this Plan.
8. FUNDING
-------
All amounts deferred under this Plan remain or become general assets
of the Company. All payments under this Plan shall come from the general assets
of the Company. The amounts credited to an Employee's Account are not secured
by any specific assets of the Company. This Plan shall not be construed to
require the Company to fund any of the benefits provided hereunder or to
establish a trust or purchase an insurance policy, bond or other product for
such purpose. The Company may make such arrangements as it desires to provide
for the payment of benefits. Neither an Employee, Participant or Inactive
Participant nor his or her Beneficiary or estate shall have any rights against
the Company with respect to any portion of any Account under the Plan except as
general unsecured creditors. No Employee, Participant, Inactive Participant,
Beneficiary or estate has an interest in any Account under this Plan until such
Account or portion thereof first becomes payable to the Employee, Participant,
Inactive Participant, Beneficiary or estate.
9. PAYMENTS SUSPENDED UPON COMPANY'S INSOLVENCY
--------------------------------------------
At all times during the continuance of any trust established in
connection with this Plan ("Trust"), if the Plan Administrator determines that
the Company's financial condition is likely to result in the suspension of
benefit payments from the Trust, the Plan Administrator shall advise
Participants, Inactive Participants and Beneficiaries that payments from the
Trust shall be suspended during the Company's insolvency. If the Trustee
subsequently resumes such payments, the Administrator shall advise Participants,
Inactive Participants and Beneficiaries that, if Trust assets are sufficient,
the first payment following such discontinuance shall include the aggregate
amount of all payments due to Participants, Inactive Participants and
Beneficiaries under the terms of the Plan for the period of such discontinuance,
less the aggregate amount of any payments made directly by the Company during
any period of discontinuance.
No insufficiency of Trust assets shall relieve the Company of its obligation to
make payments when due under the Plan.
10. NON-ALIENATION OF BENEFITS
--------------------------
The interest of any Employee, Participant, Inactive Participant or
Beneficiary shall not be subject to sale, assignment, transfer, conveyance,
hypothecation, encumbrance, garnishment, attachment, anticipation, pledge,
alienation or other disposition prior to actual distribution from the Plan; and
any attempt to effect such disposition shall be void. No portion of any Account
shall, prior to receipt thereof, be subject to the debts, contracts,
liabilities, or engagements of any Employee, Participant, Inactive Participant
or Beneficiary. Nothing in the preceding sentence shall prohibit the Company
from recovering from an Employee, Participant, Inactive Participant or
Beneficiary any payments to which he or she was not entitled under this Plan or
under any other contract or arrangement with the Company. No Employee,
Participant, Inactive Participant or Beneficiary shall be able to borrow money
Page 15
<PAGE>
from this Plan or use his or her Account in this Plan as security for any loans.
11. LIMITATION OF RIGHTS AND REMEDIES
---------------------------------
Nothing in this Plan document or in any related instrument shall be
construed as evidence of any agreement or understanding, express or implied,
that the Company (a) will employ any person in any particular position or level
of Compensation, (b) will offer any person initial or continued participation or
awards in any commission, bonus or other compensation program, or (c) will
continue any person's employment with the Company. This Plan is a contract
concerning payment for personal services; no breach of this contract shall give
rise to any action or remedy in tort or for extra-contractual damages.
12. BEST PAYMENTS
-------------
(a) If the gross amount of any payment or benefit under this Plan,
either separately or in combination with any other payment or benefit payable by
the Company or any of its affiliates or pursuant to a plan of the Company or an
affiliate, would constitute a parachute payment within the meaning of the Code
Section 280G, then the total payments and benefits accrued and payable under
this Plan shall not exceed the amount necessary to maximize the amount
receivable by the Employee after payment of all employment, income and excise
taxes imposed on the Employee with respect to such payments or benefits.
(b) The Employee may elect by written notice which items of
compensation, if any, shall be reduced so as to meet the requirements of Section
12(a) above. If there is a dispute between the Company and the Employee
regarding (i) the extent, if any, to which any payments or benefits to the
Employee are parachute payments or excess parachute payments, under Code Section
280G, or (ii) the base amount of such Employee's Compensation under Code Section
280G, or (iii) the status of such Employee as a disqualified individual, under
Code Section 280G, such dispute shall be resolved in the same manner as a claim
for benefits under this Plan.
(c) Within 60 days of a Change in Control or, if later, within 30 days
of the Employee's receiving notice of termination of employment from the Company
or the Company's receiving notice of termination of employment from the
Employee, either the Employee or the Company may request (i) a determination of
the amount of any parachute payment, excess parachute payment, or base amount of
compensation, or (ii) a determination of the reduction necessary to maximize the
net receipts of the Employee as described in Section 12(a) above. Any fees,
costs or expenses incurred by the Employee in connection with such
determinations shall be paid equally by the Employee and the Company.
13. NOTICE UNDER WARN
-----------------
(a) Any amounts paid (i) to any Employee under the Worker Adjustment
and Retraining Notification Act of 1988 ("WARN") or under any other laws
regarding termination of employment, or (ii) to any third party for the benefit
of said Employee or for the benefit of his or her dependents shall not
Page 16
<PAGE>
be offset or reduced by any amounts paid or determined to be payable by the
Company to said Employee or to his or her dependents under this Plan.
(b) A Change in Control shall not be considered an "unforeseeable
business circumstance" under WARN that would relieve the Company of its
obligation to provide layoff notice to Participants or Inactive Participants
under this Plan. In
determining whether there has occurred an "employment loss" that would entitle a
Participant or Inactive Participant to notice under WARN, any voluntary or
involuntary separation of the Participant or Inactive Participant shall be
treated as an employment loss entitling the Employee to such notice.
14. AMENDMENT OR TERMINATION OF PLAN
--------------------------------
(a) Prior to a Change in Control, the Board of Directors may modify,
suspend or terminate the Plan in any manner that does not (i) reduce any
benefits accrued under this Plan or (ii) constitute a forfeiture of any benefits
vested under this Plan. After a Change in Control, the Plan may not be amended
or terminated in any manner that adversely affects the fixed or contingent
rights of any Participant or Inactive Participant under the Plan, including but
not limited to the right to continue to defer the receipt of payments until the
times specified in Section 7 above or the right to accrue interest or investment
earnings at the rate and in the manner described in Section 5 above.
(b) In modifying, suspending or terminating the Plan, or in taking any
other action with respect to the implementation, operation, maintenance or
administration of the Plan, the Board of Directors may act by a resolution of
the full Board or by a resolution of an authorized committee of the Board.
(c) This Plan shall terminate immediately if a court of competent
jurisdiction determines that this Plan is not exempt from the fiduciary
provisions of Part 4 of Title I of ERISA. The Plan shall terminate as of the
date it ceased to be exempt.
(d) Upon termination of the Plan, the Plan Administrator shall
distribute all Accounts, as determined by the Plan Administrator (i) in a lump
sum to all Participants or (ii) in accordance with the method designated by
Participants at the time of their deferrals.
15. ADMINISTRATIVE PROCEDURES
-------------------------
15.1 Plan Administrator
------------------
The Plan Administrator shall be the Company. The Company may
establish an Administrative Committee, sometimes called a Compensation and
Benefits Committee, composed of any persons, including officers or employees of
the Company, who act on behalf of the Company in discharging the duties of the
Company in administering the Plan. No Administrative Committee member who is a
full-time officer or employee of the Company shall receive compensation with
respect to his or her service on the Administrative Committee. Any member of
the Administrative Committee may resign by delivering his or her written
resignation to the Board of Directors of the Company or to an authorized
committee of the Board. The full Board or an authorized committee
Page 17
<PAGE>
of the Board may remove any member of the Administrative Committee by providing
him or her with written notice of the removal.
15.2 Committee Organization and Procedures
-------------------------------------
(a) The Chief Executive Officer of the Company may designate a
chairperson from the members of the Administrative Committee. The
Administrative Committee may appoint a secretary, who may or may not be a member
of the Administrative Committee. The secretary shall have the primary
responsibility for keeping a record of all meetings and acts of the
Administrative Committee and shall have custody of all documents, the
preservation of which shall be necessary or convenient to the efficient
functioning of the Administrative Committee. All reports required by law may be
signed by the Chairperson or another member of the Administrative Committee, as
designated by the Chairperson, on behalf of the Company.
(b) The Administrative Committee shall act by a majority of its
members in office and may adopt such rules and regulations as it deems desirable
for the conduct of its affairs. If the Company, the Plan, any Participant or
Inactive Participant is or becomes subject to any rules of the Securities and
Exchange Commission or any national or regional securities exchange, the Company
and the members of the Administrative Committee shall take any actions which are
necessary or desirable for the maintenance, modification or operation of the
Plan in accordance with those rules.
15.3 Administrative Authority
------------------------
The Company and the Administrative Committee have discretionary
authority to perform all functions necessary or appropriate to the operation of
the Plan, including without limitation authority to (a) construe and interpret
the provisions of the Plan document and any related instrument and determine any
question arising under the Plan document or related instrument, or in connection
with the administration or operation thereof; (b) determine in its sole
discretion all facts and relevant considerations affecting the eligibility of
any Employee to be or become a Participant; (c) decide eligibility for, and the
amount of, benefits for any Participant, Inactive Participant or Beneficiary;
(d) authorize and direct all disbursements under the Plan; and (e) employ and
engage such persons, counsel and agents and to obtain such administrative,
clerical, medical, legal, audit and actuarial services as it may deem necessary
in carrying out the provisions of the Plan. The Company shall be the
"administrator" as defined in Section 3(16)(A) of ERISA for purposes of the
reporting and disclosure requirements of ERISA and the Code. The General
Counsel of the Company shall be the agent for service of legal process on the
Plan.
15.4 Expenses
--------
All reasonable expenses which are necessary to operate and
administer the Plan shall be paid directly by the Company from its general
assets, including any assets of a Trust the Company may establish with respect
to the Plan. All reasonable costs incurred by a Committee member in the
discharge of the Company's or his or her duties under the Plan shall be paid or
reimbursed by the Company. Such costs shall include fees or expenses arising
from the Committee's retention, with the consent of the Company, of any
attorneys, accountants, actuaries, consultants or recordkeepers required by the
Committee to discharge its duties under the Plan. Nothing in the preceding two
sentences or in any other provisions of the Plan shall require
Page 18
<PAGE>
the Company to pay or reimburse any Committee member or any other person for any
cost, liability, loss, fee or expense incurred by the Committee member or other
person in any dispute with the Company; nor may any Committee member or other
person reimburse himself, herself or itself from any Plan contributions or from
the principal or income of the Trust or from any other investment or funding
vehicle for the Plan for any such cost, liability, loss, fee or expense.
15.5 Insurance
---------
The Company may, but need not, obtain liability insurance to
protect its directors, officers, employees or representatives against liability
in the operation of the Plan.
15.6 Claims Procedure
----------------
(a) A claim for benefits shall be considered filed only when
actually received by the Plan Administrator.
(b) Any time a claim for benefits is wholly or partially denied,
the Participant, Inactive Participant or Beneficiary (hereinafter "Claimant")
shall be given written notice of such denial within 60 days after the claim is
filed, unless special circumstances require an extension of time for processing
the claim. If there is an extension, the Claimant shall be notified of the
extension and the reason for the extension within the initial 60-day period. The
extension shall expire within 120 days after the claim is filed. Such notice
will indicate the reason for denial, the pertinent provisions of the Plan on
which the denial rests, an explanation of the claims appeal procedure set forth
herein, and a description of any additional material or information necessary to
perfect the claim and an explanation of why such material or information is
necessary.
15.7 Appeal Procedures
-----------------
(a) Any person who has had a claim for benefits denied by the
Plan Administrator, or is otherwise adversely affected by the action or inaction
of the Plan Administrator, shall have the right to request review by the Plan
Administrator. Such request must be in writing, and must be received by the Plan
Administrator within 60 days after such person receives notice of the Plan
Administrator's action. If written request for review is not made within such
60-day period, the Claimant shall forfeit his or her right to review. The
Claimant or a duly authorized representative of the Claimant may review all
pertinent documents and submit issues and comments in writing.
(b) The Plan Administrator shall then review the claim. The Plan
Administrator may issue a written decision reaffirming, modifying or setting
aside its former action within 60 days after receipt of the written request for
review, or 120 days if special circumstances require an extension. The Claimant
shall be notified in writing of any such extension within 60 days following the
request for review. An original or copy of the decision shall be furnished to
the Claimant. The decision shall set forth the reasons and pertinent plan
provisions or relevant laws on which the decision rests. The decision shall be
final and binding upon the Claimant and the Plan Administrator and all other
persons having or claiming to have an interest in the Plan or in any Account
established under the Plan.
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<PAGE>
15.8 Notices
-------
Any notice from the Company or the Committee to an Employee,
Participant, Inactive Participant or Beneficiary regarding this Plan may be
addressed to the last known residence of said person as indicated in the records
of the Company. Any notice to, or any service of process upon, the Company or
the Committee with respect to this Plan may addressed as follows:
Vice President, Human Resources
Sierra Pacific Power Company
6100 Neil Road
Reno, Nevada 89520
15.9 Indemnification
---------------
To the extent permitted by law, the Company shall, and hereby
does, indemnify and hold harmless any director, officer or employee of the
Company who is or may be deemed to be responsible for the operation of the Plan,
from and against any and all losses, claims, damages or liabilities (including
attorneys' fees and amounts paid, with the approval of the Board, in settlement
of any claim) arising out of or resulting from a duty, act, omission or decision
with respect to the Plan, so long as such duty, act, omission or decision does
not involve gross negligence or willful misconduct on the part of such director,
officer or employee. Any individual so indemnified shall, within 10 days after
receipt of notice of any action, suit or proceeding, notify the Chief Executive
Officer ("CEO") of the Company and offer in writing to the CEO the opportunity,
at the Company's expense, to handle and defend such action, suit or proceeding,
and the Company shall have the right, but not the obligation, to conduct the
defense in any such action, suit or proceeding. An individual's failure to give
the CEO such notice and opportunity shall relieve the Company of any liability
to said individual under this Section 15.9. The Company may satisfy its
obligations under this provision (in whole or in part) by the purchase of
insurance. Any payment by an insurance carrier to or on behalf of such
individual shall, to the extent of such payment, discharge any obligation of the
Company to the individual under this indemnification.
16. MISCELLANEOUS
-------------
16.1 Alternative Acts and Times
--------------------------
If it becomes impossible or burdensome for the Company or the
Committee to perform a specific act at a specific time required by this Plan,
the Company or Committee may perform such alternative act which most nearly
carries out the intent and purpose of this Plan and may perform such required or
alternative act at a time as close as administratively feasible to the time
specified in this Plan for such performance. Nothing in the preceding sentence
shall allow the Company or Committee to accelerate or defer any payments to
Participants or Inactive Participants under this Plan, except as otherwise
expressly permitted herein.
16.2 Masculine and Feminine, Singular and Plural
-------------------------------------------
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<PAGE>
Whenever used herein, pronouns shall include all both genders,
and the singular shall include the plural, and the plural shall include the
singular, whenever the context shall plainly so require.
16.3 Governing Law and Severability
------------------------------
This Plan shall be construed in accordance with the laws of the
State of Nevada (exclusive of its rules regarding conflicts of law) to the
extent that such laws are not preempted by ERISA or other federal laws. If any
provision of this Plan shall be held illegal or invalid for any reason, such
determination shall not affect the remaining provisions of this Plan which shall
be construed as if said illegal or invalid provision had never been included.
16.4 Facility of Payment
-------------------
If the Plan Administrator, in its sole discretion, determines
that any Employee, Participant, Inactive Participant or Beneficiary by reason of
infirmity, minority or other disability, is physically, mentally or legally
incapable of giving a valid receipt for any payment due him or her or is
incapable of handling his or her own affairs and if the Plan Administrator is
not aware of any legal representative appointed on his or her behalf, then the
Plan Administrator, in its sole discretion, may direct (a) payment to or for the
benefit of the Employee, Participant, Inactive Participant or Beneficiary; (b)
payment to any person or institution maintaining custody of the Employee,
Participant, Inactive Participant or Beneficiary; or (c) payment to any other
person selected by the Plan Administrator to receive, manage and disburse such
payment for the benefit of the Employee, Participant, Inactive Participant or
Beneficiary. The receipt by any such person of any such payment shall be a
complete acquittance therefor; and any such payment, to the extent thereof,
shall discharge the liability of the Company, the Committee, and the Plan for
any amounts owed to the Employee, Participant, Inactive Participant or
Beneficiary hereunder. In the event of any controversy or uncertainty regarding
who should receive or whom the Plan Administrator should select to receive any
payment under this Plan, the Plan Administrator may seek instruction from a
court of proper jurisdiction or may place the payment (or entire Account) into
such court with final distribution to be determined by such court.
16.5 Correction of Errors
--------------------
Any Compensation, Matching Contributions or other amounts
credited to the Account of any Employee, Participant, Inactive Participant or
Beneficiary under a mistake of fact or law shall be returned to the Company. If
an Employee, Participant, Inactive Participant or Beneficiary in an application
for a benefit or in response to any request by the Company or the Plan
Administrator for information, makes any erroneous statement, omits any material
fact, or fails to correct any information previously furnished incorrectly to
the Company or the Plan Administrator, or if the Plan Administrator makes an
error in determining the amount payable to an Employee, Participant, Inactive
Participant or Beneficiary, the Company or the Plan Administrator may correct
its error and adjust any payment on the basis of correct facts. The amount of
any overpayment or underpayment may be deducted from or added to the next
succeeding payments, as directed by the Plan
Page 21
<PAGE>
Administrator. The Plan Administrator and the Company reserve the right to
maintain any action, suit or proceeding to recover any amounts improperly or
incorrectly paid to any person under the Plan or in settlement of a claim or
satisfaction of a judgment involving the Plan.
16.6 Missing Persons
---------------
In the event a distribution of part or all of an Account is
required to be made from the Plan to an Employee, Participant, Inactive
Participant or Beneficiary, and such person cannot be located, the relevant
portion of the Account shall escheat in accordance with the laws of the State of
Nevada. If the affected Employee, Participant, Inactive Participant or
Beneficiary later contacts the Company, his or her portion of the Account shall
be reinstated and distributed as soon as administratively feasible. The Company
shall reinstate the amount forfeited by reclaiming such amount from the State of
Nevada, and allocating it to the Account of the affected Employee, Participant,
Inactive Participant or Beneficiary. Prior to forfeiting any Account, the
Company shall attempt to contact the Employee, Participant, Inactive Participant
or Beneficiary by return receipt mail (or other carrier) at his or her last
known address according to the Company's records, and, where practical, by
letter-forwarding services offered through the Internal Revenue Service, or the
Social Security Administration, or such other means as the Plan Administrator
deems appropriate.
16.7 Status of Participants
----------------------
In accordance with Revenue Procedure 92-65 Section 3.01(d),
this Plan hereby provides as follows:
a. Employees, Participants, Inactive Participants and
Beneficiaries under this Plan shall have the status of general unsecured
creditors of the Company. With respect to this Plan, an Employee shall cease to
be a participant, within the meaning of ERISA Section 3(7), upon the
distribution of his or her entire Account under the Plan. With respect to this
Plan, prior to the earlier of the death of an Employee or the distribution of
his or her entire Account, a person or other entity shall be a beneficiary under
Section 3(8) of ERISA only during the period of time during which the Employee
specifically designates such person or entity, in writing, as the Employee's
Beneficiary.
b. As a creditor of the Company, prior to the receipt of
any payment under this Plan, an Employee, Participant, Inactive Participant or
Beneficiary may be required to execute and not revoke a Release. For purposes of
this Plan, the term "Release" refers to a written instrument, in a form approved
by the Plan Administrator, which constitutes a complete settlement, compromise,
discharge, release and waiver of any claims the Employee may have against the
Company, the Plan or other persons specified in the Release with respect to any
matters addressed in the Release. To the extent required by the Code or ERISA,
any transfer or use of any Plan assets as part of a transaction involving a
settlement, compromise, discharge, release or waiver of claims against the
Employer or against any party in interest with respect to the plan shall be
considered a form of (i) compensation provided to such party in interest under
an arrangement for office space, legal, accounting or other services necessary
to the establishment or operation of the Plan or (ii)
Page 22
<PAGE>
compensation for services rendered by a party in interest or reimbursement of
expenses properly and actually incurred by a party in interest in the
performance of duties on behalf of the plan. The Plan Administrator shall have
discretionary authority to decide all questions regarding the payment,
disbursement, use or transfer of any assets of a plan of which the Plan
Administrator is a party in interest, including without limitation all issues
regarding the reasonableness of the consideration provided to parties in
interest with respect to any arrangements involving the plan.
c. This Plan constitutes a mere promise by the Company to make
benefit payments in the future;
d. Any Trust to which this Plan refers (i.e. any trust created
by the Company and any assets held by the trust to assist the Company in meeting
its obligations under the Plan) shall conform substantially to the terms of the
model trust described in Revenue Procedure 92-64; and
e. It is the intention of the parties that the arrangements
under this Plan shall be unfunded for tax purposes and for purposes of Title I
of ERISA.
16.8 Employee and Spouse Acknowledgement
-----------------------------------
By executing this Plan document or any related enrollment or
election form, the undersigned Employee and, if Employee is married, Employee's
spouse hereby acknowledge that each of them has read and understood this Plan
document. Employee and his or her spouse also acknowledge that they knowingly
and voluntarily agree to be bound by the provisions of the Plan, as the Company
may unilaterally amend same from time to time. Employee and his or her spouse
agree that this Plan, as amended from time to time, shall govern the investment,
management and distribution of all deferrals and accumulations made under this
Plan after December 31, 1995 and all deferrals and accumulations under the
Company's Executive Deferred Compensation Plan prior to January 1, 1996.
Employee and his or her spouse hereby authorize, ratify, approve and confirm any
deductions that may have occurred, from Employee's Compensation prior to the
Company's formal adoption of this Plan, where such deducted amounts are held and
administered under the terms of this Plan as formally adopted by the Company or
amended from time to time thereafter. Employee and his or her spouse further
acknowledge that they have had the opportunity to consult with counsel of their
own choosing with respect to all of the financial, tax and legal consequences of
participating in this Plan, including in particular the effects of participation
on any community property, marital property or other interest which the
Employee's spouse may have in the Compensation deferred under this Nonqualified
Deferred Compensation Plan.
Page 23
<PAGE>
IN WITNESS WHEREOF, each of the undersigned has executed this document
on the date set forth adjacent to his or her signature below.
SIERRA PACIFIC POWER COMPANY
A Nevada Corporation
Dated: _________________ By _______________________________
William E. Peterson
Senior Vice President and
General Counsel
EMPLOYEE
Dated: _________________
Employee's Signature
Employee's Printed Name
EMPLOYEE'S SPOUSE
Dated: _________________ __________________________________
Spouse's Signature
Spouse's Printed Name
Page 24
<PAGE>
(13)(A)
SIERRA PACIFIC RESOURCES
EMPLOYEES' STOCK OWNERSHIP PLAN
------------
FINANCIAL STATEMENTS AND
SUPPLEMENTAL SCHEDULE
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<PAGE>
SIERRA PACIFIC RESOURCES
EMPLOYEES' STOCK OWNERSHIP PLAN
------------
CONTENTS
<TABLE>
<CAPTION>
PAGES
<S> <C>
Independent Auditors' Reports.............................. 1
Financial Statements:
Statements of Net Assets Available for Plan
Benefits as of December 31, 1996 and 1995............. 3
Statements of Changes in Net Assets Available
for Plan Benefits for the years ended
December 31, 1996, 1995, and 1994..................... 4
Notes to Financial Statements............................ 5-8
Supplemental Schedule:
Item 27d - Schedule of Reportable Transactions for the
year ended December 31, 1996.......................... 9
</TABLE>
Supplemental schedules other than the above are omitted because they are not
applicable or the required information is shown in the financial statements or
notes thereto.
1
<PAGE>
INDEPENDENT AUDITORS' REPORT
- ----------------------------
To the Sierra Pacific Resources
Employees' Stock Ownership Plan Committee:
Reno, Nevada
We have audited the accompanying statement of net assets available for plan
benefits of the Sierra Pacific Resources Employees' Stock Ownership Plan (the
Plan) as of December 31, 1996, and the related statement of changes in net
assets available for plan benefits for the year then ended. These financial
statements are the responsibility of the Plan's management. Our responsibility
is to express an opinion on these financial statements based on our audit. The
statement of net assets available for plan benefits as of December 31, 1995 and
the related statements of changes in net assets available for plan benefits for
the two years ended December 31, 1995 were audited by other auditors whose
report, dated February 29, 1996, expressed an unqualified opinion on those
statements.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements audited by us present fairly, in all
material respects, the net assets available for plan benefits of the Plan as of
December 31, 1996, and the changes in net assets available for plan benefits for
the year then ended in conformity with generally accepted accounting principles.
Our audit was conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental Schedule of Reportable
Transactions for the year ended December 31, 1996 is presented for the purpose
of additional analysis and is not a required part of the basic financial
statements, but is supplementary information required by the Department of
Labor's Rules and Regulations for Reporting and Disclosure under the Employee
Retirement Income Security Act of 1974. This schedule is the responsibility of
the Plan's management. Such schedule has been subjected to the auditing
procedures applied in our audit of the basic financial statements and, in our
opinion, is fairly stated in all material respects when considered in relation
to the basic financial statements taken as a whole.
DELOITTE & TOUCHE, LLP
February 21, 1997
Reno, Nevada
2
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Sierra Pacific Resources
Employees' Stock Ownership Plan Committee:
We have audited the Statement of Net Assets Available for Plan Benefits as of
December 31, 1995, of the Sierra Pacific Resources Employees' Stock Ownership
Plan (the Plan) and the Statements of Changes in Net Assets Available for Plan
Benefits for the two years ended December 31, 1995. These financial statements
are the responsibility of the Plan'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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements listed above present fairly, in all
material respects, the financial position of the Plan as of December 31, 1995,
and the changes in net assets available for plan benefits for the two years
ended December 31, 1995, in conformity with generally accepted accounting
principles.
COOPERS & LYBRAND L. L. P.
San Francisco, California
February 14, 1997
3
<PAGE>
SIERRA PACIFIC RESOURCES
EMPLOYEES' STOCK OWNERSHIP PLAN
STATEMENTS OF NET ASSETS AVAILABLE FOR PLAN BENEFITS
AS OF DECEMBER 31
<TABLE>
<CAPTION>
ASSETS 1996 1995
-------- -----------
<S> <C> <C>
Cash $62,974 $ 88,507
Investment in Company common shares, at - 16,007,822
market ------- -----------
62,974 16,096,329
LIABILITIES
Accrued expenses 62,974 9,584
------- -----------
Net assets available for plan benefits $ - $16,086,745
======= ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
SIERRA PACIFIC RESOURCES
EMPLOYEES' STOCK OWNERSHIP PLAN
STATEMENTS OF CHANGES IN NET ASSETS
AVAILABLE FOR PLAN BENEFITS
FOR THE YEAR ENDED DECEMBER 31
------------
<TABLE>
<CAPTION>
1996 1995 1994
------------- ----------- ------------
<S> <C> <C> <C>
Increases:
Dividend and interest income $ 541,520 $ 840,130 $ 879,625
Net appreciation of investment in
the Company's common shares - 3,193,900 -
------------ ----------- -----------
Total increases $ 541,520 $ 4,034,030 $ 879,625
------------ ----------- -----------
Decreases:
Distributions to participants 12,946,420 2,247,892 1,961,655
Net depreciation of investment in
the Company's common shares 3,611,045 - 1,331,050
Plan administrative expenses 70,800 20,337 25,407
------------ ----------- -----------
Total decreases 16,628,265 2,268,229 3,318,112
------------ ----------- -----------
Net (decrease) increase during the
year (16,086,745) 1,765,801 (2,438,487)
Net assets available for plan benefits:
Beginning of year 16,086,745 14,320,944 16,759,431
------------ ----------- -----------
End of year $ - $16,086,745 $14,320,944
============ =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
SIERRA PACIFIC RESOURCES
EMPLOYEES' STOCK OWNERSHIP PLAN
NOTES TO FINANCIAL STATEMENTS
-----------
1. DESCRIPTION OF THE PLAN:
GENERAL:
Prior to termination effective August 3, 1995, the Sierra Pacific Resources
Employees' Stock Ownership Plan (the Plan) was a noncontributory, defined
contribution plan covering substantially all employees of Sierra Pacific
Resources and subsidiary companies (the Company). Established in 1976, the
Plan provided eligible employees of the Company with the opportunity to become
shareholders subject to certain provisions of the Employee Retirement Income
Security Act of 1974 as amended (ERISA). The plan was administered by an
Employee Stock Ownership Committee comprising not less than three persons
appointed by the Company's Board of Directors. The trust department of an
independent third-party bank was the Plan's Trustee. Each employee who had
attained age 21 and completed one year of service (as defined) was eligible to
become a participant.
Contributions to the Plan were only made by the Company and were made at the
discretion of the Board of Directors. Contributions were allocated to the
participants' accounts in proportion to the ratio of their earnings to the
total earnings of all participants' for the Plan year. Allocations to a
participant's account could not exceed certain limitations defined in the Plan
agreement. Any excess would have been eliminated under procedures described
in the Plan agreement. No contributions were made to the Plan for the fiscal
years ended December 31, 1996, 1995 and 1994.
When the Company issued additional common shares to fund its contribution to
the Plan, the value of the shares was based on the closing average price of
the recorded sales of Company shares on the New York Stock Exchange for the 20
consecutive trading days immediately preceding the date on which the
securities were contributed to the Plan.
PLAN DISTRIBUTIONS:
Under the Plan, participants had unforfeitable rights to all shares allocated
to their accounts. Full shares held in a participant's account at least seven
years after they were initially allocated, plus any full shares acquired from
reinvesting dividends on those shares, were available for distribution to the
participant at any time after the seven years. Fractional shares were
retained for future distribution. Participants could also designate
beneficiaries to receive their distributions. Participants who severed their
employment with the company through termination, retirement, disability, or
death were distributed the balance of their accounts in accordance with the
Plan as directed by the participant. Such participants also received any
shares to which they were entitled that had not been allocated to their
accounts by the Plan.
6
<PAGE>
SIERRA PACIFIC RESOURCES
EMPLOYEES' STOCK OWNERSHIP PLAN
NOTES TO FINANCIAL STATEMENTS
___________
1. DESCRIPTION OF THE PLAN, continued:
CASH DIVIDENDS AND ADMINISTRATIVE EXPENSES:
Cash dividends received on common shares held by the Plan were used to
reimburse the Company and Trustee for expenses incurred in administering the
Plan; however, this was limited to the lower of certain percentages of the
dividends so received or $100,000. Any expenses incurred in excess of this
limit was borne by the Company. The remaining cash dividends were reinvested
in common shares of the Company and allocated proportionally to each
participant's account in which the underlying common shares were held.
PLAN AMENDMENTS:
The Plan was amended from time to time provided that the amendment was for the
benefit of the participants and did not deprive any participant of rights to
any common shares accrued prior to the amendment unless required by
legislation. In 1988, the Plan adopted the provisions of the Tax Reform Act
of 1986 as amended by the Technical and Miscellaneous Revenue Act of 1988 (the
Act). Under certain conditions, the Act allows a participant to elect for the
distribution of a portion of their investment. A Resolution of the Board of
Directors of the Company adopted on May 15, 1995, amended the Plan to provide
for it's termination effective August 1, 1995.
TAX STATUS OF THE PLAN:
The Plan met the requirements of Section 401(a) of the Internal Revenue Code
regarding qualified trusts, Section 409(a) regarding tax credit employee stock
ownership plans, and Section 44G regarding employee stock ownership credit.
The Company made modifications or amendments to the Plan that were necessary
to maintain such qualifications. Company contributions and Plan earnings
became taxable to the participants at the date they were distributed to the
participants, unless they were rolled into a qualified tax deferred account.
The United States Treasury Department advised the Company that the Plan
constituted a qualified trust and was, therefore, exempt from federal income
taxes under provisions of Section 501(a). In 1995 the Company requested from
the Internal Revenue Service an advance determination as to whether the Plan
met the qualification requirements of Section 501(a) of the Internal Revenue
Code with respect to the Plan's termination. The company received a letter of
response from the Internal Revenue Service, dated August 22, 1996, determining
that the termination of the Plan did not adversely affect its qualification
for federal income tax purposes.
PLAN TERMINATION
Members and beneficiaries of the Plan were notified in July 1995 that the
company terminated the Plan effective as of August 1, 1995. A total of 1,666
persons were participants in or designated beneficiaries of the Plan at the
end of the Plan. All Plan assets were distributed to
7
<PAGE>
SIERRA PACIFIC RESOURCES
EMPLOYEE'S STOCK OWNERSHIP PLAN
NOTES TO FINANCIAL STATEMENTS
_____________
DESCRIPTION OF THE PLAN, continued:
participants and beneficiaries as of October 10, 1996. Plan accrued expenses
for 1996 totaled $62,974.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
INVESTMENTS:
The Plan provisions required that the funds contributed to the Plan be
invested principally in common shares of the Company. The investment in
Company shares is stated at market value based upon recorded closing sales on
the New York Stock Exchange on the valuation date. Transactions in Company
shares are recorded on the date of issuance if such shares were previously
unissued, the date of purchase or sale (trade date) for issued shares, or the
date of distribution to participants or designated beneficiaries.
The Plan presents in the statements of changes in net assets the net
appreciation (depreciation) in the fair value of its investments, which
consists of the realized gains (losses) and the unrealized appreciation
(depreciation) on those investments. Realized gains and losses on Company
share transactions are determined on a weighted average basis. Dividend
income is recognized on the ex-dividend date. Interest income is recognized
when earned.
8
<PAGE>
SIERRA PACIFIC RESOURCES
EMPLOYEES' STOCK OWNERSHIP PLAN
NOTES TO FINANCIAL STATEMENTS
--------------
3. INVESTMENT IN COMPANY COMMON SHARES:
The investment in Company common shares consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------
1996 1995
------------ -----------
<S> <C> <C>
Number of shares -- 684,827
Cost of shares -- $12,283,495
</TABLE>
9
<PAGE>
SIERRA PACIFIC RESOURCES
EMPLOYEES' STOCK OWNERSHIP PLAN
ITEM 27D - SCHEDULE OF REPORTABLE TRANSACTIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
----------
<TABLE>
<CAPTION>
TOTAL AGGREGATE
TYPE OF NUMBER OF DOLLAR VALUE OF
ISSUE (A) ISSUE TRANSACTIONS TRANSACTIONS
- ----------------------- --------- ------------- ---------------
<S> <C> <C> <C>
Sierra Pacific Resources Common 3 $537,126
Shares
</TABLE>
(A) The transactions with respect to these issues for the year ended December
31, 1996 are reportable under Section 2520.103-6(c)(1)(iii). The
information reported in this schedule is in accordance with the alternative
presentation allowed under Section 2520.103-6(d)(2).
10
<PAGE>
(23)(A)
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement Nos. 33-
90284 and 333-4374 of Sierra Pacific Resources on Forms S-3 and Registration
Statement Nos. 2-92454, 33-87646, and 33-48152 of Sierra Pacific Resources on
Forms S-8 of our report dated February 14, 1997, appearing in and incorporated
by reference in the Annual Report on Form 10-K of Sierra Pacific Resources for
the year ended December 31, 1996.
We also consent to the incorporation by reference in Registration Statement No.
2-92454 of Sierra Pacific Resources on Form S-8 of our report dated February 21,
1997, appearing in the Annual Report on Form 11-K of Sierra Pacific Resources
Employees' Stock Ownership Plan for the year ended December 31, 1996.
DELOITTE & TOUCHE, LLP
Reno, Nevada
March 21, 1997
<PAGE>
(23)(B)
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement Nos. 33-
90284 and 333-4374 of Sierra Pacific Resources on Forms S-3 and Registration
Statement Nos. 2-92454, 33-87646, and 33-48152 of Sierra Pacific Resources on
Forms S-8 of our report dated February 16, 1996, appearing in and incorporated
by reference in the Annual Report on Form 10-K of Sierra Pacific Resources for
the year ended December 31, 1996.
We also consent to the incorporation by reference in Registration Statement No.
2-92454 of Sierra Pacific Resources on Form S-8 of our report dated February 29,
1996, appearing in the Annual Report on Form 11-K of Sierra Pacific Resources
Employees' Stock Ownership Plan for the year ended December 31, 1996.
COOPERS & LYBRAND L.L.P.
San Francisco, California
March 21, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> UT
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FINANCIAL RECORDS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 1,543,210
<OTHER-PROPERTY-AND-INVEST> 44,583
<TOTAL-CURRENT-ASSETS> 131,743
<TOTAL-DEFERRED-CHARGES> 149,818
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 1,869,354
<COMMON> 30,816
<CAPITAL-SURPLUS-PAID-IN> 452,302
<RETAINED-EARNINGS> 111,741
<TOTAL-COMMON-STOCKHOLDERS-EQ> 594,859
48,500
73,115
<LONG-TERM-DEBT-NET> 637,846
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 38,000
<LONG-TERM-DEBT-CURRENT-PORT> 25,434
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 451,600
<TOT-CAPITALIZATION-AND-LIAB> 1,869,354
<GROSS-OPERATING-REVENUE> 627,711
<INCOME-TAX-EXPENSE> 35,626
<OTHER-OPERATING-EXPENSES> 483,207
<TOTAL-OPERATING-EXPENSES> 518,833
<OPERATING-INCOME-LOSS> 108,878
<OTHER-INCOME-NET> 6,520
<INCOME-BEFORE-INTEREST-EXPEN> 115,398
<TOTAL-INTEREST-EXPENSE> 40,470
<NET-INCOME> 74,928
8,049
<EARNINGS-AVAILABLE-FOR-COMM> 66,879
<COMMON-STOCK-DIVIDENDS> 36,136
<TOTAL-INTEREST-ON-BONDS> 37,466
<CASH-FLOW-OPERATIONS> 110,448
<EPS-PRIMARY> 2.19
<EPS-DILUTED> 2.19
</TABLE>
